On the other hand … or is it Hoof?

In what is undoubtedly good news, the US Bureau of Economic Analysis (Dept. of Commerce) has announced that REAL GDP grew by approximately 3.5% in the third quarter of 2009. That is up from the second quarter growth of .7%. It appears that the economy may be rebounding from the so-called “Great Recession”. However, as with everything, the devil is in the details and the details show that this occurred because of government support. This will be good news for those folks that supported the Stimulus Plan. Details underlying the growth still show that the private sector, however, has yet to pick up slack. This means the growth has not worked its way through the economy in a way that makes it firmly sustainable. The increase in Consumer spending seem rooted firmly in the cash-for-clunkers program as well as the tax credits to first time home buyers. These programs have ended so now we have to look for sustainable consumer spending in areas not financially supported by government programs.

Policy makers will now focus on whether the recovery, supported by federal assistance to the housing and auto industries, can be sustained into 2010 and generate jobs. The record $1.4 trillion budget deficit limits President Barack Obama’s options for more aid, while Federal Reserve officials try to convince investors that the central bank will exit emergency programs in time to prevent a pickup in inflation.

“A lot of this is thanks to government support,” Kathleen Stephansen, chief economist at Aladdin Capital Holdings LLC in Stamford, Connecticut, said in an interview on Bloomberg Television. “The consumer, in fact private demand in general, is not ready yet to pick up the growth baton from the government.”

There has yet to be any signs that improvements will be permanent. The Labor Market, traditionally sticky, has yet to turn around in a fundamentally good way.

A report from the Labor Department showed 530,000 workers filed claims for jobless benefits last week, more than anticipated and signaling the job market is slow to heal even as growth picks up.

There is an extremely good piece over at Naked Capitalism that explains the situation right now called “The choice is between increasing or decreasing aggregate demand” written by Edward Harrison of Credit Writedowns.

(It’s a bit wonky so be forwarned.)

As I see it, the issue we are debating has to do with how the government responds when large debts in the private sector constrain demand for credit in the face of a severe economic shock and fall in aggregate demand. In short, if private sector debt levels are so high that a recession precipitates private sector credit revulsion, how should government respond?

This is a good question as it gets to the heart of what to do next if you’re the government and it reflects reality on the ground which are the constraints facing the economy due to continuing credit market problems. The one thing that the discussion fails to address is the fact that quantitative easing by the Fed is not feeding into the credit markets as much as it appears to be feeding a bubble on Wall Street eagerly supported by the Great Vampire Squid and other enemies spawning in the unfathomable deep. The article focuses on the paradox of thrift and the question “Do we really want the private sector to save at the moment?”

The deal is, we’ve plenty of money circulating through the financial markets at the moment because of actions by the FOMC and of course, the Treasury. The problem is where it’s going. Easy money is financing merger activities and arbitrage rather than underlying investment that promotes long run economic growth. This is the same bubble-producing activity that brings us to no good ends. We really don’t need savings as much to fund business as much as we need business to feel like it can make commitments to job-producing, goods and servicing producing capital investments funded by the financial sector that should be forced to stop its casino banking activities. If anything, we need savers to step up and buy government debt, sort’ve an any bonds today movement to stop our reliance on foreign sources and free ourselves of obligations to human rights violators like the Chinese and Saudis.

Death by Bubble

Economist Andy Xie says Lehman Brothers died in vain and that it’s just a matter of time before we get hit by another deadly bubble. His guest post at Caijing Magazine is just so dead on that you must go read it.

There has been plenty to learn from last year’s miserable economy and near collapse of key financial markets but U.S. policy makers appear to rebuilding the same system with the same ghastly mistakes in place. We cannot afford to be complacent about this because if it’s done, another huge mishap can’t be far behind. Xie explains that the entire financial system is one big Lehman now and has become much more costly to bail out.

So Lehman died in vain. Today, governments and central banks are celebrating their victorious stabilizing of the global financial system. To achieve the same, they could have saved Lehman with US$ 50 billion. Instead, they have spent trillions of dollars — probably more than US$ 10 trillion when we get the final tally — to reach the same objective. Meanwhile, a broader goal to reform the financial system has seen absolutely no progress.

‘Absolutely no progress’ may actually be an optimistic estimate of the current situation. No progress would mean, to me, we’re not rebuilding the same time bomb. Xie’s article is remarkable in that it deconstructs the arguments one-by-one that we’re hearing that things are really changing, What we actually have is the proverbial shuffling of the chairs on the financial Titantic.

