Thomas K. Brown, a banking industry analyst and investor, writing at BankStocks.com, makes a point similar to what I made in my post, Elizabeth Warren’s heroic Senate demagoguery, that Warren’s Banking Committee YouTube performance was pure political grandstanding without substance or legitimate regulatory purpose.
As with her academic work analyzing bankruptcies, Warren took small data points (some banks trade below book value) and extrapolated to grand political gesturing (people think the books are not sound).
Here’s an excerpt from Brown’s post, Elizabeth Warren’s Preposterous Grandstanding:
Oh, now Elizabeth Warren is an expert on the stock market. “[M]any of the Wall Street banks right now are trading below book value,” she commented at a Senate hearing last week. “And I can only think of two reasons why that would be so. One would be because nobody believes that the banks’ books are honest, or the second would be that no one believes that the banks are really manageable.”
Actually, there are a few other possible reasons banks are trading below book. I’ll get to those in a minute. But first: can it possibly be true that after the banking industry has endured three straight years of federally mandated stress tests, four years of post-crisis independent audits, and more severe regulatory scrutiny generally, that Elizabeth Warren still believes the banking industry is cooking its books? How could they be? That would be one vast conspiracy! ….
First off, the vast majority of publicly traded banks do trade above book value. But among those that don’t, one possible reason for the discount that Sen. Warren didn’t mention has to do with the tremendous new regulatory load that Congress imposed on the banking industry, mainly via Dodd-Frank. This mountain of new regulations is making it difficult for some banks to earn their cost of capital. Those banks are trading below book value, therefore, because that book value will likely earn a paltry return and deserves to be discounted. It’s not bad assets that are holding the bank stocks down. It’s hyper-regulation—the kind that’s been championed for years by Elizabeth Warren.
Warren did the same thing with the concept of taking banks “to trial,” as Brown noted:
The Justice Department has spent the better part of the past four years trying to get the goods on some of the highest-profile names associated with the credit meltdown. They went after Dick Fuld and came away with nothing. They went after Angelo Mozilo and came away with nothing. They went after Kerry Killinger and came away with nothing. It could be—although Elizabeth Warren’s view of the world is so blinkered that she’ll never believe it—that while what Fuld, Mozilo, and the rest did might have been unwise and imprudent, it was not criminal. Considering all the time and effort the DoJ has spent looking into the matter, in fact, that would appear to be the case.
But Elizabeth Warren puts on an entertaining YouTube show, just the same. I had assumed her bottom-line goal as a member of the Senate Banking Committee would be to ensure adequate oversight of a banking industry that would still be an important source of credit for the economy generally. That’s entirely reasonable. But based on her harangue last week, it looks like I was wrong. All Elizabeth Warren seems to be interested in doing is bludgeoning the banking industry and the people who oversee it, just to play to her base. Thanks, Massachusetts!
I guess Eric Holder’s Justice Department must be part of the vast conspiracy to hammer the little guy while letting the rich bankers off? During the campaign it was the factory owners, now it’s the bankers.
Rather than rational analysis and reform, progressives yearn for a good old-fashioned political show trial. And they have found their prosecutor.
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Comments
I notice that Brown studiously avoided the words “Jon Corzine”.
For all the comic side shows associated with the gawky Liz Warren, at her core she is a very dangerous partisan ideologue. Scary.
But no one in MASS gave at hoot about who she really is.
Very interesting article with many useful and helpful data points accompanied by sound analysis of a very complicated issue.
Completely, totally and utterly useless when trying to convince a disinterested and economically illiterate population that overbearing government intrusion into business and social life is the cause of capitalism’s diminishing returns.
If Katy Perry could work it into a catchy little ditty though . . .
It’s interesting in its unreliability.
Warren grandstanding. No dispute.
Banks in good health. Dispute.
