Notes From Underground

Germany added liquidity but it was all directed at the British goalie David James–nothing austere about their World Cup peformance. The news from the G-20 was as expected: Nothing short of a waste of time and the resulting communique will be the paradigm of vacuousness. The Chinese took center stage in that they spoke up for the developing nations, stating they wanted input in the discussions about global problems. We agree with the Chinese that the G-8 is an atavistic appendage of a past colonial world and is merely the delusional forum for those wishing to hold onto a past that left the arena long ago. Yes, we are sure that Russia, Brazil and the others that make up the most robust members of the emerging world want to advise the likes of Italy, Spain and France who have certainly failed to get their own economic houses in order.

The Obama administration is certainly on the correct path by giving the G-20 far more credibility than the G8, but they have failed to live up to their own rhetoric. Obama may want to include the BRICs et al at the BIG TABLE but then the question has to be asked: Why have they failed to reach trade agreements with the South Koreans and Colombians and why they have yet to remove the tariffs on Brazilian Ethanol? The answer to the Obama flim/flam, of course–domestic politics prevailing–but if that is always the case, why play this ridiculous game twice a year with these global conventions? The extravagance for a mere photo-op is preposterous.

On to the next game of three card monty called FINREG. We have certainly not read the 2,000-plus pages of rhetoric that passes for constructive policy and we bet that this legislation will be the most discussed and least read tome since Karl Marx published the three volumes of Das Kapital. The reulting legislation could have been done in a very tidy way by dealing with leverage, transparency, capital requirements and fiduciary responsibility. The fact that it got bogged down in consumer protection and other nonsense was merely the effective strategy of obfuscation.

Nothing makes the point of absurdity of emptiness more poignant then the New York Democratic Legislative delegation threatening to vote against the legislation in the wee hours of the morning. We vehemently believe that all New York legislators were going to vote against FINREG if, in fact, there was going to be any real harm to Wall Street–they kept quiet until the final minutes to not show their hand but you have to believe that the lobbying by Mayor Bloomberg and the governor’s office has to be very effective.

Members of the Obama administration went to the G-20 believing that their FINREG “success” would provide a foundation for the enactment of a similar type global banking regulatory framework. This is more nonsense for their MACRO PRUDENTIAL regulator already exists at the BIS. Interestingly, we learned Thursday night that the recently discussed BASEL III accord has been watered down as it was deemed too constrictive for the huge global banks in the current credit-stressed environment.

We remember when the esteemed BILL WHITE, the previous chief economist at the BIS, issued warning after warning in regards to the credit orgy that was enticing the world. Mr.White warned that it was of paramount importance for central banks to “lean” against asset bubbles and act in a counter-cyclical fashion. These warnings began in 2006 and we know that they went unheeded for as Chuck Prince said, “the music kept playing so we had to keep dancing.” We say that all this jawboning about global standards is just more blather from those who pretend to craft global policy. There will be no unification of standards and no Macro Prudential overseer anything like the FINREG. The music is playing and it loudly says, “You can go your own way,” because we certainly won’t be thinking about tomorrow.

Tags: Basel III, Bill White, BIS, BRIC, Canada, China, England, finreg, Fleetwood Mac, G-20, G-8, Germany, Macro Prudential, New York, Obama

This entry was posted on June 27, 2010 at 2:35 pm and is filed under G-20, Regulation. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.