Links: an IMF warning, and why financial journalists missed it

  • The Quiet Coup – The Atlantic (May 2009)

    Big banks, it seems, have only gained political strength since the crisis began. And this is not surprising. With the financial system so fragile, the damage that a major bank failure could cause—Lehman was small relative to Citigroup or Bank of America—is much greater than it would be during ordinary times. The banks have been exploiting this fear as they wring favorable deals out of Washington. Bank of America obtained its second bailout package (in January) after warning the government that it might not be able to go through with the acquisition of Merrill Lynch, a prospect that Treasury did not want to consider.

    The challenges the United States faces are familiar territory to the people at the IMF. If you hid the name of the country and just showed them the numbers, there is no doubt what old IMF hands would say: nationalize troubled banks and break them up as necessary.

    Scary article by a former head of the IMF – in 2007/8. Basically, unless the US (and UK?) can end their capture by the financial markets, they’re not going to be able to get out of the cycle of incomplete bailouts of the banks. How to fix it? Tough medicine: nationalise and/or break up the banks into “not too small to fail” units.

  • Audit Interview: Mark Pittman : CJR

    Q: So what’s your prescription for business journalists? What do they need to know and do? Not everybody’s going to have a $20,000 a year Bloomberg terminal to play with.

    Mark Pittman: Hardly anyone has a Bloomberg machine and the ones that do don’t know how to use it.

    But you know what? The government needs to make this kind of data much more publicly available than it is now. We purchase a lot of this. But, for instance, a lot of the bond deals were (not subject to disclosure). And all the CDO’s were private placements. We know why—because they placed them with themselves. The number of secret deals going bad is astounding, it’s probably 90 percent of them were secret deals.

    Intriguing: Mark Pittman of Bloomberg on how hardly anyone understood what was going on – but he did. Who was listening, though?

1 Comment

  1. It’s interesting that quite a lot of the reportage on the FSAs “new wave” of regulations explicitly pointed out the fact that they stopped short of demanding that retail and investment banking be split up, or significantly increasing (rather than just bumping a little) the credit reserves required. So, despite them missing the warning from the house of the IMF, they’re very aware that it’s probably necessary.

    This story in the Economist caught my eye (for a few reasons) when it was published a while ago; it’s worth a read: