The Moral Lowground

In case you didn’t think these are times meant for satire, take a look at business and politics in the world today. Some juicy examples of attempts at seizing the moral highground by companies and countries who have been in the news lately. Some of them fall instead into the low ground of hypocrisy1 – even laughably so.

That’s what makes programs like The Daily Show so popular – how can anyone take the news seriously when there are so many stories that need to be told with a skewer in hand rather than a microphone. The jokes are already written up by Reuters, not a satirist. Here are three that are heading up the news today make the point rather plainly. And they’re a good change from discussions about inflation and the value of the US Dollar.

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Jobs, Unfrozen

As Minnesota thaws out from a “polar vortex” that froze us colder than the North Pole (and the current location of the rover on Mars), there was some interesting news on jobs from all over the nation. Three stories of thawing and a little heat coming down give us all reason to be a little happy.

Spring is still months away, but let’s bask in the small improvements for a while. It beats huddling inside.

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New Rules – New Game?

Tuesday is scheduled to be the day that everything changes. Not everything, really, but it’s the day that the “Volcker Rule” will finally go into effect. “Leave the capital markets to their own devices without any expectation of government protection and keep the existing safety net for the commercial banking system,” Volcker said in 2009. In practice, this means that commercial banking, with deposits backed by the FDIC, have to be separated from stock trading and similar activities.

It’s not the Glass-Steagall Act, which required completely separate kinds of banks operating as different companies to perform the different kinds of investing. But it’s not bad. And if it sounds simple in principle the regulation authorized by Dodd-Frank takes 800 pages. Four years from its proposal and 3 years from its passage, it’s ready to roll out. How will it go?

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Meanwhile …

A continuing resolution which re-opens the federal government was passed along with a debt ceiling increase that keeps everything hummin’ along until February. It’s good news, at least until the next manufactured crisis comes. We can’t be sure what kind of economic damaged was done in the 16 day shutdown until … well, until the workers in the government that tabulate this stuff get back to work.

So what stories have we missed during the obsession over the limits? Quite a few, actually. Here’s a rundown of some of the interesting stories that were easily lost over the last two weeks.

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Risk and Reset – Who Pays?

Two news stories highlight the precarious nature of the restructuring that has laid the foundations for the next economy. They don’t seem to be related at all, but they highlight the twisted nature of “risk” and what it means when interest rates are low but investors are developing a renewed appetite for risk.

The first is the bankruptcy of Detroit, a long time coming, which was filed today.   The city has $18B in liabilities that they’d like to cut to $2B – hence a Chapter 9 liquidation filing, a declaration of surrender.  The city is beyond broken and needs to start again.  The second story is the rise of collateralized loan obligations (CLOs) and how our old friend Captain Morgain, er, JP Morgan is making a big bet on sketchy loans.

How are they related?  Both stories show risk laid bare, and both stories have a backstory of pushing the ol’ red button with RESET in big letters on it.

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Perhaps, a Revolt?

“It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.”
– Henry Ford

In case you were wondering what the cost is of “Too Big to Fail” banks, the Federal Reserve has an answer – $440 million (about $4 for every household in the US).  If that seems low, well, it is.  It’s just what it costs to have “enhanced regulation” of those banks that have been declared “systemic” – legalese for protected by you and I.

Where did that number come from?  It comes at the end of a long, watered-down process that has finally defined just what it means to be one of the protected investment banks. It’s all the result of Dodd-Frank regulation that does more harm than good if this is all they can manage.  But perhaps we can make a bit more out of it …

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Banking (and Insurance) Should Be Boring

Man Behind Desk:  “Mr. Brain, As you know, we here at Fiero & Company are re-re-insurers.    We provide insurance to re-insurers, who insure insurance companies.”
Brain:  “Is that lucrative?”
Man:  “Take a look.” (opens drawer)
Brain:  (big eyed smile) “Ahem!”
– Pinky and the Brain, S1E2, “Of Mice and Man

One of the basic principles of Barataria is that “Banking should be boring”.  The main argument against financial regulation is that it stifles innovation.  Yet that hallmark of the 2000s has been the source of excessive risk and nearly all the trouble we find ourselves in today.  When banking is boring, the world is quiet and stable and those of us not in financial dealings have a decent chance of actually getting ahead.

The same is true of insurance.  That’s not only true as a matter of policy, it’s apparently true as a matter of making a lot of dough.

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