The Meridian Has Moved

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Movie Review: Inside Job

I finally was able to see the critically acclaimed documentary, Inside Job. The documentary was written, directed and produced by Charles Ferguson and recently won an Academy Award.

I had heard good reviews, but also heard that is was heavily slanted toward a view that Republicans were essentially the main cause of the crisis. I don't believe this too be accurate, the Democrats share just as much blame. In fact, the two parties worked very hard to be non-partisan in one area - Wall Street.

Inside Job does a great job of boiling down many of the root causes of the financial crisis (though not all of them). It was entertaining, educational and rightfully outrageous. Anger is the primary emotion I felt while watching. The one thing Inside Job does NOT leave you with is Hope. As I've stated many times over the past few years, Wall Street has become even more concentrated and powerful than ever, the exact opposite effect the crisis should have had.

We have a crisis in America, and it is only growing larger. That crisis is the control Wall Street has over our nation and its people. This is not a left wing or right wing observation, it's the reality. Until the banking industry is brought to heel, our nation will continue to be held hostage by Too Big Too Fail banksters.

Inside Job demonstrates the rise of the powerful financial industry and how deregulation fueled the fire. But it wasn't just Wall Street, Government failed the people and continues to do so. Both parties share responsibility, yet neither are willing to accept.

Few have been prosecuted, there is no Pecora Commission and financial reform was essentially defeated by the big banks.

I give Inside Job top ratings, its a great documentary that everyone should watch. You don't have to agree with Ferguson's politics to be outraged by what you will see.

While the movie offers little hope of change (how's that for irony), the fact that a movie like this was made at all and has gained so much fame is a positive sign.

Inside Job is available to rent now, I encourage you to watch.

Scott Dauenhauer, CFP, MSFP, AIF

Chart Store: Market Cap as a % of Nominal GDP

Prior to 1995 this measure of Stock Market Valuation had never been above 88% (this was right before the Crash of 1929). Since 1995 it has been over 100% the entire time with two brief movements below. The average is 62% - today it sits at about 125%, not an all time high (hit 180% in March of 2000), but still a number that should strike caution. Future returns from these levels do not look high.

Naked Capitalism: Regulatory Capture Is Alive & Well (

So yesterday I skewered Republicans for their lack of support of a Fiduciary Standard among all financial advice providers. Today I give equal time to their friends across the aisle, the Democrats.

Yves Smith over at Naked Capitalism Blog has a great article on Regulatory Capture:

Sleaze Watch: NY Fed Official Responsible for AIG Loans Joins AIG As AIG Pushes Sweetheart Repurchase to NY Fed


You can read the post, but the two doozies are:

Masaccio at FireDogLake was suitably outraged at this spectacle of a regulator getting a job with the biggest lobbying group in the industry he regulates…..and staying in his current oversight role:

The Washington Post reports that David H. Stevens will be taking over as head of the Mortgage Bankers Association. Stevens currently serves as Assistant Secretary for Housing in the Department of Housing and Urban Development, and as the Commissioner of the Federal Housing Administration. He has a conflict of interest so deep that he should be fired at once…

Allowing Stevens to stay on the job, and saying that it comports with ethics rules, is proof that the term “ethics” has lost all meaning. He is working on a settlement that in some news stories calls for a penalty of $20 billion, which only banksters think bears any relationship to the horrifying damage caused by these sharks, through jacked-up fees, fraudulent court filings, dual-track loan modifications and other sleazy tricks played on suffering homeowners. He comes from the industry, and is heading to the group that put out slimy reports condemning any steps that might aid homeowners, including judicial modification of mortgages in bankruptcy.

Why is he not immediately fired for cause? President Obama can’t even use his standard excuse, that we should look forward, not at the past. I’m looking forward, and I see a totally compromised person negotiating the future of millions of Americans.

So, a current official charged with heading the FHA (the main provider of all mortgages in the US right now) is leaving to head the Mortgage Bankers Association (an organization that has worked against consumers and modifications). This is a clear case of Regulatory Capture and a major ethics violation (or at least it should be).

As if that wasn't bad enough...more NY FED/AIG Corruption:

Aside from the hidden bailout, is that the NY Fed official who was responsible for overseeing Fed loans to TARP recipients, including the AIG loan, Brian Peters, joined AIG in late January. See this letter to the Committee on Oversight and Government Reform, based on subpoenaed information from the Fed, p. 8, the e-mail cited in footnote 31, for a sighting of Peters in action. Given the extensive interactions between the Fed and Treasury on the fight with Ken Lewis over his threat to walk from the Merrill purchase (the two were working in tandem here, and pretty much on all the major TARP recipients who got Fed loans), and the continued close cooperation between the Treasury and the NY Fed, it isn’t hard to imagine that Peters has good knowledge of and relationships with the key actors at the Treasury as well as at the NY Fed.

There is more to this Peters story, click the link to read it, but it is directly related to the current bid by AIG to buy assets from Maiden Lane II (owned by the Federal Reserve....The Taxpayers).

Obama promised change - so far all we've gotten is a further deepening of the financial services industry into government. This cannot end well. I guess I'd be more encouraged if there were an alternative, but the financial services industry owns the Republican party as well.

If this post seems to political - take out all references to Dem and Repubs and focus on the issue at hand - Regulatory Capture, the process where the industry being regulated hires those who have power over them and then uses those people to push their own agenda.

If you don't believe this is relevant I suggest you watch the documentary Inside Job, by Charles Ferguson.

Scott Dauenhauer CFP, MSFP, AIF

Does The Fed Even Understand Monetary Policy? Evidently Not

The United States is on a fiscal path towards insolvency and policymakers are at a "tipping point," a Federal Reserve official said on Tuesday.

"If we continue down on the path on which the fiscal authorities put us, we will become insolvent, the question is when," Dallas Federal Reserve Bank President Richard Fisher said in a question and answer session after delivering a speech at the University of Frankfurt.

Setting aside the massive budget deficits and whether or not fiscal austerity is a good/bad idea - its frightening that someone so powerful doesn't appear to understand our monetary system.

The United States is the sovereign monopoly issuer of its own non-convertible currency, it can not become "insolvent". The US has the ability to spend by crediting accounts (unlike states or european nations on the Euro) and thus is never fiscally restrained. This doesn't mean the US can spend at will with no consequences.

Is it possible Fisher does not know this?

Scott Dauenhauer CFP, MSFP, AIF