Top executives on Wall Street talk about having cut leverage by half. That is actually due to an expanding equity capital base rather than shrinking assets. According to the Federal Reserve, total debt for the financial sector was US$ 16.5 trillion in the second quarter 2009 — about the same as the US$ 16.6 trillion reported one year earlier. After the Lehman collapse, financial sector leverage increased due to Fed support. It has come down as the Fed pulled back some support, creating the perception of deleveraging. The basic conclusion is that financial sector debt is the same as it was a year ago, and the reduction in leverage is due to equity base expansion, partly due to government funding.

This, of course, leads to the most fundamental question of all. What happens when the government funding disappears? I admit that I see no end to that infusion unless the Fed or some other central bank becomes spooked by the possibility of inflation. These institutions would have to be rebalancing their portfolios in lieu of all the M&A activity they’ve undertaken this year to be able to live with out cheap government funds. Some of them may be repaying the TARP funds, but the real deal happens when Quantitative Easing and ZIRP ends. We’ve had no indication from the FOMC or Bernanke that that’s in the works any time soon but I can tell you, one little glimpse of inflation and the game ends there.

Now, here’s my favorite point. It’s this bull market where the shadow banking system profits from churning and running up your own portfolio by selling it back and forth between the parent and subsidiaries to create a false sense of momentum.

…financial institutions are operating as before. Institutions led in reporting profit gains in the first half 2009 during a period of global economic contraction. When corporate earnings expand in a shrinking economy, redistribution plays a role. Most of these strong earnings came from trading income, which is really all about getting in and out of financial markets at the right time. With assets backed up by US$ 16.5 trillion in debt, a 1 percent asset appreciation would lead to US$ 16.5 billion in profits. Considering how much financial markets rose in the first half, strong profits were easy to imagine.

Trading gains are a form of income redistribution. In the best scenario, smart traders buy assets ahead of others because they see a stronger economy ahead. Such redistribution comes from giving a bigger share of the future growth to those who are willing to take risk ahead of others. Past experience, however, demonstrates that most trading profits involve redistributions from many to a few in zero-sum bubbles. The trick is to get the credulous masses to join the bubble game at high prices. When the bubble bursts, even though asset prices may be the same as they were at the beginning, most people lose money to the few. What’s occurring now is another bubble that is again redistributing income from the masses to the few.

Yup, there it is. The idea that many of the bigger players are just trying to run up the market enough to entice the suckers back near the top. Catch the one about redistribution? We’re basically using cheap money to finance the reverse Robin Hood scenario one more time.

Who Holds Wall Street Accountable?

If your answer included any of number regulators or congress with its oversight duties or the traditional media with its watchdog of the public duties sorta answer, that would be a wrong answer. There were so many articles today about past and present Wall Street tomfoolery that I almost forgot to check the Wall Street Journal or The Hill. Instead, I”m relying on my subscriptions to things I’m supposed to be reading in the bath tub with Chopin playing in the background and a glass of Pinot Grigio nearby. Today, the best read came from Vanity Fare and was written by Andrew Ross Sorkin. (My Vanity Fare showed up today along with my latest copy of The Economist with the cover shouting “After the Storm: How to make the best of the Recovery.” ) My bottom line is still that Wall Street caused this and they are not only NOT cleaning it up, they are not being cleaned up.

I’m also checking out Matt Taibbi and TaibBlog now that his infamous vampire squid article in July’s Rolling Stone defined the shadowy world of Goldman Sachs better than just about any thing I’ve recently read. Matt’s blog today takes on naked selling or ‘naked swindling’ in the succinct framing of the Wall Street Deal that I now consider better jargon than that of the derivatives blah blah blah that I was taught in any of my PhD level corporate finance or investment classes. I may be able to do the proof for the Black Scholes formula but I will never be able to prove its social usefulness.

Actually, this takes me back to the Grey Lady and my first read of the day about the now bankrupt Simmons Bedding company that was the cash cow purposely inflicted with mad cow disease. Now days, it’s still more about the arbitrage deal and the leveraged deal that produces dividends than it is about what a company produces and the lives of the workers and long time managers who produce valuable stuff. It’s no longer build it and they will come. It’s leverage it to the hilt, take your dividends now, and find the next sucker with the next model that can hyperactivate the milking machine. It’s another real life example of Gordan Gekko and the greed is good speech. Spend some time with the Simmons story before you hit Taibblog and definitely the Sorkin article in Vanity Fare. It’ll put you in the right frame of mind.

