No Run on the Bank

Said a Cypriot lady, Maria,
At a bank branch in old Nicosia:
"With the caps they impose
On capital flows,
Withdrawal's a useless idea."

Bernanke's Records

Said Bernanke, in argumentation
To the makers of Fed legislation:
"You may think me a dove,
But take notice of
My record-low rate of inflation."

Those Congressmen failed to point out
That, for all of his monet'ry clout,
He couldn't deflate
The very high rate
Of laborers laying about.

Along came an eminence grise
Saying: "High or low rates such as these
Are attributed less
To your skill or success,
And more to the global unease."

S&P's To Blame

A debt crisis once was created
By avarice run unabated,
As the market was flawed
By schemes to defraud
In bonds that were triple-A rated.

Now Justice may fin'lly report
That they're taking the raters to court
For the role of those chaps
In the housing collapse,
In which they provided support.

Conditions Are Tight

Said Bernanke: "By now it is evident
That tight mortgage standards are prevalent,
Which is really too bad,
As it's time that we had
An impetus, not an impediment."

Federal Reserve Chairman Ben Bernanke gave a speech at a housing conference yesterday in which he noted the tight lending conditions currently prevailing in the mortgage market. Although loose lending standards contributed to the 2008 economic collapse, and tightening standards in response was appropriate, Bernanke said it appears that “the pendulum has swung too far the other way,” denying some creditworthy borrowers. This may slow the housing revival and impede the economic recovery, warned the Chairman.

That mortgage lenders remain reluctant to lend puts a spotlight on the limitations of Fed action, inasmuch as the central bank has recently begun a program to buy $40 billion a month of mortgage-backed securities as a way of freeing up the market's credit capacity. Chairman Bernanke spoke in Atlanta at the Operation HOPE Global Financial Dignity Summit. His remarks did not address the question of whether "financial dignity" is an oxymoron.

MBA Cost/Benefit Analysis

"When the market was anxious and tense,
An MBA seemed to make sense,
But a growth outlook that
Is still very flat
Makes B-school a lavish expense."

Business school applications have fallen 22% worldwide from last year's levels, apparently due to the uncertainty bred by prolonged economic weakness. The flaccid recovery makes the expense of an MBA, coupled with two years' foregone income, look like a risky bet. One exception: my alma mater, the Stanford Graduate School of Business, saw a 1.5% increase in applications. Stanford has re-emphasized the applicability of its management training to a broad range of business, public and social issues, perhaps tapping into a strain of idealism that looks beyond a weak economy. Then again, it could just be the proximity to $AAPL and $FB.

The Oracle of Limerick

Said the Irish economist, Kinsella:
"Our economy isn't quite insular;
We may seem like a rock
'Til we're hit by a shock
From Madrid or the Roman peninsula."

This weekend marked Limerick Day, otherwise known as the birthday of Edward Lear, who first popularized the limerick. On that day, the thoughts of an economic limericker naturally turn to Limerick's economist Stephen Kinsella. Professor Kinsella of the University of Limerick recently wrote a blog post asking "What Is The Important Thing No-One Is Saying?" His answer:

Irish people, I think, see that we really aren't the masters of our own destiny: that events in another country anther state could spell the end for us regardless of the choices we make. Were Spain or Italy to default, if the bond markets do not recover sufficiently from their current turmoil, and if the European authorities do not recognize the need for growth in the periphery to offset unsustainable increases in private debt that have been made public, we are sunk.

We can only hope that our next Limerick Day will find less anxious times for the citizens of Limerick.

Money, Power & Wall Street - The Limericks

The tale of financial collapse
Is ever-enthralling, perhaps
Because of the way
The reckoning day
Has evaded those gluttonous chaps.

Thus, a crisis with hardly an equal
Has an ending that doesn't quite speak well,
Like a Hollywood thriller
Whose psychopath killer
Escapes to return in the sequel.

On Monday evening it seemed as though the whole of the financial Twittersphere was glued to, and tweeting about, the PBS Frontline documentary "Money, Power & Wall Street". Although we all know the story by heart, it seems that we cannot tear ourselves away; perhaps because, four years later, so little has changed in the financial landscape and no-one has been brought to justice for wrecking the global economy. It's really as if "the killer is still free." Some of the evening's most memorable tweets reflected this foreboding sentiment, from the earnest:

Truly, how can people watch this and still say we should repeal financial regulation and go back to the old status quo? #frontline

— Austan Goolsbee (@Austan_Goolsbee) April 25, 2012

To the angry:

Derivatives STILL remain exempt from Insurance regulations, have no reserve requirements $AIG $BAC $C $LEH $BSCwashingtonpost.com/business/credi… $$

— Barry Ritholtz (@ritholtz) April 25, 2012

To the snarky:

Obama: "I'm gonna change everything on Wall Street, right after I take this meeting with Robert Rubin..." #frontline

— Downtown Josh Brown (@ReformedBroker) April 25, 2012

What's your take on the crisis and the documentary?

Unrepentant

The enablers of fraudulent crises,
Reluctant to give up their vices,
Periodically line up
For pols who will sign up
To learn what their fiscal advice is.