Here is a list of questions and answers to consider:
1. Have banks stopped gambling in the financial markets? No.
2. Are the TBTF banks bigger or smaller? Bigger.
3. What is the book value of bank assets in a non “mark to market” economy? Who knows, but unless the asset market has made a magnificent comeback, it makes sense to assume it’s business as usual, meaning the street value of held assets is significantly less, asymptotic to zilch.
4. In a money supply controlled entirely by a private centralized bank, what is the value of a bank’s cash holdings? Answer: However much you think it is. Paper money has value by dictat.
5. What’s the current reserve requirement for US banks? 10%, but for banks with less deposits, it can be 0%.
6. If there was a bank run, how would a bankrupt country make any depositors whole?
Last, it’s not true to say that bank stocks are trading above book value, because trading implies private stock buyers and sellers, not a stock market propped up by the government buying and selling stocks. Even if they weren’t manipulating the stock market, how the heck is a trader supposed to calculate a P/E ratio or any other metric of value on a company that is allowed and encouraged to list bad assets at full value, and can play risky reserve games with depositor assets? It’s madness.
Most muppets will have a very rude awakening one day, when they realize it’s all just smoke and mirrors. Creating money is not the same as creating value.
“Elizabeth Warren’s Preposterous Grandstanding”
It palefaces in comparison to her Pocahontas Grandstanding.
HA
put the arrow back in the quiver and drop the bow 🙂
I think that it might be time to get off the Warren (bashing) bandwagon and instead focus on issues that would be more productive. Warren will be a longtime Senator like Kennedy, Kerry etc simply that’s the way MA voters want it.
The next, albeit slim chance to attempt to influence is the race for Kerry’s replacement. Let others deal with the losses of the past that we had no control over.
We need to expend much less energy on fruitless dead issues…
Really? Have you forgotten Senator Obama, who became President before his six year term was up?
Do you really think that Warren has the oratory skills of Obama?
Better to concentrate on what we can win…
So you’re saying allow her to continue her fraud and continue to gain traction? Had we laid it on the line about Edward Kennedy early on — in the face of a corrupt news media, even back then – he would have never become the ‘icon’ he had.
You lost ground, so now you retreat? Think Patton, not Boehner.
Warren is no Kennedy for starters. No dynasty just BS.
Warren will end up like Kerry and become a national PIA but better that the the rest of us losing once again because of misdirected efforts.
The GOP and conservatives in general need to learn the skill of focus and execution…
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People are often shocked when I say that holders of advanced degrees are among the stupidest people I know. Now, if you want to talk about their area of expertise, of course they have a boatload of knowledge in it. But that doesn’t transfer outside their specialty, and it many cases the intensity of study required means they are less educated in other areas than the average bystander.
Warren is a classic example of this. I have no way to judge her performance as a lawyer or law professor, but her positions on public policy border on lunacy.
Krugman is another. Few understand that as an “economist,” he was expert in an extremely narrow field of study, the relationship between international trade and the business cycle. In that area he was the most learned in the world, and won a Nobel in Economics for it. But even one step outside that field, and he is out of his element, even though the topic is still “economics.”
His record of failure in predictions rivals that of Paul Ehrlich in environmental catastrophes. Already in the early ’90s, Carville was able to dismiss Krugman’s doomsaying with, “Paul has predicted 19 of the last three recessions,” only a slight exaggeration.
For a while, Donald Luskin tried to catalog Krugman’s errors of fact in his NYT column, but eventually had to give up: there was never a single column without multiple errors.
Great comment!
Having gone through graduate school later in life, it became apparent to me that much of the upper part of the class was merely very good at solving academic puzzles and documenting the results in exams.
That is the scam of the ‘intelligentsia:’ they test well.
Outside of that peculiar skill, they were of no more use — and often less — than most anybody else.
In Warren’s case, she’s a deranged, immoral person who tests well and has a talent and the drive to viciously capitalize on the ignorance of young voters she helped to indoctrinate.
Elizabeth Warren would push her wheelchair-bound mother off a roof if there was some benefit to her ambition. Imagine what this psycho has planned for us?
