Clive Corcoran

40 Things to Expect in 2010

It's good to play with some radical scenarios and perhaps the most iconoclastic of all is when you said:
The whole notion of “I Promise to Pay” will come into question.
The extension of this trend will be that the notion of "we promise to pay" (i.e. the implicit undertaking made by all sovereign borrowers) will become paramount to the ongoing functioning of credit markets.
Any incidents that undermine the notion that the various key sovereign states that make up the collective "us" are good for the money, could be the wild card for 2010.

Can Citigroup Flail Its Way to Solvency?

The dispute with Abu Dhabi shows a combination of poor judgment and poor timing by top management as the bank tries to find private sector financing to re-capitalize itself and seek out new partners in Asia and other emerging markets.
One can only imagine how difficult it would be to do any proper due diligence on Citi's balance sheet if there was any serious attempt to dismantle this behemoth.

As Citi Exits TARP, New Focus Likely to Be Emerging Markets

"the reason Citi is making such huge investments in emerging Asia is that the growth of asset prices in the region shows no signs of imminently abating."

Sounds like a good warning and contrary indicator to me!

Financial World: Atlantic Widens While Pacific Narrows

One suspects that, just as in the case of Japan in the 90's following the massive bubble collapse in the Nikkei and real estate, some of the US banks have really horrendous balance sheets and the Administration is reluctant to have to finally come clean on the matter which is what would be implied in a break up and sale to third parties.

Interestingly it is the European Union's new financial regulation powers which is forcing the pace in the UK, although it is fair to say that Chancellor Darling is becoming increasingly exasperated by the fact that the UK basket case banks are not lending and hoarding cash to try to repair their balance sheets.

The gamble that the US is taking is that they may have underestimated the time required to repair the financial damage done over the last few years from bankers lending against collateral that is now seriously impaired. That in essence appears to have been the Japanese error and, as you suggest, it may turn out to be the American miscalculation as well.

ING Shows How Bank Dismemberment Is Done

Surprisingly (perhaps not on second thoughts!) the US Administration appears to be taking exactly the same path with its zombie banks as the Japanese did in the 90's.
As you suggest there is a way to "heal" the banking system but only with bold and fundamental re-structuring

Bailouts Through the Back Door

The quote cited from the book by Robert Pozen makes the sterilization of the Lehman debacle sound deceivingly simple.

PWC has about 250 people working full time on disentangling the Lehman mess and many hundreds of others (including ex Lehman staff) will be gainfully employed for a considerable period - with very considerable fees -sorting out the complex labyrinth of counter-parties to their trades. AIG's labyrinth went right to the "heart" of the financial system.

As John L suggests at the end of the day it came down to a "gut" level decision by Mr Paulson about who most needed to be protected.

Four Reasons We're Headed Even Higher

While I might agree with you that there will be a lot of clairvoyant pundits that are likely to be premature in calling the top I think you should not be quite so cavalier in the claim that "Financial armageddon is in the rear-view mirror"

With a debt/GDP ratio approaching 100% (and that's on a benign view of the size of the debt) and with a lackluster recovery at best, imho, there are still a lot more twists and turns to the rolling financial crisis ahead.

High Frequency Trading: We Fear What We Do Not Understand

Even if one was to grant all that you claim about the innocence of those using HFT - one of the real issues you have not addressed is the illusion of liquidity that is created by algorithmic activity.

The appearance of high volume and narrow spreads may belie the fact that the underlying "quality" of liquidity (not something that algos can really measure) is poor.

Forget the 1930s; We're Reliving 1975 (Part 1)

In addition to the points made by Heretic about differences for the US economy between the mid 70's and now, these strike me as major differences.

1. Globalization had not really impacted the US industrial economy and US labour was not then subject to savage competition from low priced economies with undervalued currencies.
2. Financial markets were less connected and less complex with fewer derivatives and less likelihood of any one collapse causing the systemic panic seen last year
3. The mid 70's was a period of very high commodity inflation and petrodollars were recycled into large asset purchases in the consumer economies by Middle Eastern investors.
4. Demographically the US and Europe were still seeing the benefit of the baby boomer generation which would have been about to enter their peak consumption years.
5. Levels of personal indebtedness in the US, UK and other so called advanced economies were nowhere close to where they are today.
6. The notion that the US (and several other G8 economies) could have a debt/GDP ratio of 100% or more would have seemed horrendous.
While I agree that this recession is different from the 1930's in key respects, I also agree with some of the other commenters in the view that this period of financial history is unparalleled and poses its own very special and serious risks.

Citibank's Problems Are Far from Over

If you are both long and short the financials I am not quite sure what the takeaway message from your article is.

Did We Nationalize Banks, Or Did They Nationalize Us?

Paulson's testimony was underwhelming from a supposed master of the universe.
The key line of questioning on which he failed was when asked to explain when he changed his mind from the view that the $700 bn would be used for buying the toxic assets and instead used to rescue his chums.
That was a helluva lot of money to give one man with so few strings attached

TARP for Regulators

Alas there can be no systemic guarantor of last resort - it would be a self-referential paradox.
The dis-illusionment will be complete once it is accepted that no-one can control the financial system. To think otherwise is to subscribe to the mythology of credentialism and asymmetric entitlements.

Holman Jenkins's Errors, Part 1

Felix - I agree with your final point (and most of the other criticisms of the Hoover piece.
"The fact is that Wall Street was out of control — out of control of the regulators, yes, but also out of control of its own executives."

It was not only a question of behemoth banks being too big to fail they were too big to understand or manage.

Banks, Oligopolies and Ever-Rising Fees

It is not just an oligopoly but a cartel that is beyond reproach for multiple reasons - donations, cronyism, fear of systemic accidents etc.

The fees you describe are unconscionable but will prevail because of the poor state of "the general financial literacy rate in this country"

Aggravating that problem is the feeling of helplessness from even those who have bothered to attain a certain level of sophistication in financial matters that anything can be done about it

U.S. Government Needs a Maggie Sue

Isn't your last sentence a bit too cavalier as most of these "legacy" assets are now going to weigh heavily on the public finances for years to come.