For something this complicated,
it’s really hard to design products by focus groups.
A lot of times, people don’t know what they want
until you show it to them.
Steve Jobs
Understatement of the Day
“I THINK it’s very important that people don’t expect too much from regulation'”
Sir Mervyn King, governor of the Bank of England
I haven't commented yet on the LIBOR scandal but Massachusetts Senate candidate "Cherokee Liz" Warren (see below) has come out for the reinstatement of Glass-Steagall in the wake of the JP Morgan Chase loss (which turned out to be higher than CEO Dimon predicted, but manageable). It's not only Ms. Warren confuses symptom with disease and accepts a revisionist fantasy of the Depression, but she is in a state of denial over failures of convoluted government regulation and its anti-competitive, morally hazardous nature. When will progressives ever learn that the solution is the free market: more competition and less regulation? When the government decides winners and losers in the financial services sector (i.e., "too big to fail"), it contributes to the formation of "bank bubbles" ultimately at taxpayer expense.
The issue isn't eliminating banking business mistakes, which is all but impossible given the nature of human performance; it has to do with how vested bankers are in their decisions: no matter the outcomes of their business decisions, the federal government has their back. We free marketers are willing to let banks die, no matter what their size. The depositor should worry about a bank's prudent business practices in choosing a bank, over and beyond whether his deposits are covered by federal guarantees or his bank is "too big to fail".
I will let Baby Micah deliver my official response (no doubt he thinks that he's "Helicopter Ben" demonstrating the effects of Fed easy money policy on the purchasing power of the dollar):
The LIBOR (London Interbank Offered Rate) scandal involves Barclays, one of about 18 large international banks, which, in an identifiable fashion, submit bank rates for the composite rate. "The Commodity Futures Trading Commission estimates over $800 trillion of financial instruments are pegged to LIBOR, including $350 trillion in swaps and $10 trillion in loans, including mortgages and auto loans." To put this into perspective, if manipulation of LIBOR changed by even .001%, we are talking about $80B in interest income gained/lost.
Banks charge a premium based on expected risk. During the economic tsunami there was concern, particularly in national leadership, about red flags of interest rates going up (not to mention the impact on LIBOR rate offsets, say, for municipal instruments). There is some evidence that the Federal Reserve Bank of NY, and its then President, Treasury Secretary Tim Geithner, had concerns about LIBOR rate setting transparency back in May 2008; they have their own bank rate submission process, which is anonymous. There is also discussion of a Barclays' employee tipping off a source at the New York Fed that Barclays was reporting artificially low interest to avoid undue scrutiny. One of the key discussions in Britain is what exactly UK regulators did once Geithner emailed a key contact in May 2008, recommending certain steps to reform the LIBOR rate submission process.
Barclays at some point (the nature and duration isn't yet clear) started reporting lower than actual interest rates; the Washington Post recently published a chart relevant to the time period relevant to the economic tsunami, and there is a clear difference between the two comparable rates, with the New York Fed's interest rate numbers noticeably higher.
The Daily Bell has some interesting relevant insights (here and here); I'll rephrase and supplement key insights (my edits):
- "Pay no attention to the man behind the curtain" (see below). Talk about the pot calling the kettle black: central banking manipulates interest rates and volume of money on a far more scaleable level.
- The LIBOR process was poorly designed from the start, given its relatively small sample of banks, wide applicability to financial transactions, known vulnerabilities and vested interests; it was unduly opaque, subjective and unverified, with inadequate internal controls.
- Beware the central planning/"too big to fail"/anti-competitive "reform" process. The "too big to fail" concept is an implicit government subsidy; have we learned nothing from the government's exposure to the GSE's expansion of market share, at the expense of taxpayer exposure? The bank consolidation process is not necessarily to the benefit of the consumer:
"Since the 1930s, when initial financial regulations were put in place, there has been some 80 years of increasing scandal and financial corruption. Only significant competition can make a difference, for markets are self-regulating and not prone to market failure, as often suggested. Regulation is always a centralizing measure. Regulation empowers those who are already dominant and removes competition and strategies that might provide a break to market volatility. The more regulation there is, the harder it is for new entities to join the industry, the more fragile the system is as a whole. This is because regulation inevitably concentrates order flow and negates strategies that would make the market more robust. It surely does not benefit consumers, as they rarely are compensated for losses they may have received. It tends to be arbitrary when it comes to those who are actually snared."
Oh, no! Say It Ain't So, Chief Jay Strongbow!
Nick Gillespie of Reason has a tongue-in-cheek post referencing Liz "Cherokee" Warren, the $429K a year Harvard professor, perhaps best known for advocating pushing-on-a-string Big Government Knows Best "Consumer Loans for
Yeah, that's the lesson of the 2008 economic tsunami: those poor exploited people without evidence of a stable, growing income were fast-talked into buying a bigger house than they could afford with little or no down payment at the height of the real estate bubble, not the sucker taxpayers who bought their houses the traditional way, with 20% down, still on the hook for their fellow citizens' loan write-offs. (If we do need help, it's to read Footnote 666 in the recent SCOTUS ruling on
Given today is Friday the 13th, I dedicate the following salient song to my relatives and other Massachusetts voters this fall:
Alas, we discover while Liz, channeling her inner Pocahantas, was singing "Indian Reservation", white men like the late Chuck Connors won prominent Native American roles. (Everyone knows that the 6'5" former NBA/MLB player, typecast as Old West rancher, was a natural to play the 5'8" Geronimo. Maybe Connors had Elizabeth Warren's high cheekbones.)
Any faithful reader probably knows that I enjoy scripted pro wrestling, euphemistically titled "sports entertainment" by WWE chairman Vince McMahon. I started watching back in college as a respite from studies, following the exploits of Jose Lothario, the Von Erichs and the Freebirds. When I went to visit my late maternal grandfather the holiday break I turned 18, I discovered that he himself watched New England wrestling and was a big fan of 7'4" André the Giant.
Characters and their gimmicks are part of the entertainment in the constant struggle between babyfaces (good) versus heels (evil). Wrestling promoters invent these characters to drive storylines; a classic heel is the anti-American foreigner Chief Jay Strongbow was one of the top babyfaces in WWE before the Hulk Hogan era.
Gillespie also indicated Strongbow wasn't Native American either. I should have known that Joseph Scarpa (the man behind Chief Jay Strongbow) was a white guy; I mean, did you ever see him do a war dance in the ring? Everyone knows that white guys can't dance... Well, at least this white guy...
Musical Interlude: My Favorite Groups
The Who, "My Generation"
