Robert Reich: Bernie gets it. Hillary is only inviting more corruption – ROBERT REICH TUESDAY, OCT 13, 2015 01:00 AM PDT

The former secretary of labor says Clinton is deluding herself if she believes oversight alone can fix Wall Street

Robert Reich: Bernie gets it. Hillary is only inviting more corruption

This originally appeared on Robert Reich’s blog.

Giant Wall Street banks continue to threaten the wellbeing of millions of Americans, but what to do?

Bernie Sanders says break them up and resurrect the Glass-Steagall Act that once separated investment from commercial banking.

Hillary Clinton says charge them a bit more and oversee them more carefully.

Most Republicans say don’t worry.

Clearly, there’s reason to worry. Back in 2000, before they almost ruined the economy and had to be bailed out, the five biggest banks on Wall Street held 25 percent of the nation’s banking assets. Now they hold more than 45 percent.

Their huge size fuels further growth because they’ll be bailed out if they get into trouble again.

This hidden federal guarantee against failure is estimated be worth over $80 billion a year to the big banks. In effect, it’s a subsidy from the rest of us to the bankers.


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Wall Street Has Doubts About Fed Lifting Interest Rates – By MIN ZENG and IRA IOSEBASHVILI Sept. 16, 2015 7:35 p.m. ET

Skepticism reflects concerns about the economy and the state of the markets


Wall Street is skeptical that the Federal Reserve has room to raise short-term interest rates Thursday, underscoring persistent doubts about the health of the global economy and financial markets following seven years of easy policy.

Some of the biggest names in the financial industry say a rate rise now would be unwise. And some executives whose firms would benefit from higher rates nevertheless don’t expect an increase Thursday. The view marks a sharp reversal from earlier this year, when a mid-2015 increase was widely expected.

“I wouldn’t do it,” Goldman Sachs Group Inc. Chief Executive Lloyd Blankfeinsaid Wednesday at a breakfast interview with The Wall Street Journal. He said wage growth has been anemic, a sign of labor-market slack, and inflation quiescent. Former Treasury Secretary Lawrence Summers and investor Warren Buffett have lately conveyed similar sentiments.

The central bank Thursday afternoon is expected to disclose its decision on the short-term benchmark interest rate at the conclusion of its two-day policy meeting. The Fed has kept rates near zero since December 2008 in a bid to hold down financing costs for consumers and businesses and bolster economic growth. It hasn’t raised rates since June 2006.

Some say doing so would risk a repeat of central-bank moves that have drawn criticism, such as the European Central Bank’s decision to raise interest rates in 2008, just before the acute stage of the financial crisis, and the Fed’s decision to tighten policy in 1937, a move some commentators say added years to the Depression.

Others warn of financial-market volatility that could spill over into the economy, setting back what has been an uneven recovery.


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Don’t get comfortable! – Henry Blodget Sept 12 2015

stock market crash 1929

Hulton Archive /Getty Images

After some gut-wrenching volatility in August, global markets have settled down in the past couple of weeks.

They have also rebounded nicely off the August lows.

As markets have calmed, the debate about whether we’re in the early stages of a full-on crash has quieted.

But don’t get too comfortable.

This is still an open question.

At times like these, it’s helpful to get a historical perspective.

And what you find when you do that is that no one who is concerned about a crash should take comfort in the market’s recent stabilization.


Because market crashes take time.

The market’s recovery from the August lows might, in fact, be a “buying opportunity” that is the beginning of another surge to record highs.

But it also might be one of those bear-market rallies that have punctuated nearly every major market collapse in history.

The charts below, from portfolio manager John Hussman of the Hussman Funds,* illustrate this phenomenon.

The charts show how the last three major market crashes were preceded by initial drops of 10% to 15% followed by sharp rebounds like the one we’re experiencing right now. These rallies seemed comforting and encouraging at the time. But then, just as many traders had decided it was safe to get back in the water, the real crash began.

First, 1987. In 1987, stocks peaked in August and then sold off sharply. Then they began a rally that, by early October, had recovered almost all of the losses. The top chart shows this rally, which was presumably quite comforting to traders at the time. The bottom chart shows what happened next.

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Wall Street rattles Washington – By Peter Schroeder – 08/24/15 04:52 PM EDT

Getty Images

The stock market closed a wild Monday with the Dow Jones industrial average down over 500 points, setting off fresh fears about the health of the global economy.