Forgot to mention: they also work hard, and are very disciplined. In school, anyway.
Sure people accepted into Ivies test well
Or, the cheat well to get in
or they are Eliz Warren
Warren, did not get accepted to an Ivy. She went to Houston and Rutgers. No Ivy degree whatsoever.
Nope, but once she took cheating seriously, once she started in on the fraud for real, the Ivies welcomed her with open arms. Tragic.
Economics isn’t a science, which is why they have to punctuate the prize by calling it the nobel price in “economic science”.
The scale is far too massive, and the variables far too complex. There is no reliable feedback mechanism.
Free markets.
Krugman is a stupid twat. Who cares if he won a Nobel prize? Yassar Arafat won a Nobel Prize for “peace.” So did Bobo the Clown before he went on a drone killing spree. They are as worthless as used toilet paper.
Amen. The “best and brightest” (Robert McNamara?) and “experts” (Ben Bernanke?) have been running and guiding (Cardinal Bernard Law?) the country now for over a half century. What a mess.
1. Brown’s specific examples of unsuccessful DOJ probes are well worth knowing & well worth keeping in mind for the next occasion when Warren opens her yap.
The regulators she took cheap shots at may wish they’d recalled those cases. I wonder if Warren was aware of those cases. I wonder if that’s why she resorted to gotcha ambush questions instead of giving the witnesses a heads-up before the hearing.
2. Iirc I’ve said this before: the plan is for Warren to run for President on Obama’s left.
If the economy is a shambles in 2016, the Left’s narrative will be that the government did not interfere enough. If the economy looks halfway decent, the narrative will be that things would be so much better if the government meddled more.
The low information voters of MA elected another Barney Frank (in drag(?!)).
We should prepare for another Fannie – Freddie – banking debacle that crashes the market.
Keep her away from FDIC!!
Barney Frank is Ronald Reagan compared to Elizabeth Warren.
Warren is a pure sociopath.
Don’t forget…
The Collective seems hell-bent on re-inflating the housing bubble.
http://freebeacon.com/a-different-standard/
Yep, and creating a student debt bubble to go along with it.
Exactly.
That’s why we need to focus on preserving what we have and by carefully selection what fights we should engage in.
The democrats are far more cunning as opposed to the GOP when it comes to demonizing your adversaries. Staying on the “high road” these days seldom yields positive results.
Fight fire with fire…
Being as this is a legal site, maybe someone here can answer a question that’s been nagging me.
In the body of law that applies to manufacturers, engineers, doctors, and just about everyone else, there is a legal concept called “negligence” where the defendant is held responsible for a defective automobile, bridge, or medical outcome because “he should have known”…
It is my understanding that in the financial world, there is no such legal principle; “Malicious intent” must be proven before someone like Jon Corzine can be prosecuted for
stealing“misplacing” $1.6 billion of his customer’s money.For someone like Corzine, simply saying, “I didn’t mean to harm anyone” acts as a get out of jail free card.
Am I mistaken?
Civil standard vs criminal standard.
If you are negligent you can be held liable and must pay $$
Criminal = loss of liberty = jail and requires intentionally bad conduct. Can’t normally go to jail for being merely negligent.
Thanks, but what about the two BP engineers who are facing criminal charges over the Deepwater Horizon explosion?
There is a Dr. Einaugler who went to jail for negligence in 1997. So Elizabeth Warren’s question still stands: Why do no financial industry CEOs ever face jail time?
When I watch Sen. Warren at work, I can’t get the word “harpy” comes readily to mind. Her posturing fierce demeanor is not justified by the lack of substance of her questioning.
The faux Cherokee-warrior’s war paint did not fool anyone except the naive Warren claque.
Should have read:
When I watch Sen. Warren at work, I can’t get the word “harpy” out of my mind. Her posturing fierce demeanor is not justified by the lack of substance of her questioning.
The faux Cherokee-warrior’s war paint did not fool anyone except the naive Warren claque.