Doc's Talk: Obama Turns On the N.Y. Banks

Saturday, January 30, 2010

Obama Turns On the N.Y. Banks

Jeffrey R. Carter
After getting soundly pummeled three elections in a row, President Obama has aimed his bully pulpit at the bankers of Wall Street. What better target when the nation is hurting financially? Most of the banking world is so abstruse that Obama can use simple rhetoric to make his point and win the debate. With the backing of former Federal Reserve Chair Paul Volcker, President Obama proposed a ban on proprietary trading by Wall Street investment banks. However, as is the custom of our president, the words he utters are quite different from the policy that will come from them. Obama is targeting the proprietary activities where banks invest in private equity and hedge funds. He is not going after the real area where banks rig the market: the proprietary trading activities where they use their capital to trade against their own customers in the marketplace. Less than 10% of the banks' profit comes from the activities Obama is targeting. The policy switch Obama is proposing will do nothing to prevent another meltdown. He is using a peashooter while giving the impression of using a cannon.

If this proposal were designed to change the way financial institutions interact with markets and make both work better for the American people, Obama would target the anti-competitive proprietary trading cartels. The president would make regulatory changes based on function and not structure. Bills that have come out of the Barney Frank-Chris Dodd committees in the House and Senate simply add another layer of bureaucracy and do nothing to prevent another financial meltdown.

Functional regulation takes into account the role an entity plays in the marketplace. A publicly traded company like Goldman Sachs should be held to higher and different standards when compared to a privately held one, like Citadel. Functional regulation would eliminate conflicts of interest. Banks would no longer be allowed to engage in dual trade. Customer orders would be brought to a public marketplace to be transacted, not internalized to a back office or shoved into a dark pool of liquidity. Goldman Sachs even sent out a letter to their customers apologizing for the practice. Functional regulation would force markets to be more transparent.

Today, a large percentage of financial trading takes place away from the broad markets like the NYSE. Banks try to keep as much information away from the market as they can so that their proprietary trading desks can use it to their advantage. The general public gets taken for a ride every time they submit an order. So do a lot of the big mutual funds the public and pension funds invest in.

The banks did a gross disservice to customers by selling them packages of junk. But they really damaged the market by the way they traded in the unregulated over-the-counter (OTC) marketplace. The resulting market was so muddled that none of the counter-parties knew who was holding the bag, or even who owed whom money. AIG was the dumping ground for Goldman and others, and it carried the lion's share of OTC risk on its books. This kept risk profiles away from the eyes of any regulators. More importantly, AIG shielded the broader market from imposing any "invisible hand" market discipline. In the aftermath, Treasury Secretary Tim Geithner saw fit to repay the big OTC players 100% of their losses from AIG. This increases the likelihood of a repeat disaster. So the chance of another debacle has increased, not decreased, in the last year.

Does the government have the intestinal fortitude to actually do something about the problem? Government needs to be smarter with the tools it already has. Currently, agencies like the SEC use antique structural regulation that doesn't work. All it would take is a direct order to change the way they look at things and rewrite current regulation accordingly.

It is hard to comprehend what happens in the marketplace if you are a novice. Imagine yourself at a poker table. You are able to see all the cards, and you know how much money all of the players have to wager. You can see the cards in the deck that are about to be dealt. There isn't a lot that you don't know. Plus, you also own the house and the dealer, and you are actively playing in the game. With all this information, it would be virtually impossible to lose money. That's what a big bank does with its proprietary trading. It rarely if ever loses money. As every experienced trader knows, it is virtually impossible to increase trading profits every year. Profits are variable and volatile.

What has changed in our financial system since the Long Term Capital Management debacle in 1998? Banks that were private have gone public. The world financial system is more interconnected. Capitalism has brought new and growing international economic powers. But on the regulatory side, much has gone unchanged. The Glass-Steagall Act was repealed, but just reenacting it is too simplistic and the wrong regulatory approach. Bringing the act back would simply separate some functions, but it wouldn't do anything to make the underlying marketplace more transparent or competitive.

Reenactment wouldn't free up markets to utilize internal checks and balances. Plus, it was designed for a banking industry in 1930, not 2010.