The Wall Street drama quickly spread to the 2016 campaign trail and Washington, as flashbacks to the 2008 financial crisis drew responses from the political world.

Renewed concern about the strength of China’s economy kicked off a brutal opening, as the Dow opened down more than 1,000 points in the first minutes of trading. While the index largely erased those gains later in the day, it still ended Monday down 588 points, adding to large losses suffered the two days prior.

The turbulent day on Wall Street grabbed the attention of several presidential candidates, who cast blame far and wide. Meanwhile, the White House sought to draw a distinction between the headlines flying out of financial markets, and the underlying U.S. economy.

White House press secretary Josh Earnest emphasized Monday the “ongoing strength and resilience of the U.S. economy” amid the sell-off. The administration pointed to the steadily falling unemployment rate and solid economic data as signs that the U.S. economy was durable enough to survive “increased volatility overseas.”

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U.S. Stocks Follow Global Markets Lower – By Saumya Vaishampayan Updated Aug. 19, 2015 11:49 a.m. ET

Screen Shot 2015-08-19 at Aug 19, 2015 9.32

U.S. stocks dropped on Wednesday as continued sharp swings in Chinese markets weighed on markets around the globe.

The Dow Jones Industrial Average fell 203 points, or 1.2%, to 17308. Declines were broad-based, with all Dow components posting losses.

The downbeat tone started in Asia, where Chinese shares spent most of the session in negative territory before a late-day turnaround. The Shanghai Composite Index ended up 1.2% after falling as much as 5% earlier. The rebound came after a number of companies disclosed that state-backed firms were among their top shareholders, bolstering investors’ confidence that the government was stepping in to support the market.

The downbeat tone for stocks around the globe was kicked off in China, which experienced another volatile session.

The downbeat tone for stocks around the globe was kicked off in China, which experienced another volatile session. Photo: Richard Drew/Associated Press

The sharp moves sparked declines in other Asian markets, including in Japan and Hong Kong. The losses continued in Europe, with Germany’s DAX down 2% and France’s CAC-40 losing 1.6%.

The turmoil in China, which included a rout in stocks earlier this summer, is raising worries of a slowdown in the world’s second-largest economy. Those concerns were bolstered last week when China unexpectedly devalued its currency.

“Investors are pretty nervous about what’s going on in China,” said Gina Martin Adams, equity strategist at Wells Fargo Securities. “The market interpretation of policy makers’ moves [in China] is that they’re trying desperately to stem the negative tide there,” she added.

On Wednesday, investors dumped stocks in the energy and materials sectors, which are closely linked to commodity prices and the outlook for Chinese growth. Also dragging on those sectors were continued declines in oil and copper prices. Crude-oil futures tumbled 3.6% to $41.58 a barrel.

The S&P 500 declined 1.2% to 2072, and the Nasdaq Composite lost 1.2% to 5001. Still, investors warned against reading too much into stock moves in an environment marked by lighter-than-average trading volumes.


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Overstock CEO Uses Bitcoin Tech to Spill Wall Street Secret – CADE METZ. 08.05.15. 2:00 PM

Patrick Byrne, CEO and chairman of

Patrick Byrne, CEO and chairman of Joe Pugliese/WIRED

The global stock market spans about $101 trillion in financial securities. And at any given moment, about $1.7 trillion is out on loan.

Hedge funds, mutual funds, and other traders don’t just buy and sell stock. They borrow it. Sometimes, they’re looking to short sell: If they borrow shares, sell them, and the price goes down, they reap a profit. Other times, they borrow as a way of hedging their stock positions or settling other deals. In the US alone, according to research from DataLend, about $954 billion in securities is typically on loan to some fund or another.

Many players benefit from this little-discussed market. Sure, the borrowers can make some extra money. But the same goes for those who lend the securities out, including retirement funds and other large stock holders. They charge a fee for that loaned stock. And, yes, middlemen take a cut too, including prime brokers such as Goldman Sachs and Morgan Stanley and dedicated lending houses, or “agent lenders,” like BNY Melon and State Street. The agent lenders alone make about $19.2 million a day helping organizations lend out their stock, and the prime brokers likely make even more.

It’s an enormously lucrative market. And it’s a market controlled by a relatively small group of players, most notably the prime brokers. “Securities lending has historically been a closed network,” says Josh Galper, who runs a financial consulting firm, Finadium, that closely tracks stock loans. “In order to lend or borrow securities, you need to be one of the players in this market.”

