High-speed trades regulation: U.S. vs Europe

I think even a lot of Wall Street types agree that modern high-speed computerized trading is as much bane as boon to the financial sector. (Of course, they usually have selfish reasons for doing so; the more people recognize that computers are doing more and more trading, and the more and more they think of these computers in terms of beasties akin to Jeopardy-winning "Watson" and not home PCs, they'll say, WTF do I pay for Wall Streed advice for?)

The New York Times details some of the issues and problems involved:

Regulators are playing catch-up. In the United States and Europe, they have recently fined traders for using computers to gain advantage over slower investors by illegally manipulating prices, and they suspect other market abuse could be going on. ...

Perhaps regulators’ biggest worry is over the unknown dynamics of the computerized stock market world that the firms are part of — and the risk that at any moment it could spin out of control. ...

When British regulators noticed strange price movements in a range of shares on the London Stock Exchange, they tracked them to a Canadian firm issuing thousands of computerized orders allegedly designed to mislead other investors. 

In August, regulators fined the firm, Swift Trade, £8 million, or $13.1 million, for a technique called layering. ...

In the United States, the Financial Industry Regulatory Authority last year fined Trillium Brokerage Services, a New York firm, and some of its employees $2.3 million for layering. 

Even the traders’ authorized activities are coming under fire, especially their tendency to shoot off thousands of orders a second and suddenly cancel many. Long-term investors like pension funds complain that the practice makes their trading harder.

So, we need more regulation, right? The story notes that an international regulatory body will make suggestions soon. It added that European, Canadian and even American officials are considering using fees to regulate volume, or like AT&T on cell phones, charge extra for higher volumes.


But, what's missing in the U.S.? This:

One of the most controversial actions has been the European Commission’s recent proposal for a financial transaction tax on speculators, which would hit high-frequency firms and curtail volumes. The proposed tax would apply to all trades in stocks, bonds and derivatives, and may face stiff opposition from European governments. Many such firms are based in Britain or the Netherlands, and authorities fear a loss of business.

As long as either the current crop of Democrats, like Dear Leader, or any Republicans of note with the possible exception of longer-shot-than-Jon-Huntsman candidate Buddy Roemer, have control of the wheels of power, this will never even come up on the U.S. radar screen. And, British and Dutch authorities will use exactly that as part of their fear-mongering within the EC/EU.

However, even the Europeans are missing the boat if commodities futures aren't part of what gets a financial tax. When oil hit $147/bbl in 2008, guesstimates were that $20-25 of that price, at least, was purely speculators' froth.

The real goal should go beyond reigning in high-speed trades to reigning in trade that is unproductive even by the loose standards of "productive" in the modern financial world.

Obama still slaps left in face - #ElizabethWarren #debtshowdown

There's a whole raft of ways in which he's doing this, and to lead off, we have one that has nothing to do with his ongoing debt showdown sellouts.

To wit, Elizabeth Warren is officially off the table to head the Consumer Finance Protection Bureau. Judging by the story, Obama wants to appoint some mid-level wonkish type who will be as unoffensive as possible to both Congressional Republicans and his own Wall Street friends.

Part of why Warren isn't getting the job? She refuses to go along with Obama's bankster friends, and their friends inside Team Obama, and continues to oppose a toothless settlement of the apparent mortgage fraud problems that have the housing bubble collapse still unsettled.

But, let's get back to that debt issue, though, shall we?

Greg Sargent blogs on Obama's plea to liberals to sign off on cutting the debt. Why? He continues to throw more and more spending cuts into the mix, none of them for things like defense spending, subsidies to big business, etc., and still gets nothing in return. He's like an even-more-naive Reagan.

Obama’s argument is that progressives won’t be able to make the case to the public for more spending unless the deficit is neutralized as an issue. ... Some liberals will respond that this risks ceding the short term argument in advance, with the result that the public never gets to hear the case for running deficits in a bad economy and dealing with them later.