Revenge of the Beta Males

There’s only a few places in the real world where Beta Males get to whoop it up and extract their revenge on the Alphas that shoved them around during their model-building, star wars loving, well-spent but unhappy youths. Those places would be on Wall Street, what passes for journalism these days, and Washington D.C.. It’s occurred to me that these places contain Beta Males that are natural allies. Since none of these folks ever got to sit at the kewl kids lunch tables in high school, they’ve built their special lunchrooms where no one else can venture without getting hall monitor passes from the former high school hall monitors. It’s also probably why we’ve now built an economy that no longer builds anything useful but gets increasing amounts of money from mathematical gambles and laws that favor insiders. It’s the only area where the Beta Males can dominate. If you can’t play football, at least you can bet on the game, win big, and eventually buy yourself a former cheerleader.

I went out in search of some evidence that we might rein in the market malpractice on Wall Street, and instead found that we’re just as likely to be setting up another financial crisis as not. Maybe I should throw up my hands and follow the lead of George Soros. I should start a hedge fund that bets on the stupidity of Wall Street aligned with the duplicity and complicity of politicians and journalistic misinformants. That way I could buy my own island and avoid the next financial crisis.

It seems bringing translucency to the market (a goal in a true market economy) would only benefit those on the outside looking in and we can’t have that. It might bring the rest of the world back to the lunchroom tables. We continue to have Republicans blocking everything because of their incessant worship of the idols of false capitalism. How can so few understand so little and gum up the works for so many? This quote appalled me.

“The president has offered a reform proposal that would grant broad new authorities to government bureaucrats while intruding in private markets and restricting personal choice,” said Spencer Bachus of Alabama, the senior Republican on the House Financial Services Committee. “The obvious lesson of the events of September 2008 is that we need smarter regulation, not more regulation, not more government bureaucracy, and not more incentives to engage in harmful business practices.”

This is a man truly devoid of intellect and any sense of how a competitive market functions. Removing frictions like information asymmetry, huge single powerful players, or moral hazards makes markets work beautifully. Civilization has regulated its financial markets since Hammurabi for very obvious reasons. How can you come up with real political discourse when the opposition is so obviously factually handicapped?

The Bear Whisperer

Bless his little heart. He called for “common sense” rules for Wall Street. He had sharp words of warning for those who didn’t learn the lessons from Lehman Brothers and the global financial crisis. Isn’t that nice? We no longer have to “speak softly and carry a big stick”? I guess those were different times and a different president. Now, we get to speak sharply and carry a big brief case full of cash.

Just in case you missed it (or lectured through it like I did), here’s the full text of President Obama’s Wall Street Speech today.

Oh, and let me be the first to say that our President needs to take a basic finance course or maybe it’s Jon Favreau that needs it.

In fact, while there continues to be a need for government involvement to stabilize the financial system, that necessity is waning. After months in which public dollars were flowing into our financial system, we are finally beginning to see money flowing back to the taxpayers. This doesn’t mean taxpayers will escape the worst financial crisis in decades unscathed. But banks have repaid more than $70 billion, and in those cases where the government’s stake has been sold completely, taxpayers have actually earned a 17-percent return on their investment. Just a few months ago, many experts from across the ideological spectrum feared that ensuring financial stability would require even more tax dollars. Instead, we’ve been able to eliminate a $250 billion reserve included in our budget because that fear has not been realized.

Bottom line: The Banks that didn’t need the money paid it back in a hurry to avoid some one tampering with their executive pay plans. The rest that’s out there (including Citibank’s share) will probably languish for ever or pay ever so slow. POTUS can brag about a 17% return by just simply ignoring the rest of the languishing money and just paying attention to the ones that pay back. After all, Wall Street ignores their toxic assets, why can’t he? Nice to be able to select the AAA tranche of the investment and only count the return on it instead of the entire portfolio. Tsk! Tsk! Tsk!

Speechification Alert

Who stole the Cookies from the Cookie jar?Great illustration in today's New York Times: Banker's and the taxpayer cookie jar

Well, it’s my turn to listen to a Obama Speech. Those speeches usually have the same dizzying effect on me that tennis matches do. Instead of watching balls go back and forth rhythmically while lulling me to sleep, I get to watch the head of the President. Teleprompter Right, 1,2,3 to Teleprompter left, 2, 3 …

So the speech is on bank reform which is something I’ve been on about for months now. It’s the anniversary of Lehman’s demise. Stories abound on the Grey Lady today including this call by Dr. Tyler Cowen of George Mason University. He’s a little libertarian for my taste on policy–even managing a h/t to Ayn Rand and Atlas Shrugged–but he gets it all in a way that only an economist could.