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Rick Perry just rolled out a surprisingly progressive agenda on Wall Street regulation – Updated by Matthew Yglesias on July 30, 2015, 7:00 a.m. ET

Spencer Platt/Getty Images

Rick Perry has a plan to change the way the federal government regulates Wall Street and it is … kind of left-wing. Almost shockingly so for the very conservative governor of Texas.

He laid out his plan in a Wednesday speech. He hits on many familiar conservative themes, but also some not so familiar ones. For example, he credited Texas’ relatively strong weathering of the Great Recession in part to strict financial regulation. “But there’s another thing we have in Texas that the rest of the country could learn from,” he said “we regulate, in an intelligent way, the use of a type of mortgage called ‘cash-out refinancing.'”

The Perry campaign does not have a ton of specific details to offer about his ideas, and financial regulation is certainly an area in which the devil is frequently in the details. But in broad strokes, Perry has some pretty good ideas combined with a standard Republican aversion to any kind of consumer financial protection. His proposals are aimed, overwhelmingly, at reducing the amount of debt in the financial system both by regulating big banks but also by reducing the tendency of federal programs to encourage middle class households to borrow heavily to buy houses. The total impact would be a financial system that is considerably less fragile, albeit one in which it is also easier for financial firms to make a quick buck by pulling the wool over consumers’ eyes.

Rick Perry calls for something like Glass-Steagall

The headline here is that Perry comes close to calling for a breakup of big multi-line financial conglomerates, with his fact sheet saying that “requiring banks to separate their commercial lending and investment banking practices should be considered.” This is something liberals have made a lot of noise about since the financial crisis, and that Hillary Clinton has declined to endorse even as Martin O’Malley and Bernie Sanders have. But Perry’s backup idea “alternatively, require these banks to hold a significant additional capital cushion for their trading activities” is probably a better idea.

What this means is that Perry would make a more complicated bank be more cautious about borrowing money than a similarly-sized by less-complicated entity would have to be.

This would make complexity less profitable and create a financial incentive to shrink and simplify unless you’re really reaping massive efficiency gains. At the same time, it would ensure that a complicated bank is especially unlikely to go bust — and thus that difficult questions about how to deal with the failure of such a bank are unlikely to arise.

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A controversial policing tactic could actually do some good on Wall Street – CHRIS ARNADE, THE ATLANTIC Jul. 11, 2015, 10:30 PM

Wall Street

Lucas Jackson/Reuters

The call came from another trader near midnight one night in ‘95.

I assumed it was about a crisis in the financial markets, something bad happening in Asia. No, it was about a strip club. “Dude, turn on the TV news. Giuliani is raiding the Harmony Theater.”

The Harmony Theater was a two-level dive club in lower Manhattan, popular among Wall Streeters because it bent rules. It was a place where almost anything, including drugs and sex, could be bought in the open.

When I turned on the TV I saw a swarm of close to a hundred police, many in riot gear, escorting handcuffed strippers and sad-looking clients into waiting police vans. No traders, or at least none that my friends or I knew, were arrested that night.

Zero tolerance was the first big application of “broken windows,” a theory of policing first argued in a 1982 Atlantic article by James Q. Wilson and George Kelling. They suggested that by targeting minor crimes, “fixing broken windows,” police could reduce the sense of disorder that often causes more serious crimes.

“One unrepaired broken window is a signal that no one cares, and so breaking more windows costs nothing,” they warned.

Broken windows proposed that disorderly behavior left unchecked, even if it seemed harmless, made cities “vulnerable to criminal invasion.” Its implementation by Giuliani was an attempt to lower crime by fundamentally changing the behavior of New Yorkers and the culture of New York.

It would, for the next 20 years, reshape the average New Yorker’s life. Rule breakers, no matter how inconsequential, would be arrested and jailed. Gone, after repeated arrests and considerable fines, was anyone who bent or broke the law (well, anyone in minority and lower-income neighborhoods, that is), no matter how gray or small the offense: The squeegee men, folks littering, anyone with marijuana, graffiti artists, prostitutes, panhandlers, and subway-fare jumpers.


