Wednesday, September 10, 2008
Buiter's a Wimp!
Yves Smith (YS) has a fine 24 August 2008 post at her Naked Capitalism, "Buiter Provokes Wrath at Jackson Hole, Says Fed Too Close to Wall Street". My complaint: YS's too easy on these guys! Here's a link: http://www.nakedcapitalism.com/2008/08/buiter-provokes-wrath-at-jackson-hole.html. YS's 1 September 2008 post, "Troubling Signs From Fed's Jackson Hole Conference" is also a fine read. YS skewers some academic clowns. Two from Chicago. The shame, Chicago professors skewered by a Harvard grad! Here's the link: http://www.nakedcapitalism.com/2008/09/troubling-signs-from-feds-jackson-hole.html.
Now I'll leave my two cents. To associate Jackson's name with a central bankers' conference is an outrage. May Andy, like Lazarus, return from the dead to smite them. Off with all of their heads!
YS quotes John Dizard (JD), "In addition, worthy borrowers are denied loans". How does JD know which borrowers are worthy? Can JD access Ed McMahon's hermetically sealed mayonnaise jar? YS nails it: "There are plenty of parties that are keen for high return ventures, such as private equity firms. There is no reason for those to be undertaken by the banking system". Absolutely! "Banks are ... playing accounting games", writes YS. I am shocked! Gambling at Rick's. "Round up the ususal suspects", said Captain Renault in "Casablanca", 1942. Where is Mark Olson and his PCAOB to crucify the Big 87654 which audit these banks for incompetence? Or worse? Are the Big 87654 and PCAOB complicit in delaying banks' loss recognition? YS writes of a "fictive disease of 'too much [bank] capital'." YS takes Chicago's Anil Kashap and Rajhuran Rajan and Harvard's Jeremy Stein seriously when I conclude they wrote tongue in cheek! Laugh. It's funny. A bank with too much capital? Hahahaha! Can you imagine a college fraternity party with too much beer? "Here you have fairly undiversified risk". Absolutely. Banking risks are uninsurable.
Why give the Fed, ECB and BOE the benefit of the doubt? I don't. Incompetence is their defense! These are smart guys. Helicopter Ben (1590 SATs) has a Harvard AB, MIT PhD and was a Princeton professor. I'm overwhelmed. Alan Blinder, AB Princeton, PhD MIT, is a Princeton professor. We should all kowtow in the especially servile Russian serf manner in each of these illustrious personages prescence.
Now for the meat: "Beginning in 1966, the Justice Department, as well as the Federal Trade Commission, became involved in investigations into possible anti-trust violations in the gypsum board industry. ... The indictment charged that the defendants had engaged in a combination and conspiracy 'beginning sometime prior to 1960 and continuing thereafter at least until sometime in 1973,' ... in restraint of interstate trade and commerce in the manufacture and sale of gypsum board", US v. US Gypsum, 57 L Ed 2d 854, 863 (1978). "The focus of the Government's price-fixing case at trial was interseller price verification", 864. "Rather, we hold that a defendant's state of mind or intent is an element of a criminal anti-trust offense which must be established by evidence and inferences drawn therefrom and cannot be taken from the trier of fact through reliance on a legal presumption of wrongful intent from proof of an effect on prices", 868. "In dealing with the kinds of business decisions upon which the antitrust laws focus, the concepts of recklessness and negligence have no place. ... [W]e conclude that action undertaken with knowledge of its probable consequences and having the requisite anticompetitive effects can be a sufficient predicate for a finding of criminal liability under the anti-trust laws", my emphasis, 874. "The business behavior which is likely to give rise to criminal anti-trust charges is conscious behavior normally undertaken only after a full consideration of the desired results and a weighing of the costs, benefits and risks. ... Where carefully planned and calculated conduct is being scrutinized in the context of a criminal prosecution, the perpetrator's knowledge of the anticipated consequences is a sufficient predicate for a finding of criminal intent", my emphasis, 875. Wow, what a mouthful from the Supremes! Imagine if the DOJ applied this concept to the Fed and Wall Street! Why distinguish mail, wire and securities fraud from anti-trust violations? If the DOJ acted, you'd have a waiting list for jail longer than the Ivy League, Stanford and MIT's combined waiting lists! The DOJ could start with Ben "Helicopter" Bernanke and Hank "formerly of Goldman Sachs" Paulson in the initial indictments.