But we are now injecting politics ever more deeply into the American economy, whether it be in finance or in sectors like health care. Not only have we failed to learn from our mistakes, but also we’re repeating them on an ever-larger scale.

Lately the surviving major banks have reported brisk profits, yet in large part this reflects astute politicking and lobbying rather than commercial skill. Much of the competition was cleaned out by bank failures and consolidation, so giants like Goldman Sachs and JPMorgan had an easier time getting back to profits. The Federal Reserve has been lending to banks at near-zero interest rates while paying higher interest on the reserves the banks hold at the Fed. “Too big to fail” policies mean that the large banks can raise money more cheaply because everyone knows they are safe counterparties.

President Dwight D. Eisenhower warned of the birth of a military-industrial complex. Today we have a financial-regulatory complex, and it has meant a consolidation of power and privilege. We’ve created a class of politically protected “too big to fail” institutions, and the current proposals for regulatory reform further cement this notion. Even more worrying, with so many explicit and implicit financial guarantees, we are courting a bigger financial crisis the next time something major goes wrong.

We should stop using political favors as a means of managing an economic sector. Unfortunately, though, recent experience with health care reform shows we are moving in the opposite direction and not heeding the basic lessons of the financial crisis. Finance and health care are two separate issues, of course, but in both cases we’re making the common mistake of digging in durable political protections for special interest groups.

I have to admit that I’ve written about similar concerns, however, I can tell Cowen and I may differ on how to correct the situation. That’s typically true of most economists. We agree on the root causes because of our grounding in shared theory but argue which policy might be best based on our political bent. I continue to argue for the role of government as rule setter and referee. However, I really do prefer independent bureaucrats in the position of auditor and enforcer. Congress, however, still has to write the law. This action, to date, has been missing.

So, MarketWatch has provided a pre-speechification programme so that we can get our score card ready. The speech is supposed to “rekindle” interest in regulatory restructuring. I’m not sure we need restructuring so much as we need laws that recognize the systematic problems we’ve developed in financial markets since quants have turned asset pricing into a physics exercise, financial innovations have become exotic, and the entire set up is now one big cartel waiting to pounce on the unsuspecting business sector and consumer. We now have a small number of banks capable of funding the really big capital undertakings and who knows what priorities or friends they’ll choose to fund over positive net present value projects? This should be enough to send any capitalist running for government regulation. Also, get ready for lack of services and fees that would make a loan shark blush. This should make any advocate for the little guy scream for the same. Today, I am the jade dakini. It’s happening in Europe but I doubt it will happen here.

So, what is Obama said to be inkling tomorrow that will be undoubtedly be sacrificed to the demons of political expediency down the road?

and the Band Played On

So the so-called conservatives are having their so-called freedom event with so-called commentators and news anchors from so-called news stations. It’s all a side show to the real problems of the country. It’s easy to misplace anger in an environment where misinformants rule the airwaves.

So, let me show you where the real theft is happening, in case you may have missed it.

First, the FDIC released yet another move towards creating a financial banking cartel. Another one bites the dust.

Corus Bank, National Association, Chicago, Illinois, was closed today by the Office of the Comptroller of the Currency, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with MB Financial Bank, National Association, Chicago, Illinois, to assume all of the deposits of Corus Bank, N.A.

But you know there’s really nothing to see here at the NY Times: A Year After a Cataclysm, Little Change on Wall St. Much more important to focus on creeping socialism and taking our government back from imagined enemies.

One year after the collapse of Lehman Brothers, the surprise is not how much has changed in the financial industry, but how little.

Backstopped by huge federal guarantees, the biggest banks have restructured only around the edges. Employment in the industry has fallen just 8 percent since last September. Only a handful of big hedge funds have closed. Pay is already returning to precrash levels, topped by the 30,000 employees of Goldman Sachs, who are on track to earn an average of $700,000 this year. Nor are major pay cuts likely, according to a report last week from J.P. Morgan Securities. Executives at most big banks have kept their jobs. Financial stocks have soared since their winter lows.