Spencer Platt/Getty Images

At the same time an opposite policy, launched out of Washington, reshaped Wall Street. While the average New Yorker was being subjected to increased police scrutiny, under the theory that individual liberty can collectively be corrosive, financial firms in Lower Manhattan were being subjected to almost no scrutiny, under the theory that individual liberty, especially when applied to businesses, can be collectively beneficial.

My banker friends and I benefited from both policies. We were ignored during the day by regulators and free at night from squeegee men and muggers.

Wall Street and New York City boomed. The firm I joined in ‘93 was an investment bank with 5,000 employees and $110 billion in investments. Fourteen years later it had grown, through acquisitions and mergers, into a financial conglomerate with more than 200,000 employees and $2.2 trillion in investments.

That growth in the financial sector culminated in the massive financial crisis of 2008, which bankrupt my firm and almost bankrupt the country. Following the crisis politicians were finally forced to deal with the reality that it was Wall Street that was out of control and had too many broken windows.

In ‘93 I joined a Wall Street that was going out of style, a Wall Street where graying partners were served lunches on fine china at their desks by waiters. I joined a Wall Street that celebrated birthdays with strippers on the trading floor and successes with Cuban cigars.


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FORGET GDP: Here’s the new way Wall Street is measuring the US economy – MYLES UDLAND MAY 30, 2015, 6:00 AM

american flag sowing machine jobs factory worker


Move over GDP, GDI is the new and improved way everyone is measuring the economy.

GDP, or gross domestic product, is the most widely-cited measure for the economy’s overall health and trajectory. On Friday, we found out that the second estimate of GDP in the first quarter showed that the economy actually contracted 0.7% to start 2015.

But a number of Wall Street economists pointed to GDI, or gross domestic income, as giving us a better picture of what’s really going on out there.

In the first quarter, GDI rose 1.4%.

In a note to clients following Friday’s report, Kris Dawsey, an economist at Goldman Sachs, called GDI a “useful cross-check on the often-noisy quarterly GDP figures.” Over the prior year, real GDI — which is adjusted for inflation — rose 3.6% in the first quarter, which Dawsey noted is near the top end of the range seen during the post-crisis recovery.

Paul Ashworth at Capital Economics wrote that, “We would view [GDI] as a much more accurate gauge of the economy’s true performance over the [first] three months of this year.”

And in comments following Friday’s report, Jason Furman, Chairman of the White House’s Council of Economics Advisors, also highlighted the solid GDI print and noted that starting in July, the Bureau of Economic Analysis will publish an average of GDP and GDI.

This measure showed the economy grew 0.3% to start the year.

Why GDI?


FREDGDI growth led GDP in the first quarter.



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Wall Street’s dispiriting new victory at your retirement’s expense – DAVID SIROTA SUNDAY, NOV 16, 2014 3:30 PM UTC`

The midterms put more than $100 billion of public pension investments into the hands of executives-turned-pols

Wall Street's dispiriting new victory at your retirement's expense

No runoff will be needed to declare one unambiguous winner in this month’s gubernatorial elections: the financial services industry. From Illinois to Massachusetts, voters effectively placed more than $100 billion worth of public pension investments under the control of executives-turned-politicians whose firms profit by managing state pension money.

The elections played out as states and cities across the country debate the merits of shifting public pension money — the retirement savings for police, firefighters, teachers and other public employees — from plain vanilla investments such as index funds into higher-risk alternatives like hedge funds and private equity funds. Critics argue that this course has often failed to boost returns enough to compensate for taxpayer-financed fees paid to the financial services companies that manage the money. Wall Street firms and executives have poured campaign contributions into states that have embraced the strategy, eager for expanded opportunities. The election results affirmed that this money was well spent: More public pension money will now likely be entrusted to the financial services industry.

In Illinois, Democratic incumbent Pat Quinn was defeated by Republican challenger Bruce Rauner, who made his fortune as an executive at a financial firm called GTCR, which rakes in fees from pension investments. Rauner — who retains an ownership stake in at least 15 separate GTCR entities, according to his financial disclosure forms — will now be fully in charge of his state’s pension system.

In Rhode Island, venture capitalist Gina Raimondo, a Democrat, defeated Republican Allan Fung. Raimondo retains an ownership stake in a firm that manages funds from Rhode Island’s $7 billion pension system. Raimondo’s campaign received hundreds of thousands of dollars from financial industry donors. She was also aided by six-figure PAC donations from former Enron trader John Arnold, who has waged a national campaign to slash workers’ pensions.

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