In a scathing guest post in the Big Picture blog, financial fraud expert Bill Black despairs that so many economic advisors with track records of enabling "green slime" in the banking sector are unrepentantly pushing the same policy prescriptions. "Romney's lead economist urges policies that will cause the next financial crisis" is Mr. Black's headline. He singles out Mitt Romney's lead economic advisor (and George W. Bush's erstwhile lead economic advisor), Greg Mankiw, for special criticism. Prof. Mankiw's latest New York Times column extolls the virtues of governmental competition in the regulatory sphere, when there is ample history to show that such competition devolves to a "race to the bottom" leading to a lax regulatory environment that invites criminality. The most famous example is of course the savings & loan crisis of the 80's.

Full disclosure: Prof. Mankiw and his famous graduate student Jodi Beggs gave Dr. Goose his first big break in economic show business.

Bernanke's Debt Crisis Lecture

"Calamitous circumstance thrust me
Into coping with crisis robustly,
And in daring to bail
The Too Big To Fail,
I rescued your tail, you can trust me."

Federal Reserve Chairman Ben Bernanke, in the third of his four lectures at George Washington University on the Fed and the financial crisis, told his students that the Fed's extraordinary 2008 actions prevented a "total meltdown". Said the Chairman, "I think the view is increasingly gaining acceptance that without the forceful policy response that stabilized the financial system in 2008 and early 2009, we could've had a much worse outcome in the economy." One of Mr. Bernanke's key slides, shown at right, compares the trend of industrial production in the periods beginning in 1929 (blue line) and 2008 (red line); by comparison with the Great Depression, the Chairman tells us, it's clear that things could have gone much worse this time.

Student Loan Bubble

When Millicent borrowed for college, she
Was taken aback by the knowledge she
Could have them remit
As much for French Lit
As for Health Information Technology.

The Wall Street Journal's Real Time Economics reports that surging federal student loans are confounding the general trend of consumer debt reduction. Thanks to our highly leveraged collegians, overall consumer debt increased by $18 billion (+0.7%) in January. As Dr. Goose and many others have warned previously, the rise in student debt, coupled with rising unemployment among young people, is an explosive trend. One step that could deflate this student loan bubble would be to introduce some form of credit underwriting to the process. Linking the availability of loans to the likelihood of a program of study to produce employable skills would help to restrain excess lending and direct young people into viable careers.

Conflict of Interest

Said an econ professor named Booth,
While instructing America's youth:
"The Original Sin
Of the business I'm in
Is to advocate, heedless of truth."

Members of the American Economics Association took a big step forward this past weekend at their annual meeting in Chicago, when they voted to adopt a code of ethics to address conflicts of interest. The 2010 Academy Award-winning documentary film "Inside Job" shone a harsh light on the ties of well-known economists to companies that later went bust in the financial crisis. Director Charles Ferguson charged that social scientists' lucrative and undisclosed ties to corporate interests caused them first to miss the signs of the impending crisis, and then to recommend policies that benefited their clients at the expense of the broader economy. Inside the AEA, professors such as the University of Illinois' Deirdre McCloskey echoed and amplified that view: "The master sin, in American economics especially, is advocacy without regard for the truth," she said to fellow delegates.

The new code of ethics is a first corrective step, limited to disclosure of potential conflicts of interest. AEA members will now have to disclose all sources of financing for their research and all "significant" financial relationships with groups or individuals with a "financial, ideological or political stake" therein.

Fannie, Freddie, Financial Crisis

A party that needn't be named
Made GSEs chiefly to blame
For the mortgage collapse,
Though inquisitive chaps
Say the data don't back up this claim.

Writing in The Big Picture blog, Roosevelt Institute fellow Mike Konczal brings out the data to refute the oft-heard claim that the cause of the mortgage crisis was Congress' pushing Fannie Mae and Freddie Mac to make imprudent loans. Among the key facts:

• More than 83% of subprime loans issued to 2006 were from private firms, and went into the private label securitization market. 
• From 2002-2005, the GSEs (government-sponsored enterprises, such as Fannie and Freddie) saw their share of US mortgage originations drop from 50% to 30%. 
• Before the crash, conservative think tanks such as the American Enterprise Institute were arguing that the GSEs were were blocking the issuance of subprime mortgages, by purchasing too few of them. 

Obama Harps on his Refi Program

"Since Congress won't do as they oughta
For folks who have homes underwater,
As Lender-in-Chief, I
Will back ev'ry refi
Allowed by executive order."

With an eye toward the 2012 election, President Obama has evidently decided that half measures taken on one's own are better than whole measures frustrated by House Republicans. Thus, the Administration announced with great fanfare a loosening of restrictions on its HARP (Home Affordable Refinance Program), which would actually benefit only one out of eleven underwater homeowners. For those mortgagors with loans taken out before May 2009 and guaranteed by Fannie Mae or Freddie Mac, the new HARP will allow a refi at any loan-to-value ratio, doing away with the former 125% limit. Indications are however that only about a million homeowners qualify for this "expanded" program, and it does not appear that the pace of refinancing will pick up, so the most telling impact of the new HARP may be on the campaign trail, when the President runs against the "do-nothing Congress."

