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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

Category: Wall Street
June 20, 2013 at 10:25 AM

Taking away the punch bowl

The stock market isn’t happy with the prospect of the Federal Reserve backing off its stimulus of $85 billion a month in purchases of mortgage-backed securities. The hot money from the Fed, along with the rock-bottom borrowing rates for its member banks to get money for “trading,” has been one of the big drivers behind the market’s remarkable post-recession run. Bernanke apparently made things worse with a press conference aimed at transparency, as opposed to former Chairman Alan “Bubbles” Greenspan’s Yoda-like pronouncements.

Greenspan rarely followed the advice of his legendary predecessor William McChesney Martin, who ran the central bank from 1951 to 1970. Martin famously said it was the role of the Fed “to take away the punch bowl just as the party gets going,” Bernanke hinted that his Fed is going to do just that, albeit slowly. The markets are mindful of one Greenspan attempt in 1994, which shocked the system and led to widespread losses and slowing. The difference is that the ’94 move involved raising interest rates from a then record-low 3 percent to 6 percent. Bernanke has pledged that rates will remain at essentially zero until unemployment falls below 6.5 percent. But pulling back on the bond buying, and presumably shrinking the huge money supply, is enough to spook big investors. Or at least cause a period of rebalancing with plenty of instability.

But there’s a back story. The markets are also worried about China, where growth is slowing and the banks and shadow banking system are showing signs of serious trouble. China’s central bank is failing to infuse capital into the system and inter-bank funding is freezing up.

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Comments | More in China economy and business, Federal Reserve, Wall Street

April 4, 2013 at 9:51 AM

The MF fraud: As bad as you thought

Why is Jon Corzine still at large?

Corzine, the former New Jersey senator and governor, former chief executive of Goldman Sachs, led MF Global, a futures broker and bond dealer that collapsed in 2011. MF Global investors lost as much as $2.1 billion. At the time MF ran into trouble, Corzine was eligible for as much as a $12.1 millon golden parachute. However, Steven Goldberg, a spokesman for Corzine, told me this afternoon that Corzine didn’t take any compensation when he stepped down. He also said Corzine has been unemployed since then, spending time with his family and doing philanthropic work.

Vanity Fair produced an exhaustive look at the collapse last year. Now a report to the bankruptcy trustee by Former FBI director Louis Freeh confirms what anyone paying attention already knew. According to Reuters, Freeh’s 124-page report states, “The risky business strategy engineered and executed by Corzine and other officers and their failure to improve the company’s inadequate systems and procedures so that the company could accommodate that business strategy contributed to the company’s collapse.” As is the habit of the likes of Corzine, he was not using the investments of MF Global to fund productive enterprises and create jobs and innovations, but betting to profit from the misery of others, on European sovereign debt.

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Comments | More in Banking, Corporate crime, MF Global, Wall Street

March 15, 2012 at 9:55 AM

Goldman’s vocal defector and the need for cops on Wall Street

I’ve self-destructed in many jobs before, but never as publicly or popularly as Greg Smith, who resigned from Goldman Sachs in an op-ed in the New York Times. (I know, I know: Some commenters will say I self-destruct daily in this blog, but hang with me). He decried a culture of “ripping off” clients. “The firm,” he wrote, “has veered so far from the place I joined right out of college that I can no longer in good conscience say that I identify with what it stands for.”

Matt Taibbi, who famously wrote that Goldman “is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money,” might ask, what took this 12-year veteran so long to realize the toxic culture at Goldman and elsewhere. Heidi N. Moore of Marketplace Radio had a more nuanced interpretation:

I see Smith’s self-immolating, public letter of resignation as more about the 99 percent and the 1 percent within Wall Street. It’s the objection of the underclass of younger bankers and traders stymied by a lack of career mobility, suddenly disillusioned, coming to a realization that despite all their hard work, not everyone actually makes it on Wall Street – and “winning,” anyway, may not be a prize worth having if its means making it to the top of a widely-attacked industry and signing on to more of the moral compromises that get others into the corridors of power. As the Wall Street bonus pie shrinks, those internal wars at firms get more and more small and petty – not just between traders and bankers, but trader versus trader and banker versus banker. Smith’s opus falls into this camp.

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Comments | More in Goldman Sachs, Wall Street