Juggling Dynamite

**Marc Faber on repercussion risks to commodities and commodity-centric economies like Canada and Australia from the looming bust of China's property bubble.
See Bloomberg clip: Faber says China's Economy is showing “danger signals”.
** UK Telegraph: Sovereign debt tops IMF worries.
“The crisis has led to a deteriorating trajectory for debt burdens and sharply higher sovereign risk. Vulnerabilities now increasingly emanate from concerns over the sustainability of governments' balance sheets,” said the Fund's Global Financial Stability Report. Sovereign debt strains may infect the banks and “prolong the collapse of credit,” with the risk of a vicious circle as this feeds back into the economy.
**In a report delivered to G20 nations on Tuesday, but yet to be published, the IMF has urged countries around the world to impose two new taxes on financial institutions: a “financial stability contribution” which levies a small charge on their balance sheets, and a “financial activities tax”, which taxes excess profits, including bonuses.
The recommendations are likely to strike fear into a banking sector reeling from the US Securities and Exchange Commission's fraud charges against Goldman Sachs.
If imposed by G20 governments, the Fund's proposals are likely to have a significant impact on the profitability of all financial institutions.
See: IMF urges double tax hit on banks to refund taxpayers.
**Canadian Finance Minister Jim Flaherty showed his usual banking sector allegiance and hallmark lack of leadership today, lashing out against the idea of a global bank tax to repay taxpayers and fund insurance against future calamities in the sector: “There is no way Canada will co-operate with attempts to impose a global tax on banks” See Flaherty rejects any initiative for global bank tax.

More honest discussion on the progress of bank regulation. Something has been bugging me: we hear there are 1500 lobbyists on the US capital hill every day working for the banks to sway politicians and their policy. We hear this effort costs the banks about 1 million a day. What exactly do they spend 1 million a day on? Campaign contributions? dining? dancing? golfing? what? a million a day is a lot of petty cash. No wonder ideas like “the greater good of the nation” get lost.

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What a relief to hear Bill Black speak plainly yesterday in his testimony on the failure of Lehman Brothers before the House Financial Services Committee today. A text of his prepared remarks can be found here (PDF).
“Let’s start with the repos. We have known since the Enron in 2001 that this is a common scam, in which every major bank that was approached by Enron agreed to help them deceive creditors and investors by doing these kind of transactions.
And so what happened? There was a proposal in 2004 to stop it. And the regulatory heads — there was an interagency effort — killed it. They came out with something pathetic in 2006, and stalled its implication until 2007, but it’s meaningless.
We have known for decades that these are frauds. We have known for a decade how to stop them. All of the major regulatory agencies were complicit in that statement, in destroying it. We have a self-fulfilling policy of regulatory failure because of the leadership in this era.”

Bullshit has baffled brains for years on this. It is an embarrassment and a repulsive failure of leadership, morals and oversight. To move forward, we have to finally declare and acknowledge this fraudulent system and start fresh.