Wednesday, October 02, 2013

The JP Morgan apologists of CNBC | Felix Salmon

Great piece by Felix Salmon and awesome interview of Alex Pareene of Salon on CNBC!

The JP Morgan apologists of CNBC | Felix Salmon:

"The whole segment is well worth watching, but the tone is perfectly set at the very beginning:
Maria Bartiromo: Alex, to you first. Legal problems aside, JP Morgan remains one of the best, if not the best performing major bank in the world today. You believe the leader of that bank should step down?
Alex Pareene: I think that any time you’re looking at the greatest fine in the history of Wall Street regulation, it’s really worth asking should this guy stay in his job. In any other industry — I can’t think of another industry. If you managed a restaurant, and it got the biggest health department fine in the history of restaurants, no one would say “Yeah, but the restaurant’s making a lot of money. There’s only a little bit of poison in the food.”

"This is a very strong point by Pareene — and it’s a point which was well taken by Barclays. When the UK bank was fined $450 million last year for its role in the Libor scandal, its CEO duly resigned. After all, a $450 million fine is prima facie evidence that the CEO really isn’t in control of his bank.
But $450 million is a rounding error with respect to the kind of fines that Dimon is now talking about paying — $4 billion, $11 billion, $20 billion, who knows where this will stop. Tim Fernholz has a good roundup of all the various things that JP Morgan is in trouble for; Libor manipulation is at #5 on his list of seven oustanding investigations — on top of another four settled investigations. If Libor manipulation alone was enough to mean the end of Bob Diamond, it’s hard to see how Jamie Dimon should be able to survive this tsunami of litigation.
Unless, it seems, you work for CNBC. In which case you just ignore Pareene’s question, and get straight onto the important stuff:
Duff McDonald: It’s preposterous. The stock’s touching a ten-year high. It’s a cash-generating machine.
Maria Bartiromo: Should we talk about the financial strength of JP Morgan? The company continues to churn out tens of billions of dollars in earnings and hundreds of billions of dollars in revenue. How do you criticize that?
This view — that profits cleanse all sins, and that so long as you’re making money, nothing else matters — is not normally expressed quite as explicitly as it was here. After all, there are licit and illicit ways of making money, and surely if your profits fall into the latter category, you should not be able to remain comfortably ensconced as a celebrated captain of industry. Besides, banksshouldn’t be obscenely profitable: they’re intermediaries, and in an efficient economy their profits should be quite easily competed away. When bank profits are high, that’s a sign that the bank in question is extracting rents from the economy, rather than helping it to grow.
The rest of the interview is a glorious exercise in watching CNBC anchors simply implode in disbelief when faced with the idea that JP Morgan in general, and Jamie Dimon in particular, might be anything other than a glorious icon of capitalist success. In the world of CNBC, the stock chart tells you everything you need to know, while the New York Times is a highly untrustworthy organ of dissent and disinformation.
Eventually, Bartiromo asks Pareene, with a straight face, who would be the best CEO of JP Morgan “from a shareholder perspective”. Since, clearly, the shareholder perspective is the only one that matters. Except, of course, it isn’t. JP Morgan’s balance sheet shows assets of $2.4 trillion and liabilities of $2.2 trillion, leaving $200 billion in total stockholder equity. Sure, the shareholders matter — but even in terms of the balance sheet they only matter about 8.6%. And in terms of the systemic importance of JP Morgan to the nation as a whole, its shareholders matter even less. The country was seriously damaged by JP Morgan’s lies and misrepresentations about its mortgages — much more than it would be damaged if the share price went down instead of up. And the public has every reason to want the individuals running JP Morgan to be held accountable when it gets into serious regulatory trouble over and over again.
Right now, the banks aren’t lending money to homeowners — the government remains the only game in town, when it comes to mortgages, and that isn’t healthy at all. JP Morgan’s shareholders might be happy with Jamie Dimon, but that doesn’t mean the rest of us should be. Jesse Eisingerwants the banks executives to face personal charges; whether that happens or not, it still behooves them to take responsibility for the long series of egregious errors that JP Morgan has made. Shareholders might not want to see Dimon go. But if JP Morgan does end up paying an 11-digit fine, then resignation would surely be the honorable thing to do."