It is important to understand why we had a financial disaster. The meltdown has its roots in Federal Reserve Policy and policy with regard to Fannie Mae and Freddie Mac. Alt-A and subprime loans from 2001-2007 escalated in percentage of the real estate loan market from less than 10% to close to 36% of the market. The N.Y. banks took advantage of this largess and sold to their own customers packages rated AAA that were really subprime, low-grade debt. Meanwhile, the private ratings agencies didn't do their homework and rated the products incorrectly. Bank customers didn't undertake necessary due diligence before investing money in the risky packages. The perfect storm for a financial meltdown came together. Neither Obama nor the related congressional committees have proposed anything that would not stop this from occurring again.

Obama is correct in proposing an end to "proprietary trading." If he targets the type of proprietary trading that bleeds the marketplace of information and order flow and exponentially increases market risk, he is hunting in the right field. Currently, though, Obama is paying lip service to real change and highlighting bank investments in hedge funds, venture capital, and private equity. Regulation in these areas will only make things tougher on the general public.

If the administration continues down this path, nothing will change. More bubbles will occur, and a boom-and-bust economic cycle will resume. Boom-and-bust has been in place since the late 1990s, but the steady growth cycle from 1983-1996 is preferable. No matter which political horse you ride, you should be indignant about what happened and the reaction to it. Without properly functioning transparent competitive markets, the economic environment in America will continue to limp along.

Page Printed from: http://www.americanthinker.com/2010/01/obama_turns_on_the_ny_banks.html at January 30, 2010 - 10:17:14 AM CST

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The IDF’s Minorities in Numbers and Pictures

In honor of IDF Diversity Week, we present diversity through numbers and pictures. Each year, more and more Muslims, Christians, Druze, Bedouin and immigrants from around the world take on the responsibility of defending Israel.

MUSLIMS:

Muslim Arab Israelis are not required to draft in the IDF, but there are many who volunteer. In 2013, there were over 200 Muslims serving in the IDF and over 300 in the reserves.

Bedouins:

Bedouins are nomadic Muslims who were in Israel when modern borders were set in place and are now considered Israeli citizens. They are not required to draft but a growing number choose to enlist. In 2012, there were over 1,400 Bedouin Muslim soldiers doing regular IDF service and almost 1,500 in the reserves.

Read more:http://www.idfblog.com/2014/02/27/truth-idf-numbers-pictures/#more-34027

Are you aware that in 2013, Middle class taxes go up-significantly?

In January of next year, the federal income tax rate for middle-class taxpayers is scheduled to rise from 25 percent to 28 percent, and the payroll tax is scheduled to rise from 13.3 percent to 15.3 percent… This drives the marginal tax rate based on the aforementioned three taxes to 48.12 percent. Add in state and local property, corporate, excise, and other state and local taxes, and the percentage of each additional dollar that is taxed hovers around 50 percent… When half of each additional dollar earned is taxed away, taxpayers experience a disincentive to start businesses or expand existing ones. This leads to fewer jobs being created.

Why is HAMAS Inside Tampa Schools?

Clare Lopez

Kelly Miliziano, who teaches history classes at Steinbrenner High School in the Tampa, Florida area apparently thinks it’s perfectly OK to invite a senior official of a HAMAS-affiliated organization into her classroom to discuss Islam with her students. According to local media reports, not only has this been going on for years, but in spite of the civil and criminal proceedings that could result from such reckless negligence, the Hillsborough County school superintendent, Mary Ellen Elia, and the chairman of the school board, Candy Olson, also expressed approval for students under their responsibility to be exposed repeatedly to guest speaker, Hassan Shibly, who is the Executive Director for the Council on American-Islamic Relations (CAIR) in the Tampa area.
More...

Did You Know... Ignoring the Call to Islam will Bring Jihad

‘Conquest through Da’wa [proselytizing] that is what we hope for. We will conquer Europe, we will conquer America! Not through sword but through Da’wa.’
-- Yousef al-Qaradawi , Muslim Brotherhood spiritual leader The Arabic word ‘Da’wa’ means the “call to Islam.” But do not think that Da’wa is the same thing as an invitation to an optional holiday event. The classical Islamic doctrine of jihad mandates that enemies must be given the opportunity to convert to Islam or pay the jizya tax before it is permissible to attack them.
Clare M. Lopez

Who is being discriminated-facts tell the truth

Religious bias

Hate crimes motivated by religious bias accounted for 1,409 offenses reported by law enforcement. A breakdown of the bias motivation of religious-bias offenses showed:

65.4 percent were anti-Jewish.
13.2 percent were anti-Islamic.
9.5 percent were anti-other religion, i.e., those not specified.
4.3 percent were anti-Catholic.
3.8 percent were anti-multiple religions, group.
3.3 percent were anti-Protestant.
0.5 percent were anti-Atheism/Agnosticism/etc.

http://www.fbi.gov/about-us/cjis/ucr/hate-crime/2010/narratives/hate-crime-2010-incidents-and-offenses.

