Here’s more ammo for the just-blow-up-the-SEC-and-start-again crowd:
NPR’s Planet Money and ProPublica report on a questionnaire sent to CDO market participants known as collateral managers by the SEC asking “basic questions about what happened.”
Securities experts say the letter indicates that the agency is still gathering basic information about the CDO market, despite its centrality to the banking crisis.
But zero in on the fact that the questionnaires were sent to collateral managers. CDOs weren’t static things. These managers were constantly trading assets in and out of them. Even if the SEC should have been on this long ago—and there’s no doubt about that—maybe it knows something about an area that’s very much worth looking into.
— Harold Meyerson of the Washington Post digs into a little economic history and a revealing split between the people and the elite:
America’s production of goods no longer received the level of investment that had made it the engine of our economic growth from the mid-19th century through the 1970s. The change began at the outset of the Reagan years, when the percentage of corporate profits retained for new investment dropped sharply. A report from the International Labor Organization published last week shows where the money went: to shareholder dividends, disproportionately benefiting the wealthy. In the prosperity years of 1946 to 1979, dividends constituted 23 percent of profits. From 1980 to 2008, they constituted 46 percent…
The problem is that America’s economic elites have thrived on the financialization and globalization of the economy that have caused the incomes of the vast majority of their fellow Americans to stagnate or decline. The insecurity that haunts their compatriots is alien to them. Fully 85 percent of Americans in that CFR-sponsored poll said that protecting U.S. jobs should be a top foreign policy priority, but when the pollsters asked that question of the council’s own members, just 21 percent said that protecting American jobs should be a top concern.
— John Gapper of the Financial Times, reviewing the TARP, says the U.S. “has wasted the financial crisis.”
Tarp may have achieved its financial aims but, in terms of systemic risk, it has failed. By propping up banks indiscriminately, on soft terms, Tarp not only outraged voters but also magnified moral hazard in the financial system and made effective reform harder.
Good column.
— Gapper points to a great story from yesterday’s FT reporting on the secondary bubble that’s under way.
Distressed debt – defined as a bond trading at less than 50 cents on the dollar – is rapidly disappearing from US financial markets as yield-hungry investors push up the prices for even the most beaten-down securities….
The intense demand for once-distressed bonds is stirring the debate about whether investors are acting wisely or piling into junk bonds because of a lack of opportunities elsewhere in the fixed-income markets.
Bubblicious.
In regards to Harold Meyerson's economic history, when I was researching management techniques 10 years ago, I came across a book (which according to some reviews may be flawed)
http://www.businessweek.com/1998/47/b3605060.htm
But I thought was brilliant at the time. At Any Cost: Jack Welch General Electric and the Pursuit of Profit by Thomas O'Boyle really details how industrial powerhouse, GE, stopped being a maker of things and started being a lender to buy things because that was where the profits were. Interview with the author:
http://multinationalmonitor.org/mm2001/01july-august/julyaug01interviewoboyle.html
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MM: Can you say what GE’s business is now?
O’Boyle: No, though it’s mostly a bank. That represents an amazing historical transformation. We’re talking about a company founded by the hero of American ingenuity — Thomas Edison, who patented 1,093 inventions during his lifetime. The company he founded — of lightbulb fame — is now mostly a bank. That’s an amazing statement about American capitalism as it is practiced in the new century and was practiced in the last century. It has other sideline businesses in manufacturing, but it’s mostly a bank.
MM: Should citizens care about this change?
O’Boyle: Yes, I think it matters. That’s why I wrote the book.
It matters because an extraordinarily capable institution — General Electric — has been transformed into something that is not that any longer. Until 1986 GE was the number one patentee of inventions every year in the twentieth century among all U.S. corporations, every year from 1900 to 1986. Now they’re not even in the top 20.
They were the inventors of the modern corporate research and development laboratory. The number of things that GE invented in the last century is breathtaking. Of course there was the light bulb, but there was also the first jet engine — GE was the first to put it on an airframe; the first synthetic diamond; the first silly putty. There was also the first Noril and Lexan, which are polycarbonate plastics. Lexan was used in the visors of the Apollo 11 astronauts that landed on the moon. They also made the first diesel locomotive, the first x-ray machine and the first home refrigerator. The number of firsts that came out of General Electric is mindboggling. This is a company that once had extraordinary capability in manufacturing, engineering and research.
What has happened through a poor shepherding of those skills is that that value has been diminished. GE is not the same significant player in these elements of American life that it once was. You can make an argument about whether maintaining that role was even possible — that’s a legitimate and good argument. Maybe it was just inevitable.
But I would argue that Welch pushed the process by pulling the plug on lots of businesses that were sold and that foreign companies now control. That has diminished America’s competitiveness in the global marketplace.
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It also showed how he transformed business culture to be focused on share price instead of other priorities and how he transformed the "Meatball" (GE's logo) culture from one of loyalty to one of competitive hunger. Neutron Jack really set the trend for other CEOs --
""Ideally you'd have every plant you own on a barge" -- ready to move if any national government tried to impose restraints on the factories' operations, or if workers demanded better wages and working conditions. "
Anyways, I thought it an interesting read.
#1 Posted by Thimbles, CJR on Wed 16 Dec 2009 at 10:26 PM