Merck CEO rewards workers with pink slips - Al Lewis - MarketWatch

Merck CEO rewards workers with pink slips - MarketWatch
"Kenneth Frazier, the chief officer executive of Merck & Co. MRK -0.78%  , makes $15 million a year firing people.
On Tuesday, as Americans awoke to a partially shuttered government and a confusing new health care system, he put out a press release promising to lay off 8,500 more people. On top of a previously announced plan to slash 7,500 employees, this represents a 20% trim to Merck’s current workforce of about 81,000."
"Merck will be “better positioned to drive innovation,” Frazier said.
The fewer brains one applies to a complicated problem like human suffering, the better, he would have us believe. And the smaller the sales force, well, you know, the bigger the sales."
"“Today’s announcement further underscores that we are committed to improving our performance in the short term while also investing for the long term,” Frazier said in the release.
Investing for the long term? Doesn’t he mean divesting for the long term? A very bleak long term?"

UN Report: Hunger Affects 1 In 8 People Around The World

UN Report: Hunger Affects 1 In 8 People Around The World
"In their latest report on food insecurity, the U.N. agencies estimated that 842 million people were suffering chronic hunger in 2011-13, or 12 percent of the world's population, down 17 percent from 1990-92."

Monday, September 30, 2013

Housing Market Is Heating Up, if Not Yet Bubbling

Housing Market Is Heating Up, if Not Yet Bubbling - ROBERT J. SHILLER -

Robert Shiller's piece in New York Times 

"We asked the respondents how much they thought home prices would rise both in the next year and in the longer term — each of the next 10 years.
The short-term expectations were somewhat high, with respondents saying they anticipated a 5.7 percent increase, on average, in the next year. (That’s close to the implied home price appreciation of 5.6 percent in the home price futures market at the Chicago Mercantile Exchange.)
These projections were much higher than those in 2011, when respondents anticipated only a 1.6 percent increase, and somewhat above those of 2012, when the expectation was 4.0 percent. Still, in 2004, just before the peak in home prices, short-term expectations were far loftier, at 8.7 percent.
What’s more, long-term expectations in the current survey remained relatively modest, at 4.2 percent a year for the next 10 years. At that rate, if consumer inflation is modest, at, say, 2 percent a year, real prices would rise only about 2.2 percent annually, and we wouldn’t return to the December 2005 peak in real home prices until 2031."
"In reading the most recent answers, I see no signs that home buyers have learned the lesson I tried to convey in the second edition of my book “Irrational Exuberance” in 2005. That message was that existing-home prices have shown virtually no tendency to trend upward in real, inflation-corrected terms over the last century. While land is limited, it’s only a small component of home value in most places. New construction often brings down the value of older homes, which wear out and go out of fashion, dragging down prices.
IT’S as if people are applying to housing an idea described by Frederick Lewis Allen in his 1931 book, “Only Yesterday.” Before the stock market collapsed in 1929, he said, people thought that “every crash of the past few years had been followed by a recovery, and that every recovery had ultimately brought prices to a new high point. Two steps up, one step down, two steps up again — that was how the market went.”
Well, people have certainly been right that there will always be steps up and down. Unfortunately, there is no certainty that the ups will outnumber the downs."

Sunday, September 29, 2013

The CEO Who Didn’t Know Too Much - WSJ

The CEO Who Didn’t Know Too Much - MoneyBeat - WSJ
"At BofAa there is a rare glimpse into how those executives slip away from culpability. Mr. Moynihan ran a major division, served on credit committees and integration committees and eventually was tapped to become CEO, but in recalling one of the biggest and transformational deals in the bank’s history, his memory was painfully short.
When presented a financial report, Mr. Moynihan is unsure if he’s seen it or if the numbers are correct. He asks the questioner to direct the question to whoever prepared the report.
“Somebody reported to somebody that reported to me would have been the people working on this,” Mr. Moynihan said. “This is very small part of what they did. I was on the steering committee, I was one of the direct reports, but it was not something that I was involved in day-to-day.”
On and on it goes like this. Dates are forgotten. Documents are sketchy. Decisions were made by someone else. Discussions? What discussions. The transcript is a tangled and frustrating mess of amnesia."
"..., there is something disturbing about Mr. Moynihan’s inability to recall even the most basic information about the Countrywide deal and its integration. For instance, when asked if he knew that Countrywide Bank originated all of the mortgages for Countrywide Financial, Mr. Moynihan said, “I don’t recall that, no.”
Big banks seem to place a premium on forgetfulness. They settle fraud cases stemming from the financial crisis for billions of dollars and hope investors will forget, if not forgive."
"Since Mr. Moynihan ascended to the role of chief executive in 2010, Bank of America has paid out more than $50 billion in settlements, the vast majority of them tied to its mortgage business or those of Countrywide."