On March 31, 1977, the Dutch newspaper Trouw published an interview

with PLO executive committee member Zahir Muhsein. Here's what he said:

"The Palestinian people does not exist. The creation of a Palestinian state is only a means for continuing our struggle against the state of Israel for our Arab unity. In reality today there is no difference between Jordanians, Palestinians, Syrians and Lebanese. Only for political and tactical reasons do we speak today about the existence of a Palestinian people, since Arab national interests demand that we posit the existence of a distinct "Palestinian people" to oppose Zionism.

For tactical reasons, Jordan, which is a sovereign state with defined borders, cannot raise claims to Haifa and Jaffa, while as a Palestinian, I can undoubtedly demand Haifa, Jaffa, Beer-Sheva and Jerusalem. However, the moment we reclaim our right to all of Palestine, we will not wait even a minute to unite Palestine and Jordan."

In March 1977, Zahir Muhsein, a PLO executive, said:

"The Palestinian people does not exist. The creation of a Palestinian state is only a means for continuing our struggle against the state of Israel for our Arab unity. In reality today there is no difference between Jordanians, Palestinians, Syrians and Lebanese. Only for political and tactical reasons do we speak today about the existence of a Palestinian people, since Arab national interests demand that we posit the existence of a distinct Palestinian people to oppose Zionism."

"For tactical reasons, Jordan, which is a sovereign state with defined borders, cannot raise claims to Haifa and Jaffa, while as a Palestinian, I can undoubtedly demand Haifa, Jaffa, Beer-Sheva and Jerusalem. However, the moment we reclaim our right to all of Palestine, we will not wait even a minute to unite Palestine and Jordan."

The Arab Apartheid

Ben-Dror Yemini
In 1948, the Arab countries refused to accept the UN partition proposal and they launched a war of annihilation against the State of Israel which had barely been established. All precedents in this matter showed that the party that starts the war - and with a declaration of annihilation, yet - pays a price for it. Between 550,000 and 710,000 Arabs fled because of the war and a larger number of 850,000 Jews were expelled or fled from Arab countries (the "Jewish nakba").
Population exchanges and expulsions were the norm at that time, occurring in dozens of other conflict points and affecting about 52 million people. In all the population exchange precedents that occurred during or at the end of an armed conflict, there was no return of refugees to the previous region, which had turned into a new national state.
Only the Arab states acted completely differently from the rest of the world. Instead of assimilating the refugees, they crushed them despite the fact that they were their coreligionists and members of the Arab nation - instituting a regime of apartheid. So the "nakba" was not caused by the actual dispossession, which had also been experienced by tens of millions of others. The "nakba" is the story of the apartheid, oppression, abuse and denial of rights suffered by the Arab refugees at the hands of the Arab countries. (Maariv)

International Law and Military Operations in Practice - Col. Richard Kemp

"Islamist fighting groups study the international laws of armed conflict carefully and they understand it well. They know that a British or Israeli commander and his men are bound by international law and the rules of engagement that flow from it. They then do their utmost to exploit what they view as one of their enemy's main weaknesses. Their very modus operandi is built on the correct assumption that Western armies will normally abide by the rules, while these insurgents employ a deliberate policy of operating consistently outside international law. "

Lost Historical Moments

What Rabin’s last Knesset speech really said:repudiation of a Palestinian state

Rabin ruled out a fully sovereign Palestinian state :

“We view the permanent solution in the framework of State of Israel which will include most of the area of the Land of Israel as it was under the rule of the British Mandate, and alongside it a Palestinian entity which will be a home to most of the Palestinian residents living in the Gaza Strip and the West Bank. We would like this to be an entity which is less than a state, and which will independently run the lives of the Palestinians under its authority.”

Rabin ruled out a total withdrawal from Judea and Samaria and thus a return to the pre-June 1967 borders :

“The borders of the State of Israel, during the permanent solution, will be beyond the lines which existed before the Six Day War. We will not return to the 4 June 1967 lines.”

Rabin ruled out withdrawing form the Jordan Valley:

“The security border of the State of Israel will be located in the Jordan Valley, in the broadest meaning of that term.”

