Juggling Dynamite

Financial fraud expert Bill Black discussed the HSBC case on Wharton Business radio today. You can listen to an audio link of the discussion here.

William K. Black, a professor of economics and law at the University of Missouri-Kansas City noted that “there is hope” for regulators to clean up the banking industry. He cited the concept of “Gresham’s Dynamic,” which economist and Nobel laureate George Akerloff propounded in a 1970 paper. “The concept is that when you gain a competitive advantage by cheating, then markets will become perverse and bad ethics will drive good ethics out of the marketplace,” he said. “We can block those dynamics. That’s what our function is as competent regulators. We can recreate the rule of law so that honest bankers can prevail.”

We must demand that individual actors breaking the law in banks be arrested and charged. Nameless corporate fines, only enable criminal behavior.  Yet another government report this week confirms that the major investment banks still pose a menacing threat to international financial stability, with JP Morgan posing the largest threat of all.  See:  JP Morgan tops government risk list.

“There comes a point when a society breaks and stops believing anything its leaders say.”  –Ambrose Evans-Prtichard, Feb 11, 2015

Long past time to break up the big banks into smaller, individually accountable entities where deposit-taking and advising is completely separated from financial sales and speculating; where risk-taking is self-insured, and not backed by the public purse.  Time to close this very dark, destructive chapter in human history. Admit, repent, reform, recover.

Betting on a rebound in energy (and realty) prices from here, is a bet that global demand is strengthening not weakening. The trouble is, evidence of strength is scarce, to say the least. The Bloomberg clip below, offers an enlightened discussion on the deflationary forces of both excess supply and weak demand now sweeping the world. As Gary Shilling reminds here, the need for cash flow keeps levered producers pumping supply as prices fall, which naturally leads to even lower prices. At 7:20 in this segment, he offers a rationale for why $10/barrel oil may be in the cards. Important to note, oil shocks come from sudden plunges in price, not just spikes…

Gary Shilling, president of A. Gary Shilling & Co., and Wilbur Ross, chairman of WL Ross & Co., talk about the U.S. housing market and oil prices. Here is a direct video link.

Keeping oil anywhere north of $40 (brown band below) may prove quite challenging, given the back-to-back epic debt bubbles (marked below) that pushed it up, are now unraveling, and the weight of that debt is now likely to serve as an equal and opposite force in the other direction.