The Wall Street Journal

“Insurance Misselling” and Other Euphemism’s

by Ross Kaplan on February 20, 2012

Did Wronged Consumers Misbuy it?

Lloyds Banking Group PLC will reduce some of the bonuses awarded to top executives in 2010 following an insurance misselling scandal that resulted in the U.K bank handing hefty compensation to consumers, a person familiar with the matter said Monday.

Last year, Lloyds set aside £3.2 billion ($5.06 billion) to compensate consumers who were wrongly encouraged to buy payment protection insurance. PPI was often sold alongside loans to insure that the borrowers could continue repayments if they lost their jobs or fell ill. U.K consumer groups have alleged that this was missold to many consumers who didn’t qualify or weren’t even aware they had purchased the insurance.

–”Lloyds to Claw Back Bonuses”; The Wall Street Journal (2/20/12)

I think The Wall Street Journal is on to something.

Wall Street didn’t fraudulently package trillions in securitized mortgages; it “mis-securitized” them, while simultaneously inducing the credit rating agencies to “mis-rate” them to misled investors who mistakenly bought them — all against a backdrop of mis-regulation.

Channeling Orwell

Does the foregoing give you the feeling that you’re “mis”-ing something?

Or that somebody’s “mis-ing” with you?

It all leaves me feeling misgusted.

P.S.:  until about age 7, I thought the word “misled” was pronounced with a hard “i” (“my’-zuld“).

Also:  when someone does work for you, you pay them “compensation.” 

When you rip someone off, get sued, and agree to a multi-billion dollar settlement, it’s not called “handing consumers hefty compensation”; it’s called, “paying defrauded customers restitution.”

Just thought I’d clear that one up as well.

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You Say “Financial Repression,” I Say “Market Manipulation”

by Ross Kaplan on December 6, 2011

What Happens When Artificially Low Interest Rates . . . . . Rise?

Does “financial repression” have a better ring to it than “market manipulation?”

If so, you’ll like this piece from today’s Wall Street Journal Op-Ed page:

However well-intentioned, the Federal Reserve’s continued purchase of long-term Treasury securities risks camouflaging the country’s true cost of capital. Private investors are crowded out of the market when the Fed shows up as a large and powerful bidder. As a result, the administration and Congress make tax and spending decisions — with huge implications for our standard of living — with heightened risks around future funding costs.

–Kevin Warsh, “The ‘Financial Repression’ Trap“; The Wall Street Journal (12/6/2011)

If you don’t have a financial background, let me translate: 

Today’s interest rates are artificially low because the Federal Reserve is intervening in the bond market.  Instead of being lulled into a false sense of security by such low rates — and “taking advantage” of them to borrow even more — we should be undertaking structural reform and paring down government debt before market forces re-assert themselves and cause rates (and U.S. debt service) to explode.

P.S.:  in the long run — and sometimes even in the short and medium run — market forces always re-assert themselves.

Actually, I think I put it rather succinctly in this post:

The world financial crisis resulted from Wall Street recklessly speeding — and the government letting (encouraging?) it.

No surprise, the system crashed three years ago.

Now, instead of enforcing 55 mph speed limits (and throwing the reckless driver in jail), the Federal Reserve has opted to disconnect the speedometer before once again gunning the engine.

–Ross Kaplan, “Shackling the Bond Vigilantes“; City Lakes Real Estate Blog (10/3/2011).

Nice analogy, if I say so myself . . .

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MF Global “Whodunit”

by Ross Kaplan on December 1, 2011

Wall Street Journal:  ‘Blame the Regulators’

Chutz-pah′:  killing your parents, then throwing yourself on the mercy of the court because you’re an orphan.

So, according to The Wall Street Journal, who’s to blame for the still-missing $1 billion of client funds at now-bankrupt MF Global?

Not the company’s senior management, led by CEO Jon Corzine, who ran the company.

Not MF Global’s board of directors, who appointed management and had the legal duty to oversee them.

No, the real culprit is . . . wait for it . . . . the regulators!  (Of course).

Here’s The Journal’s take on the MF Global mess:

“At today’s hearing of the Senate Agriculture Committee, the head of the company’s principal regulator, the Commodities Futures Trading Commission (“CFTC”), will try to explain how his agency failed to provide the most basic protection for financial consumers.”

–The Wall Street Journal (12/1/2011)

Got that?

Blame lies with MF Global’s regulators, who should have stopped ‘em from losing – or stealing — the $1 billion.

Backwards Analysis

The foregoing analysis has it exactly backwards.

Here’s mine, in three, easy steps:

One.  Wall Street (led by Goldman Sachs) prevails on government to “butt out” of its affairs, trusting it to regulate itself.

In that spirit, protective rules are weakened — or never written in the first place.

Two.  Concurrent to that frontal attack on government regulation, Wall Street conducts a backdoor campaign to co-opt senior politicians, lavishing campaign contributions on them, and sending forth armies of lobbyists to make sure any regulations that do make it through Congress are “industry-friendly.”

Just to make sure there will be lax enforcement of already-diluted regulations, Wall Street gets Congress to gut the budgets of agencies like the SEC and CFTC that oversee it.

