Daily FINANCIAL CRISIS CAPSULE: More On Goldman and The Greek Disaster

April 29th, 2010 - by: danny

GOLDMAN THE VOODOO DOLL

Did they deserve the harsh questioning and the needles stuck in their eyes? Of course. They have become the poster child for Wall Street irresponsibility, a great company to demonize, especially because they are so successful. GOLDMAN ON THE GRIDDLE was one NY headline. GOLDMAN SMACKED, another. But beating their bankers up for an afternoon in a public inquisition does not solve the problem even if it made many feel good.
Michael Moore is now advocating DEPORTING Goldman, A good applause line, but once again its so much easier to bash the bad than explain the need for structural changes.

Let us admit, the Goldman Gang was right when they said all the banks did what they did. But all the banks are not yet on the griddle, or, at least, not all of the big 6. Why not?

RELATED from last October:

Yves Smith on Goldman Hearings in Naked Capitalism

It seems clear that the Goldman executives were completely unprepared for this line of hostile questioning and have no ready responses. How this could be and how they could not have anticipated how they would be grilled, is a true mystery.

Collins notes that it seems to be Goldman’s strategy to burn through the time without answering anything. Whether this is true or not may be subject to debate. However, it seems clear that Goldman is doing a good job of making themselves look bad in this type of situation.

Josh Birnbaum is the first Goldman employee being quizzed that seems able to answer questions directly and explain their positions and their rationales. Unlike the other Goldman representatives, he agrees with Senator Collins that Goldman has a duty to act in the interest of its clients. He agrees that it may make sense for regulators to impose a fiduciary duty on broker dealers.

FINANCIAL TIMES: WE NEED TO REGULATE RATINGS AGENCIES

The organisations on political trial last Friday were the ratings agencies Moody’s and Standard & Poor’s, which played a more central role than any investment bank in the failure of so many investment-grade securities. If all the subprime mortgage securities they rated triple A had not turned to junk, no bail-outs would have been required.

The stories that former Moody’s and S&P employees told at that hearing – of the agencies trying to please investment banks that were paying big fees to get high ratings – cast doubt on a central plank of how the fixed-income markets are supposed to work. Why should investors place faith in these over-rated bond market guardians again?

Ratings agencies have been criticised in past crises – most recently in the aftermath of Enron’s collapse – for lending their approval to dubious bonds and issuers. Their failings in the housing bubble were much greater. Yet, despite shareholder lawsuits against the agencies and some political heat, there is little sign that their quasi-official status – or their business models – will be substantially changed. The financial reform bill that is still blocked on Capitol Hill has placed other priorities, such as derivatives regulation, above them.

That is unfortunate. If the crisis proves anything, it is that the agencies enjoy too much authority among investors and regulators. Any reform that would loosen their grip on bond markets deserves a shot.”

GREECE IS CRASHING TODAY AND CAN’T BE SAVED

Simon Johnson on the Greek Shock in BaselineScenario.com

This is not now about Greece (with 2 year yields reported around 20 percent today) or Portugal (up 7 basis points) or even Spain (2 year yields up 27 basis points; wake up please) or even Italy (up 6 basis points). This is no longer about an IMF package for Greece or even ring fencing other weaker eurozone economies.

This is about the fundamental structure of the eurozone, about the ability and willingness of the international community to restructure government debt in an orderly manner, about the need for currency depreciation within (or across) the eurozone. It is presumably also about shared fiscal authority within the eurozone — i.e., who will support whom and on what basis?

It is also, crucially, about stabilizing the macroeconomic situation without resorting to more unconditional bailouts. Bankers are pounding tables all across Europe, demanding that governments buy out their position — or bring in the IMF to do the same. We again find ourselves approaching the point when the financial sector will scream: rescue us all or face global economic collapse.”

He doesn’t believe President Obama knows what’s going on–and how serious this is!

WORRIED

FT: Dangers loom beyond the eurozone

The crisis in Greece serves as a warning to other countries not to lose control of their fiscal positions and the confidence of markets. But advanced countries have now stretched their public budgets so far that investors, economists and international organisations are getting worried. (Understatement of the day!)

Telegraph: ECB may have to turn to ‘nuclear option’ to prevent Southern European debt collapse”

The European Central Bank may soon have to invoke emergency powers to prevent the disintegration of southern European bond markets, with ominous signs of investor flight from Spain and Italy.

IMF TO THE RESCUE?

A Greek official said the IMF is considering increasing its promised 15 billion euros ($19.8 billion) loans to Greece by between 5 billion euros and 10 billion euros, but expressed doubts about whether the boost would happen.

EUROPEAN DEBT CRISIS SPREADS: EU COULD BREAK APART

SCM:BEWARE SKIMMING ATTACKS

U.S. banks are grappling with a recent increase in skimming attacks, which are being carried out by Eastern European gangs aiming to steal consumer bank account numbers and PINs, according to a Gartner analyst.
These types of attacks are not new, but the scale and the organization behind them is, Avivah Litan, vice president and distinguished analyst at Gartner, told SCMagazineUS.com on Tuesday. Over the past six months, fraudsters increasingly have been mounting well-organized and systematic attacks that involve placing skimming devices on not just ATM machines – the most commonly targeted device – but also point-of-sale systems and gas-pump card readers.

Litan said she heard about the increase in skimming at a recent fraud conference attended by numerous financial services companies. There, she learned that skimming is currently one of the top problems with which banks are dealing.

On the Side of the Angels: Citibank Says It Supports Reform Principles

Ellen Brown, Global Research, Computerized Front Running and Financial Fraud: How a Computer Program Designed to Save the Free Market Turned Into a Monster

GOOD READ

James Kwkl recommends: The June issue of The American Prospect includes a section on financial reform that is already available online. Our contribution is on the way the financial sector has used its time-honored techniques to block and water down meaningful reform over the past year. There are also articles by many of the usual suspects, including Elizabeth Warren, Michael Greenberger, Rob Johnson, and Nomi Prins.

The News Dissector