Rabin ruled out uprooting settlement blocs, like the Gush Katif bloc in Gaza (which was subsequently uprooted by former Prime Minister Ariel Sharon):

“The establishment of blocs of settlements in Judea and Samaria, like the one in Gush Katif.

AND

Rabin ruled out removing any settlement before coming to a full peace agreement with the Palestinians:

“I want to remind you: we committed ourselves, that is, we came to an agreement, and committed ourselves before the Knesset, not to uproot a single settlement in the framework of the interim agreement, and not to hinder building for natural growth.”

Rabin insisted on Israel retaining full security control of the borders with Egypt and Jordan, contrary to Israel’s relinquishment of the Philadelphia Corridor on the border with Egypt:

“The responsibility for external security along the borders with Egypt and Jordan, as well as control over the airspace above all of the territories and Gaza Strip maritime zone, remains in our hands.”

Correcting Oslo Myths-Part 2

3) Kuttab laments that the post-1993 Oslo process resulted in a Palestinian Authority "whose ministers and legislators are not guaranteed passage between Gaza and the West Bank ...."

Before free passage or other perquisites, PA leaders were obligated, among other things, to eliminate the terrorist infrastructure in the West Bank and Gaza Strip, end anti-Israeli, antisemitic incitement in schools, mosques, and communications media, and resolve all outstanding issues through peaceful negotiations. They met none of these commitments, sometimes bolstering terrorism and greatly increasing incitement.

4) Kuttab complains that under Oslo the PA got "lightly armed police ---- but no real sovereignty over the land or contiguity between our communities in Gaza and the West Bank."

Oslo agreements repeatedly were revised, regardless of Palestinian non-compliance, until the authorized number of police grew from 8,000 to 40,000. Though they were to be the only armed forces in the territories, Israeli estimates early in the second intifada put the number of gunmen - police, "security services," terrorists, and armed gangs - at 85,000. Their armament reportedly included not only heavy machine guns and rocket-propelled grenades, but also anti-tank and anti-aircraft missiles.

Sovereignty was to be negotiated in the envisioned 1998 "final status" talks - after a five-year period of confidence-building. Palestinian leadership chronically undermined the process. Palestinian terrorism made the 1993 - 1998 Oslo period more deadly for Israelis than the 15 years preceding it.

The United States doesn't have contiguity between the lower 48 states and Alaska and Hawaii; territorial contiguity between the West Bank and Gaza Strip - that is, through the 20 miles of Israeli territory between them - was never promised and would destroy Israeli contiguity.

5) "Palestinians have been made to endure hundreds of checkpoints in the West Bank, an eight-foot wall deep in our territories, and tight Israeli control over borders."

The security barrier is not "deep in Palestinian territories," but rather encompasses less than 8 percent of Judea and Samaria, and is mostly a fence, rarely a wall; the land in question is not "our [Palestinian] territories" but disputed territory to which, according to the authors of U.N. Security Council Resolution 242, Jews as well as Arabs have claims; and there are no international borders, only the 1949 armistice lines with Jordan. Under 242, borders remain to be negotiated. As for checkpoints - like the security barrier and "tight Israeli control" - Palestinian Arabs precipitated these measures themselves. No terrorism and there would be no fence or tight Israeli control and few checkpoints - like before the first intifada.

Correcting Some Oslo Myths

1) In Oslo "Israeli, Palestinian and other world leaders promised that ... Palestinian sovereignty would be solidified."

No, they didn't. The 1993 Declaration of Principles and subsequent Oslo agreements outlined a process by which final status negotiations about the West Bank and Gaza Strip would be reached. The process required an end to anti-Israel terrorism and incitement and a commitment to peaceful negotiations. The PA, Fatah, Hamas, Islamic Jihad, the Popular Front for the Liberation of Palestine, and other terrorist groups, sabotaged the process from the start.

2) "The reality is that, in defiance of U.N. Security Council Resolution 242, which states that it is inadmissible to occupy land by force, Palestinian territories are still under foreign military occupation."
Wrong again. Resolution 242 (1967) does note "the inadmissibility of the acquisition of territory by war." It also affirms the right of every state in the area "to live in peace with secure and recognized boundaries free from threats or acts of force." There were no "Palestinian territories." Jordan occupied the West Bank, Egypt controlled Gaza. Israel did not have "secure and recognized boundaries," so retention of some of those territories was possible under 242. Israel is not a "foreign" military occupier in the West Bank but, pending final negotiations, the lawful military administrator as a result of a successful war of self-defense.

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