Exactly. Also given the fact that Obama has done little to sell the public on the idea that much of the current high deficit level is not structural but is recession-related tax revenue declines (and, given Obama's increasingly neoconservative turn, one suspects this is deliberate), why should "we" trust him?

Joan Walsh, a reliable semi-Obamaic, chides Obama for believing that slashing now will mean spending more later, citing the example of that great neolib, William Jefferson Clinton.

For a guy whose presidential candidacy was greatly defined by his not being a Clinton, Obama is clearly following the Bill Clinton playbook. Clinton spent his entire political career trying to kill right-wing stereotypes about "big spending" liberals. Not only did he balance the budget to eliminate Ronald Reagan's deficit, he endorsed and enacted a welfare reform plan largely crafted by Republicans. Both bold decisions were supposed to show that Democrats could be trusted to tame the excesses of the Great Society, and usher in an era of smart, pragmatic, humane government that combined private sector discipline with New Deal values. If Clinton could get the issues of welfare and bloated government "off the table," he believed, he could set the table for a progressive agenda.

Had Clinton been right about that, he would have been able to say: “Our fiscal house is in order. ...

Instead, the conciliating Clinton met increasingly savage political opposition ... (a)nd right now, Republicans in Congress are on the verge of sending us back to the 19th. To the extent that Clinton was able to turn back his Republican foes ... and win re-election in 1996, it wasn't because he compromised, but because he had the winds of the economy at his back. (You can argue Clinton's deficit-cutting helped improve the economy, but it certainly didn't turn it around.)

So there is no reason to believe that "getting our fiscal house in order" would vanquish Obama's political enemies and create a mandate for the kind of government spending that would "win the future."

Other than still, even with her caveats, perhaps being too charitable by half to Clinton, Walsh makes valid points re Dear Leader.

Andrew Leonard, meanwhile, notes that even as discussion numbers tighten, Obama will still chase after GOP debt ponies.

Robert Reich, meanwhile, tells Obama to learn something else from Clinton, namely, after the debt showdown, it will still be about the economy, stupid.

Sheila Bair: The one insider who fought the bailouts

Joe Nocera has a great "exit interview" with Sheila Bair, who is stepping down as head of the FDIC.

We have her, more than anybody else in the administration (arguably, more even than Elizabeth Warren, yes) to thank for the Dodd-Frank financial regulation reform bill actually having any teeth. We have her to thank for the fact that while non-investment American banks aren't the healthiest, they're healthier than those in Europe. We have her to thank for the fact that the unholy mix of Alan Greenspan and retread Clintonistas with Goddam Sachs connections (plus Henry Paulson, who's not a Clintonista) didn't make "too big to fail" even more set in concrete than it is.

Her "reward"? No goodbye encomiums from Obama. No offer to make her head of the financial regulation commission if Warren is deemed too "toxic" to get past Congress. No appointment as a White House economic adviser to replace all those who have left.

Nope. Just the door.

A shame.

Read the story and you'll see how much we owe Sheila Bair. As well as how much she was unable to change Team Obama.

AND ... she's a Republican, no less.

Responsibility for individuals but not Big Biz

Valerie Parker is generally a reasonable moderate conservative. When I disagree with her, which is not as often as other conservative columnists, usually my disagreement is somewhat nuanced.

Not this time.

In calling for personal responsibility in diet and weight control (versus "nanny statism") that call is only made to individual consumers, individual eaters of food. Big Ag and Big Food, for making portion sizes too big, using too much salt, sugar and not-so-good fats in food in the first place? Nooo ... to regulate them would be "nanny statism."

Oil at $150?

Well, not immediately. Maybe by 2015, though?

China has already passed the U.S. in coal use. By 2020, it may pass us in oil consumption. And, that "surge" cannot but impact oil prices.

Since we may well have hit "Peak Oil" three years ago, if China doubles its oil use in a decade or less, that will inevitably put upward pressure on oil prices.

Per Canadian Liberal MP Dan McTeague, that may open the door to more speculation.

“What that means in normal lingo is that the fundamentals of supply and demand have been thrown out the window,” he said. “If supply and demand fundamentals cannot discipline the price discovery, then price can be whatever it wants to be and any excuse can be used.”

He said tax on fuel in Ontario, Quebec, B.C. and New Brunswick is also helping to push the price up, in addition to refineries in eastern Canada who charge between 17 and 20 cents per litre to convert crude into transportation fuel when the actual conversion cost is more like three to five cents per litre.

“Consumers are now vulnerable to the effects of unbridled speculation and subject to potential shortages as a result of restraint in competition at the refinery level,” McTeague said. “We’re flying blind. We have no idea just how serious this situation has become.”

At the same time, don't forget that hear in the U.S. President Obama refused to tackle the need for more regulation of commodities derivatives as part of financial regulation reform. If Peak Oil is here, Enron of a decade ago will seem like nothing.

That said, if this really starts hitting the fan early enough before the general election, we may see Obama forced to choose between continuing to run a $1 billion presidential campaign and working to pass something that's not completely toothless in terms of commodities regulation.

Banksters go from wrongful foreclosure to B&E

As in, breaking and entering:

When Mimi Ash arrived at her mountain chalet here for a weekend ski trip, she discovered that someone had broken into the home and changed the locks.

When she finally got into the house, it was empty. All of her possessions were gone: furniture, her son’s ski medals, winter clothes and family photos. Also missing was a wooden box, its top inscribed with the words “Together Forever,” that contained the ashes of her late husband, Robert.

The culprit, Ms. Ash soon learned, was not a burglar but her bank. According to a federal lawsuit filed in October by Ms. Ash, Bank of America had wrongfully foreclosed on her house and thrown out her belongings, without alerting Ms. Ash beforehand.

And ...

In Texas, for example, Bank of America had the locks changed and the electricity shut off last year at Alan Schroit’s second home in Galveston, according to court papers. Mr. Schroit, who had paid off the house, had stored 75 pounds of salmon and halibut in his refrigerator and freezer, caught during a recent Alaskan fishing vacation.


“Lacking power, the freezer’s contents melted, spoiled and reeking melt water spread through the property and leaked through the flooring into joists and lower areas,” the lawsuit says. The case was settled for an undisclosed amount.

So, when you talk about the good Obama did on DADT, don't forget, he's still in thrall to the banksters.

In thrall to these banksters and their mortgage servicers:

This is in essence a burglary,” said Ms. Ash, walking through the vacant home, with its four levels and commanding mountain views. “But when a burglar goes in, they don’t take your photos and your husband’s ashes.”

Timothy Egan's man crush on Obama

Dude, Obama did NOT reform capitalism, despite your claims.

Egan's specifics of his man crush:

The three signature accomplishments of his first two years — a health care law that will make life easier for millions of people, financial reform that attempts to level the playing field with Wall Street, and the $814 billion stimulus package — have all been recast as big government blunders, rejected by the emerging majority

.
The health care law won't provide universal coverage, or that near it, does nothing to regulate health insurance companies and will probably lead to more companies dropping coverage of children rather than extending it to age 26, among other things. Many of its provisions, just like the GOP did in the days of Newt Gingrich's House majority, were written by industry insiders; its implementation is now being overseen by an industry insider.

Financial "reform" isn't. Not really. It was largely gutted by Democrats as well as Republicans - Democrats like Barney Frank and Chuck Schumer who are in thrall to Wall Street. Elizabeth Warnen could have been appointed to oversee the regulatory board, but instead, was just appointed to oversee its being set up.

The stimulus was a blunder. Beyond being too small, as Krugman and many others note, Rahm Emanuel compromised down its size before the time for compromise had come.

And, don't get me started on GM, a fourth point of Egan's. Corporate claims for how high stock will price at IPO time are inflated, and that's just "new GM." Old GM is still bankrupt and theoretically still on the government dime, if push comes to shove.

How did Scott Brown get to be the financial reform "decider"?

