naked capitalism

By Wolf Richter, San Francisco based executive, entrepreneur, start up specialist, and author, with extensive international work experience. Cross posted from Testosterone Pit.

Despite the Eurozone debt crisis, the German economy has been on a roll, with unemployment at a 20-year low. Exports surpassed €1 trillion for the first time ever. The Federation of Wholesale and Foreign Trade even issued a card to commemorate the moment. For the year, exports rose 12%. In 2012—based on demand from Asia, Latin America, Africa, and Eastern Europe—exports are expected to grow 6% to €1.139 trillion—when GDP is only €2.37 trillion ($3.1 trillion)!

But during the financial crisis, export orders fell off a cliff…

Gerry Epstein of PERI speaks to the Real News Network about the out of the headlines negotiations on Volcker rule implementation as well as other ideas for bringing major banks to heel.

A speech by New York Fed president William Dudley is a bit of a surprise, in that it acknowledges the severity of the deepening mortgage crisis and sets forth some specific policy proposals. I still find these recommendations frustrating, in that they are insufficient given the severity of the problem and also fail to come to grips with widespread servicer abuses (not just servicer driven foreclosures, but also what amounts to theft from investors, via schemes such as double charging fees to borrowers and investors, inflating principal balances, reporting REO as sold months later than the transaction closed, and getting kickbacks on third party charges). But they are more serious than other ideas from senior financial officials. Specifically, the Dudley advocates principal relief via a program of “earned principal reduction” which would allow for put options for all severely underwater borrowers who stay current on their mortgages for three years. But as we will discuss, this proposal is less meaningful than it sounds.

Never underestimate the ability of banks to find new and creative ways to steal.

Although it is remarkably difficult to come up with decent data, from what I can tell, the Japanese bubble was considerably bigger relative to the size of its economy than the US debt binge was. Yet even though the Japanese aftermath has been remarkably protracted, and arguably worsened by a slow and cautious initial response, visitors to Japan find the country wearing its malaise remarkably well.

One of the reasons may be the Japanese preoccupation with employment. Entrepreneurs are revered not for making money but for creating jobs. Japanese companies went to great lengths to keep workers, cutting senior pay to preserve manning. That was done largely for cultural reasons, since companies are seen as being like families.

But was this preoccupation also good economic policy, and might it have played a more direct role in buffering the worse effects of the bubble aftermath?

By Philip Pilkington, a journalist and writer living in Dublin, Ireland

Working as a journalist and as an opinion writer each have their charms. Journalists have the pleasure of discovery and revelation: uncovering new facts, talking to people, sometimes acting as a catalyst to move events forward.

Opinion writing, aside from being a comfy way to make a living, gives the writer greater stylistic freedom, and the challenge and opportunity of making a dent in readers’ views. The problem is that you have a limited amount of space and, often, an easily distracted readership. Now, that’s fine for something like, say, an observation about an upcoming election or the loutish behavior of a major sports figure but it is a patently awful format from which to raise Big Questions.

The normally sound Clive Crook fell into this trap in an opinion piece at Bloomberg, “A Crisis of Leadership, Not a Crisis of Capitalism.” Bluntly, this article is a train wreck.

In the wake of the collapse of MF Global, and the evaporation of funds in customer accounts, even ones with no margin lending, investors big and small have become duly concerned about the safety of their funds. For those of you who are not brokerage customers, one of the big achievements of the 1930s security law reforms was their success, up until now, in putting rules in place that protected customer assets. Numerous broker/dealers have failed but their clients’ funds were recovered.

In support of our consumer protection efforts, reader Don H has sent evidence that the banks are keeping their rights to misuse customers firmly in place in the wake of MF Global:

Corey Robin teaches political science at Brooklyn College and the CUNY Graduate Center. His latest book, The Reactionary Mind, is available from Amazon.com.

Interview conducted by Philip Pilkington, a journalist and writer based in Dublin, Ireland.

PP: Okay, let’s move on. One of the chapters in the book deals with Ayn Rand. I’m going to quote from it directly as I don’t think there is a better way to sum it up.

“Saint Petersburg in revolt gave us Vladamir Nabokov, Isaiah Berlin, and Ayn Rand. The first was a novelist, the second philosopher. The third was neither but thought she was both.”

It certainly is gratifying to see the Board of Governors of the Federal Reserve, via a paper released on Wednesday, “The U.S. Housing Market: Current Conditions and Policy Considerations,” (hat tip Calculated Risk) finally acknowledge that US has a mortgage/foreclosure mess that is not going to go away by virtue of QE or other efforts to goose financial asset prices. However, just as the Fed was late to see the global housing bubble (even the Economist was on to it in June 2005), so to is it behind the curve in its take on the housing problem. This paper at best constitutes a good start, when, pace Churchill, the Fed is at the end of the beginning when it really needs to be at the beginning of the end.

However, before we get to the housing/mortgage market issues, we wanted to focus on a political element of the paper which may be more important that its analytical content. The Fed is openly crossing swords with the FHFA.

To some readers, the answer to the headline may seem obvious: Yes, American management is clearly worse than it was, say, thirty or fifty years ago, because short-termism is endemic among public companies, and short-termism leads to all sorts of bad outcomes, like underinvestment and accounting gaming.

But that analysis is simplistic. Short-termism simply shows that management has adopted good for them, bad for pretty much everyone else (save maybe their bankster allies) goals and are pursuing them aggressively.

A comment by John Kay of the Financial Times has the effect of raising much more fundamental questions about the caliber of top managers.

I have not seen this hit the news wires, but got this via Lisa Epstein, in turn from Our Financial Security, which is part of the Center for American Progress, which is a heavyweight Democrat think tank (with of course a whole list of talking points to rebut Republican kvetching about the use of a recess appointment).

This move raises the obvious question: why didn’t Obama make a recess appointment of Elizabeth Warren?

Corey Robin teaches political science at Brooklyn College and the CUNY Graduate Center. His latest book, The Reactionary Mind, is available from Amazon.com.

Interview conducted by Philip Pilkington, a journalist and writer based in Dublin, Ireland.

Philip Pilkington: The overarching thesis of your new book The Reactionary Mind is a provocative one. In it you contend that conservatism has always been a radical doctrine.