“Revolving Door Culture”

Which leads to step #3:   Wall Street fosters a revolving door culture whereby its executives move back and forth between aforesaid government agencies, further blunting any impetus by the latter to police it.

So, it should be no great shock that the CFTC’s head, Gary Gensler, is a Goldman Sachs alum — as are dozens of current and former senior government regulators.

How’s that working out so far?

Answer:  for everyone save Wall Street . . . not so great.

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Fixing the Housing Mess

by Ross Kaplan on October 20, 2011

“If That Mockingbird Don’t Sing, Papa’s Gonna Buy You a Diamond Ring”

You can scarcely pick up (OK, click on) an Op-Ed page these days without encountering the latest housing remedy du jour.

Today’s proposal is courtesy of Alan Blinder, Princeton professor and former Federal Reserve official:

As nationalized companies that dominate the mortgage market, the government-sponsored enterprises, Fannie Mae and Freddie Mac, should be taking the lead, not watching their profits and mortgage-backed security (MBS) prices. If GSE managements won’t move, their regulator, the Federal Housing Finance Agency, should push them. If the regulator won’t push hard enough, the U.S. Treasury, their major shareholder, should. If Treasury officials won’t, President Obama should order them to. If the whole administration is too timid, Congress should change the law.

–Alan S. Blinder, “How to Clean Up the Housing Mess“; The Wall Street Journal (Oct. 20, 2011)

My reaction(s) to the above, in no particular order:

–”Yeah, Right!”

–That’s A LOT of “if’s”

–How unexpected for an academic like Blinder to come up with such a politically viable proposal; and

–That cadence sure does remind me of something else.  Hmmm, what could that be??

A second later, it came to me:

Hush, little baby, don’t say a word, Papa’s gonna buy you a mockingbird
And if that mockingbird don’t sing, Papa’s gonna buy you a diamond ring.
And if that diamond ring turn brass, Papa’s gonna buy you a looking glass.
And if that looking glass gets broke, Papa’s gonna buy you a billy goat.
And if that billy goat don’t pull, Papa’s gonna buy you a cart and bull.
And if that cart and bull turn over, Papa’s gonna buy you a dog named Rover.
And if that dog named Rover won’t bark. Papa’s gonna to buy you a horse and cart.
And if that horse and cart fall down, Well you’ll still be the sweetest little baby in town.

–lyrics, “Hush Little Baby“

Looking for Solutions

My takeaway?

If academics, politicians, and government bureaucrats had a silver-bullet solution to the housing (and broader economic) mess . . . we’d be home free by now (pun intended . . . sort of).

Which we’re clearly not.

By process of elimination, that means the solution(s) will have to come from  . . . elsewhere.

My candidates include:  Occupy Wall Street; some other genuinely grass roots (vs. AstroTurf) campaign that has yet to break the surface, in some off-the-map place (Winnemucca, Nevada, anyone?); a pimply (and brilliant) 17 year-old on Facebook — sort of a “public policy” Steve Jobs; or, at the opposite end of the demographic continuum, a latter-day Howard Jarvis, of Proposition 13 fame in late 1970′s California (where I happened to be at the time, an oblivious college undergrad).

Or maybe even the group of professionals closest to the housing mess, day in and day out (note: that would be Realtors).

Just not anyone on Wall Street, in government, or academe.

P.S.:  It’s certainly fitting and (un)intentionally ironic that The Journal’s other headline Op-Ed today was penned by Congressman, Presidential aspirant — and noted Libertarian Ron Paul.

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Sounds Like “Buy High, Sell Low” To Me

October 11, 2011

Floundering 529 Plans Rhode Island said its 529 plan will scale back some investors’ exposure to stocks when market turbulence picks up. –College-Saving Plans Shift to Keep Parent From Becoming Dropouts”; The Wall Street Journal (10/11/2011) Even with one of the last great tax breaks out there — zero taxes on any capital gains — [...]

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Deciphering “Wall Street-Speak”

October 5, 2011

[Editor's Note:  lots of deals(!) equal few(er) posts.] A prolonged period of very low interest rates will decapitalize defined-benefit pension funds—both private and public—throughout the country. In California, for example, pension actuaries presume a yield on their asset portfolios of about 7.5% just to break even in meeting their annuity obligations, even if they were fully funded. [...]

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Is Combining Housing and Agriculture a Good Idea?

September 18, 2011

“Agriculture is the New Golf” The sentiment is practically out of Thoreau: Why not line streets with almond and avocado trees, or replace shrubbery with cabbage and currants? Golf courses could plant their roughs with kale and corn. Lawns—where they must exist—could be edged with chives and herbs. –Stephanie Simon, “An Apple Tree Grows in [...]

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Housing Market 20-20 (Hindsight) Vision

July 9, 2011

“Has Your Housing Market Hit Bottom?”  and Other Disingenuous Questions Making money in the stock market is easy:  only buy stocks that go up.  If they don’t go up, don’t buy ‘em. –Mark Twain One of my biggest peeves as a Realtor is disingenuous articles that suggest that calling housing market tops and bottoms — and [...]

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