Salon asks the "duh" rhetorical question column of the week, and never even mentions the Obama-Dodd-Schumer troika's refusal to deal with Russ Feingold. (Which is, of course, the non-rhetorical answer to the rhetorical question.)

NYT a bit confused about Obama's "financial reform"

First, contrary to its claim that he has a lot to offer Europe on financial reform, vs. their not listening to him on fiscal stimulus issues, he actually has bupkis to offer.

First, let's look at Senate dealings. Bottom line is, top Senate Democrat money-market-lusters Chris Dodd and Chuck Schumer had their choice: Deal with progressive Democratic Russ Feingold to get something more reformative, or deal with faux Tea Bagger, new GOP Sen. Scott Brown.

And, they chose Brown.

And, they chose Brown with the benign, silent blessing of Obama, who claims what's coming out of House-Senate conference has most of what he wants.

If that's true, that's the clearest sign yet of his neoliberalism on fiscal policy.

If it's false, that's the clearest sign yet of his Kumbayahism on fiscal policy.

Second, because of Reason No. 1, there is not real financial reform. Bankers' taxes and other ideas like that are mainly coming from the other side of the pond, not here.

Why the financial reform bill isn't reform -- Obama?

First, it is reform only by "the soft bigotry of low expectations." In reality, it ain't close.

Problem No. 1, of course is that President Obama has never seriously weighed in on either house's version of this bill, other than to talk about regulations he sees as too prohibitive.

Considering what everybody except dyed-in-the wool Obamiacs will admit, that Wall Street tilted strongly Democratic in 2008 presidential election giving, and was a primary reason Obama, after a sufficient feint to the clueless/naive John McCain, was able to opt out of public campaign financing.

One wonders if he's not pushed for a stronger bill for exactly that reason, for 2012?

Actually, I don't wonder. I'm pretty sure.

Anyway, for a more humorous, yet still serious look, at all that's wrong with the "reform," go here.

is the Dodd fix in on gutting financial reform? Maybe ...

It certainly looks like it, as Sen. Jesus Chris Dodd offers a gut the fish amendment on the financial regulatory reform bill that would put Sen. Blanche Lincoln's Ag Committee amendment on derivatives on ice.

But, Lincoln's Democratic primary going to a runoff may put Dodd's amendment on ice. Stay tuned?

Why Fannie and Freddie need more regulation

As Gretchen Morgenson points out, Fannie Mae and Freddie Mac are still bleeding money, and the federal subsidies they continue to seek and get constitute an ongoing back-door bailout of the banks who wrote subprime dreck in the first place.

Of course, it is primarily for that reason that they're not likely to come under review for possible further regulation.

And, the GOP? In the Senate, it's just looking for a talking point of leverage, that's all, combined with its ongoing BS about how Fannie and Freddie overextended themselves to minorities in the first place.

If Wall Street is a casino, it's incestuous

It's a casino that's rigged, with algorithmic trading on computer the Securities and Exchange Commission still doesn't understand, with the incestuousness of paying ratings agencies for their ratings of sheiss. And, more and worse, as Salon's Andrew Leonard makes clear.

The incestuous part? EU member states know this, too, especially the incestuousness between ratings agencies and the investment banks like Goldman Sucks who sold drossy schlock as alleged 24-K gold.

(So, Lloyd Blankfein, was Moody's helping you do "God's work"?)

Oh, a few Democrats (from the party that outpaced the GOP 2-1 in 2008 election cycle campaign receipts from Wall Street, per Open Secrets) have blathered about reforming this incestuous relationship, but the financial reform bill from Chris Dodd (D-Conn. Man) never did address this.

Compare the EU, which is implementing a new regulatory system for ratings agencies, which goes into effect near the end of this year.

In fact, the concern has been so bad in the Eurozone, politicians are saying, why don't we have a European-based ratings agency?

There have been repeated calls from European policymakers in recent years for a home-grown agency to compete in the U.S. dominated sector but with little progress. Users of ratings, such as investment banks, said policymakers are aiming at the wrong target.

