Friday, December 21, 2012

Cato 'Beefs Up' Its Financial Markets "Studies Research"

Wow, not even Ed Crane would try and pull this off, and Louise Bennetts looks like his kind of hire.

The new Cato Shrugged prez is, of course, John Allison, who was  Chairman and CEO of BB&T Corporation, the 10th largest financial services holding company headquartered in the United States.

So it is quite interesting that Cato brings on board a bank lawyer from a high-powered Wall Street firm.

Cato tells us:

Louise C. Bennetts is the associate director of financial regulation studies. She focuses on the impact of financial regulatory reform since 2008, including the attempts to address “too big to fail,” the effect of reforms on nonbank financial companies, the Volcker Rule and issues relating bank resolution and insolvency. 
Prior to joining Cato, she was a senior associate in the New York office of Davis Polk and Wardwell where she advised both banking and commercial clients on a wide range of corporate transactions, including leveraged lending, M&A transactions and bankruptcy-related advice. Most recently, her practice focused on bank regulation, in particular advising financial market participants on the impact of the Dodd-Frank Act and its implementation. Her writings have appeared in several South African publications, including ThisDay and the Mail and Guardian and previously she lectured macroeconomics and trade policy at the University of Cape Town and worked as an economist at Genesis Analytics, a Johannesburg-based consultancy firm specializing in the financial services industry. Bennetts holds a first class honors degree in Economics and an LLB (cum laude) from the University of Cape Town, an MA from the University of the Witwatersrand and is a member of the New York Bar.
She has one blog post up so far at Shrugged, where she points out, correctly, that that Glass-Steegall had no role in the financial crisis:
 Finally, a senior banking regulator has acknowledged the so-called repeal of Glass-Steagall had nothing to do with the 2008 financial crisis. In a recent speech, Fed governor Daniel Tarullo noted that most firms at the center of the financial crisis in 2008 were either stand-alone commercial banks or investment banks, and therefore would not have been affected by the repeal. Tarullo also expressed concern that a reinstatement of Glass-Steagall would be costly for banks and their clients and would result in less product diversification.
Of all the myths underpinning the response to the 2008 financial crisis, one of the most persistent is that the repeal of Glass-Steagall was a major contributing factor. So Tarullo’s comments are heartening.
However, in the same post, she also demonstrates that like her boss, she is clueless about the business cycle:
The banks that got into trouble in 2008 did so because they concentrated their risk in one kind of asset.
And her ability at hardcore Randian logic collapses even further from there, as she throws out an A=B (when B really isn't A):
The banks that got into trouble in 2008 did so because they concentrated their risk in one kind of asset. The firms that did comparatively well throughout the crisis avoided this particular mistake and were able to come to the rescue, admittedly with some government assistance, of their ailing counterparts—think Wells Fargo or JPMorgan. Firms fail when they make bad investment decisions, regardless of their structure.
Is she serious? Come to the rescue, like on their own, with just "some" government assistance for acquisitions?

Bloomberg tells us what really went down with JPMorgan Chase:
JPMorgan Chase & Co. CEO Jamie Dimon told shareholders in a March 26, 2010, letter that his bank used the Fed’s Term Auction Facility “at the request of the Federal Reserve to help motivate others to use the system.” He didn’t say that the New York-based bank’s total TAF borrowings were almost twice its cash holdings or that its peak borrowing of $48 billion on Feb. 26, 2009, came more than a year after the program’s creation.
CBS reports on Wells Fargo (my emphasis):
Wells Fargo hit the jackpot. It was one of the first banks to get bailout funds - the biggest amount awarded in a single shot: $25 billion tax dollars. 
So how's all that money being used? CBS News asked repeatedly and Wells Fargo told us it is "positioned well to continue lending across all sectors and satisfying customers' financial needs, which is in the spirit of the Treasury's plan."
Bottom line: The banks that "didn't get into trouble" were the ones that the Treasury and Hank Paulson protected. Wells Fargo took over Wachovia for $12.7 billion, with FDIC backing, and $25 billion in bailout money. Let me do some quick arithmetic here. Let's see. If Paulson gave me $25 billion in bailout money, I could buy Wachovia for $12.7 billion and still have $12.3 billion in walking around money---and probably even have enough to hire Tim Geithner as my personal man-servant, after his stint at Treasury.

So why this focused position on spread out assets as protection against a financial crisis? Hmm, there is a former banker who promotes this position, John Allison---as if the stock market and other capital goods sectors didn't collapse during the financial crisis,

Also curious is her overall support for big banks:
...multifunctional, diversified financial firms are not just more efficient and cost-effective than their more specialized counterparts; they are frequently more stable
This is a very bold statement to make. Given the way government regulations and programs prop up these big banks, we have no idea what a free market in banking would look like. Indeed, pull the government prop of FDIC insurance and individuals are likely to pull their money out of these confusing monstrosities. But, hey, judging from what Allison has written, he probably thinks  Bennetts hit it out of the beltarian park with that first post. Yes, Cato Shrugged seems to be no more about individual liberty, free  markets and peace, but instead about why big banks are great. Is that Jamie Dimon around the corner writing a check to Cato?