Atlas Shrunk

If the strong want to lift up the weak,
As the Germans and French would the Greek,
It is best if such acts
Do not overly tax
The Teutonic or Gallic physique.

Plans to support the public finances of Europe's peripheral nations have been thrown into fresh doubt by the news that France's Aaa rating from Moody's is under pressure.  The rating agency's French analyst, Alexander Kockerbeck, noted that France has "a lot of additional risks we did not have in the past," pointing to "developments in the euro zone."  The €440 billion European Financial Stability Facility is designed to let the triple-A countries guarantee some of the debts of the shakier ones.  If France is downgraded, then the EFSF must either do without the €158 billion French participation, or accept a double-A rating.  Germany may be bracing for a heavier burden.

European Financial Stability Negotiations

Said Merkel, "On this I agree
With Monsieur Président Sarkozy:
There's a pretty good chance
Of a downgrade for France
And political fallout for me."

Against the backdrop of the failure of the French-Belgian bank Dexia, French President Nicholas Sarkozy met with German Chancellor Angela Merkel on Sunday to resolve their differences over the path to European financial stability. The two announced to the press that a deal would be struck by the end of the month, meaning that agreement is still a long way off. France would like its banks to have access to the European Financial Stability Facility for capital support, but Germany - the biggest contributor to the EFSF - would face domestic political unrest. The Germans, for their part, would like troubled banks to draw on private or national capital sources, but France might face a downgrade if it tried to shore up its banks on its own. A Franco-German agreement is key to resolving the Greco-Italo-Hispano debt crisis that grips Europe.

Oktobernomics

Said a sturdy Oktoberfest waiter,
Dressed up in his Hosen of Leder:
"Is this best-ever year
For consumption of beer
A good or a bad indicator?"

Organizers of the Munich Oktoberfest reported that 6.9 million visitors drank a record 7.5 million liters (2 million gallons) of beer this year.  (Many readers may not be aware that the annual festival actually runs from September 17 to October 3.)  Hungry quaffers ate hundreds of thousands of roast chickens, 118 oxen and miles of sausage as well.   Is all this record-breaking revelry a positive indicator for Europe, or are crisis-weary Germans simply drowning their sorrows in Löwenbräu? One sign of a new frugality amidst the excess: the Münchener Polizei reported fewer brawls in which beer steins (or Maßkrüge, in the local vernacular) were broken over someone's head.

The $1.2 Trillion Rainy Day Fund

At a time which the bankers were stunned in,
The Fed gave emergency fundin'
To hundreds of banks
Of high and low ranks
In New York, Waukegan and London.

The US Federal Reserve has published the data on the 21,000 emergency loans to over 400 recipients, totaling $1.2 trillion, that it made from August 2007 to April 2010. Thanks to Bloomberg, the public can now comb through some very illuminating interactive graphics to compare and contrast the credits to companies large and small, American and international, banks and non-banks. Most know that the heaviest bailing-out went to Morgan Stanley, Citi and Bank of America; many are also aware that European banks such as Deutsche, Dexia and Dresdner availed themselves. But how many know of the lifelines thrown to Legacy Texas Group, Sharon Savings Bank and Stupp Bros.?

Greco-Franco-German Wrestling

EC President José Barroso
Says: "The scope of the Greek crisis grows so!
Will combined intervention
Of Germans and French in
This crisis suffice? I suppose so."

Like a pair of grappling Olympians, the leaders of Germany and France are trying to pin down the Greek credit crisis before it injures the Spaniards and Italians. Details of the new accord reached between German Chancellor Angela Merkel and French President Nicolas Sarkozy Wednesday night in Berlin have not yet been revealed, but are expected to include fresh emergency loans to Athens from euro zone governments and the IMF. European Commission president José Manuel Barroso warned all of his member states of the dire global economic consequences of failing to act decisively: "None of these Tea Party shenanigans," he admonished. #notreally

Adrift on the Red Sea

A maritime man from Schenectady,
Surveying the seascape dejectedly,
Said: "A fifth of home loans
Are, like Davy Jones,
Underwater, with negative equity."

"Are homeowners fixing their balance sheets?" asks the Wall Street Journal's real estate blog, and cites lower-trending US mortgage default figures as a hopeful sign. However, it goes on to say that the "shadow inventory" of homes in foreclosure -- as well as those with defaulted or delinquent loans likely to be foreclosed on -- has remained consistent. CoreLogic recently estimated that 22.7% of all homes have negative equity, a figure essentially unchanged over the last two years. Bewarrrre Davy Jones locker, all ye mortgage lenders!

A Deadbeat's Confession

"When my debt service proved but a fiction,
The bank didn't press for eviction,
As experience showed
That an empty abode
Would only invite dereliction."   

A visitor from Florida gave anecdotal evidence that many mortgage lenders there would prefer to allow a defaulted borrower to remain, and maintain a house, rather than foreclose and invite the unwanted attention of squatters and vandals in neighborhoods with many vacant homes.