"They should be focusing on getting stability back to the market and a European ratings agency is not going to do that," said Mark Austen, acting chief executive of the Association for Financial Markets in Europe.

The new EU rules being phased in from September will include requiring them to undergo direct supervision if they want to issue ratings in the 27-nation bloc, and two have at least two "independent" members of their boards of directors.

Why Dems won't push real financial reform

Wall Street firms like Goldman Sachs gave the party a 3-2 money raising edge in 2008 elections.

So, behind the faux populism of the current financial reform bill in the Senate is more business as usual.

Real populism would include public financing of Congressional campaigns.

Short of that, though, Simon Johnson says Dems could do more now.

"Show people, in gruesome detail, the money being spent by this part of big finance," he wrote Wednesday on his blog, Baselinescenario.com. "Go to the nonfinancial sector, to other parts of the financial system, and directly to individuals -- asking most clearly for contributions that would replace what the banks have withdrawn and offset what the banks are spending to defeat the president's reform agenda."

Don't hold your breath on that, either.

Chris Dodd contines to sell out consumers

I don't know what Dodd continues to vainly chase Senate GOP votes by watering down his consumer protection bill again and again.

To me, if a bill creates a new Consumer Financial Protection Bureau, even if it's housed inside the Fed, it needs to provide funding for that agency, right? Well, isn't that the angle to use Senate reconciliation procedures?

And, if not, is The One ready to go crusading for this bill after health care? Make Republicans defend not wanting to protect consumers?

That said, even a bill that has a Consumer Financial Protection Bureau, if it's inside the Fed, is too weak. The Fed's charge is, above all, monetary policy. To the degree it's a regulatory agency, it's supposed to focus on larger banks and related financial institutions. It's not designed to focus on mortgage brokers who peddled many of the subprime loans in the first place.

Anyway, read the whole analysis piece; it looks at several main areas, including derivatives, consumer abuses, executive compensation, legal authority and the "too big to fail" issue.

On most of these issues, not just what I mentioned above, it's too weak.

Krugman: No finance reform is preferable...

To the watered-down crap Senate Democrats are likely to pass, due to skittish "centrists" and obstructionist Republicans. He notes the House has already passed a decent bill. I say even it could certainly be better; that said, it's "acceptable."

Anyway, here's why Krugman says it would be better to junk it all:

There are times when even a highly imperfect reform is much better than nothing; this is very much the case for health care. But financial reform is different. An imperfect health care bill can be revised in the light of experience, and if Democrats pass the current plan there will be steady pressure to make it better. A weak financial reform, by contrast, wouldn’t be tested until the next big crisis. All it would do is create a false sense of security and a fig leaf for politicians opposed to any serious action — then fail in the clinch.

Indeed.

Obama's regulatory reform - how much a positive

John Judis says progressives who are souring on Barack Obama's presidency should look at how much he's doing to beef up regulatory agencies.

All that may well be true, but Judis ignores the fact that Obama's about as limp, ultimately, as many Congressional Democrats — or he was, at least — on financial system reforms. (It remains to be seen whether unmuzzling Paul Volcker is a sign of real, ongoing commitment or not.)

Too big not to be better regulated

Paul Krugman notes Canadian banking is largely controlled by just five companies, but doesn't have the problems the U.S. system does. He says we have some things to learn from the Canadian system.

Paul Volcker actually gets to speak?

Hmm, maybe for a moment right now, President Obama is serious about a harder line on financial system reform than the Bobbsey Twins of Geithner and Summers have been. Paul Volcker doesn't go into too many details, but trumpets the general case for new regulation.

If Obama means it on bank reform, it's great

It's about time that President Obama listened more to Paul Volcker and less to Larry Summers and Tim Geithner, especially if it produces concrete results, at least from an administration point of view. (Congressional action, of course, is the sine qua non.)

And, if it took Scott Brown's election in Massachusetts to be the final push, then that's the silver lining of that cloud.

That said, while details of Obama's proposed bank regulation plan sound great, including attracting the initial interest of John McCain across the aisle, let's see how hard he fights for all of this.