THofler

A Sit Down with Treasury Officials (Part I)

Nice, keep up the good work. I complete disagree with your blind faith in the value of mark-to-market accounting though. I also think some the more talkative short sellers like Einhorn are selling a particularly devious brand of dishonesty.

You really should carefully read Buffett's March 09 Berkshire letter to shareholders. Summary: He loves MTM because it causes stupid sell-offs in share price. He thinks MTM should NEVER be connected to regulatory requirements.

Financial Regulation: How Would You Have It Work?

Larry Summers was a big supporter of the repeal of Glass Steagall act when he was in the Clinton White House, as am I. I do think the size of the investment book for a depository bank should be capped with some hard limit.

Worse, was the commodities and futures (CFMA?) bill that Gramm helped push through. This led to the excesses in the CDS market.

Why There Can't Be a Cap on Bank Capital Ratios

Wow, calculus of several variables! Aren't they teaching that in prep schools now?

Felix's example of the two banks assumes way more than Mr. Taleb's analysis states. The Taleb analysis basically just says that the 1st and 2nd derivatives are positive. There is nothing to suggest that the first derivative equals 1. The $500B bank may have 10% more risk than the $400B bank, if Taleb is correct. Even the standard exponential exp(x) does NOT increase rapidly if x is small.

The key take away from the credit crisis is that leverage kills, and very high leverage kills indiscriminately. The important thing is not to have unlimited higher levels on the capital ratios, but to put a rock solid FLOOR on capital ratios; or an absolute upper cap on leverage.

The insanity came about when Basel II said that leverage could be applied in a manner appropriate for the risk. Sounds reasonable, except that all risk metric science is flawed, and i-banks will game the system in ways that expand the leverage. (40 to 1 leverage is OK 'cause my risk model says its OK.)

Yes, The TARP Is Leaking

According to the Huffington Post???

Wasn't Ariana & her ex-hubby scions of the conservative movement before she realized that there was more butter on the flip-side of the bread?

I do agree with most of the article. Isn't it ironic that the big bankers are getting beat up the most when all of those guys are producing big returns for TARP (well Citi could be a trouble spot). And while AIG IS getting plenty of deserved flak, there is little said about the auto companies their hideous labor unions that will blow a giant hole in TARP.

Why is nobody complaining about the UAW's decision to keep damaging Ford until they end up owning 50% of a worthless company.

Forget BRIC: Your Portfolio Needs TICK

A few years ago I owned a TRowe Price diversified emerging markets fund (PRMSX I think). One of its largest country holdings at the time was S. Korea.

Dell, NEI Team Up on Servers for DC-Powered Data Centers

The former Rackable Systems, now Silicon Graphics Inc. has been producing a complete line of DC data center servers for 3 or 4 years. (Not that it has done them any good.) For a year now, they've also have transportable data centers in a container, that have extremely sophisticated and efficient cooling systems integrated into the container.

How Trend Trading Compromises the Market

I call it momentum chasing. It's been around for as long as we've had market bubbles, including tulip mania. The only sensible thing we can do to curb its excesses is to be serious about capping trading margin and leverage in general. That includes the leverage of investment banks.

Easing Sarbanes-Oxley and the Race to the Regulatory Bottom

Large German companies are dropping their NYSE ADR listings. Companies like BASF. Why? There are several reasons, but a big one is the high cost of SarbOx.

The financial crisis has proven that SarbOx's value is nearly nil, but the cost is massively high when the unintended consequences are fully weighed.

Brazil's New Real Tax: Minimizing Exposure Through ADRs

Careful readers! Ticker PZE is Petrobras Energia, a small Argentinian oil company; not the Brazilian oil giant Petroleo Brasileiro with ticker PBR.

Easing Sarbanes-Oxley and the Race to the Regulatory Bottom

Did I sleep through the last year and a half? Did I only dream that numerous large corporations blew up? That couldn't possibly have happened with the brilliant SarbOx legislation in force, could it?? Surely such an essential piece of legislation would have prevented any dire outcomes.

At a minimum, any corp. with a market cap less than $2B should be exempted from the stupidity that is SarbOx.

Utilities: Get Dividends Paid in Euros

To Gaucho's point,

My French Total (TOT) gets hit with a 15% div. withholding tax. In an IRA this is lost, but if it were being held in a taxable account, I can declare the withholding on my tax return and get it fully refunded.

My Italian ENI (E) gets hit with a 35% withholding tax. If the total foreign withholding taxes I declare on my return is less than a few thousand dollars, then I get a full refund. If I have a much larger withholding to declare then I only get refunded at the 15% level.

So Total's withholding is good (fully refunded) if I'm a rich guy, but ENI's is not.

I believe that neither the U.K. nor Brazil has any withholding tax.

Does anyone know the story with Germany's withholding tax??

250M Smart Meters, $3.9B Market by 2015, Pike Research Says

I was shocked to read that smart meters will vary the electric rates with time-of-day AND according to how the electricity is used. Huh? Should I expected a political incorrectness surcharge??

Policy Lessons from the Great Depression

n6532l

A huge part of depression formation starts with a real estate bubble, then excessive borrowing, then mortgage defaults, then banking decline and failure, and finally general economic decline stemming from the inability to borrow.

While foreign trade was small, a large part of it was farm produce related. Farm real estate had a bubble & the beginnings of a decline by the mid 1920's. I suspect that this decline was a result of the 40% tariff you mention. Further increasing tariffs to 60% was the nail in the coffin of many farmers.

The time period from 1931 to 1937 is a very long time for punishingly high rates. As many have stated recently about Obama style protectionism, the international response to protectionism is very swift, but the response to lower tariffs is very much slower.

The assertion that the economic health of the US during the 1800's (particularly the post civil war era) was excellent is nonsense. The series of recessions and a depression that some call the worst in US history that happened in the 2nd half of the 19th century was one of the worst periods in our history. I don't know if the Morrill and War tariffs caused that mess, but I wouldn't be surprised.

The Socialist Calculation Problem and Regulation of Financial Markets

Transparency is a separate issue from socialization of the collateral backing the transaction on a clearing exchange. The author is entirely correct that this feature encourages excessive risk taking.

I believe that any student of the Basel II rules can see that they had a huge negative impact on the credit crisis. For example, there are no hard limits on leverage of any sort. The April 2004 meeting of the SEC was organized at the demand of the Basel regulators & it completely eliminated the the hard caps on leverage for the likes of Bear Stearns and Lehman, as required by Basel II.

I have read some the FSF and now FSB documents, and can only conclude that they don't know the first thing about the science of stability. It is not even clear that they comprehend the extent of their ignorance of this topic.

The impression that Geithner and Bernanke might be blindly following these Basel and FSB folks is very scary indeed.

Is the Fed's New Regulator Tough Enough?

"Good regulators lean against the wind, forcing banks to raise capital when times are good or restricting risky activities that put the system at risk."

This is possibly the most ridiculous suggestion that I've heard since the last time a year ago, when some Basel committee member suggested it. Many regulators (e.g Basel II regulators) have already had this authority, yet I'd bet it has never been exercised in the history of banking, nor will it ever be exercised.

It IS a great idea in theory, but it absolutely MUST have an explicit mechanism that forces or triggers the moves. Stock price increases, earnings growth, loan activity, and GDP growth are all things that could be factored into a metric that would force capital increases in good times, AND allow capital decreases in bad times. This would implement a true counter-cyclical mechanism.