No nothing to see here. Wait, a minute. Maybe we should listen to people with some expertise instead of Glenn Beck or Rush Limbaugh who couldn’t even get one college degree or a freshman’s worth of credits between them . Maybe we shouldn’t focus on sycophants like Chris Matthews or Keith Olbermann who just want to hear themselves talk and hump each others legs until they tingle.

In fact, though, regulators and lawmakers have spent most of the last year trying to save the financial industry, rather than transform it. In the short run, their efforts have succeeded. Citigroup and other wounded banks have avoided bankruptcy, and the economy has sidestepped a depression. But the same investors and economists who predicted, and in some cases profited from, the collapse last fall say the rescue has come at an extraordinary cost. They warn that if the industry’s systemic risks are not addressed, they could cause an even bigger crisis — in years, not decades. Next time, they say, the credit of the United States government may be at risk.

Yup, what have we been talking about here for month after month after month, while we get named called every imaginable insult from one end of the political spectrum to another. I must defy definition if one day I can be called a racist republican ratfucker then be called a greenie and a leftie the next.

Oh, meanwhile …

Zombie Regulation

Public Policy chaos is hard to miss these days. One moment it’s which health plan will make its way through the blue dogs in the Senate and the liberals in the house. The next moment it’s escalation of military actions in Afghanistan; probably where the original quagmire reference was developed at the dawn of time. Look this way!!! No look that way!!! Then there’s the forgotten war against financial risk excess. I could create a pretty good argument that much of the chaos might be to distract us from the rumblings still coming from the Wall Street fault line. Good thing the Europeans are looking, because it seems that we’re certainly not. That means they’ll be at least one safe place to put your money, eventually. Unfortunately, it won’t be here.

The Chief Executive of the Vampire squid was in Germany this week telling the Europeans exactly what they wanted to hear (h/t to myiq2xu). This should’ve elicited the “D’oh” heard round the world. Problem is, no one in the U.S. is listening. We have yet to see any serious proposal to regulate and standardize the types of complex financial derivatives that nearly brought the world economy to it’s knees less than a year ago.

Lloyd Blankfein, chief executive of Goldman Sachs, on Wednesday admitted that banks lost control of the exotic products they sold in the run-up to the financial crisis, and said that some of the instruments lacked social or economic value.

In a speech to the Handelsblatt banking conference in Frankfurt, he also repeated an attack, first made in the spring, on Wall Street compensation practices, calling the furore over bankers’ pay “understandable and appropriate”.

The startling message from the head of the world’s most high-profile investment bank echoes comments by Lord Turner, chairman of the Financial Services Authority, the UK regulator, who provoked controversy last month when he questioned the social value of much investment banking activity.

Mr Blankfein said: “The industry let the growth and complexity in new instruments outstrip their economic and social utility as well as the operational capacity to manage them.”

This is so true. When it takes an army of lawyers to work on one tranche and the contracts it involves, when it takes math that requires physicists turned financiers to price the silly things, and when the resolution process is so whacked that it can take months to figure out who owns what, you’ve got control problems. Even more true is the fact that investments in these products doesn’t really create anything of value. It ties capital up in arbitrage and speculation rather than placing it the hands of entrepreneurs that actually create products and services. Top it off with cash out flows via bonuses from stock holders to what amounts to a professional gambling class and you’re bound to create a major clusterfuck eventually. So, given the clusterfuck last year, why aren’t we rewriting financial law?

The Blame Game

It’s amazing to me that so many people can get so worked up about one mid level bureaucrat in the White House who is a repentant communist and says he accidentally signed a 9-11 truther petition thinking it was just a request for more information on what the White House knew prior to those terrorist attacks. Meanwhile, we have a Secretary Treasury whose taken gifts from banks, underpaid his taxes by more money than I personally see in years, and seems completely captured by Wall Street and unable to draft decent regulation containing their gambling addiction. Then, there is the fact that I continually write about the same people in Wall Street and the Investment Banking community cooking up death derivatives and going about their merry way, subsidized, unpunished, and totally unrepentant over causing the worst financial crisis since 1929.

I just have to scream: WTF is wrong with you people? Why are we punishing some one for his venture into social activism while completely ignoring people that are making off with our national treasure and the lifeblood of our mixed market economy? These are folks that drove your house prices down, ruined your pension plans and your 401k, and are taking bailouts by the billions. Where’s the sense of balance? How does this resemble justice?

Here’s a REALLY good example from today’s NY Times. Written by Gretchen Morgensen, it’s called “Fair Game-They Left Fannie Mae, but we got the Legal Bills.” It’s all about the government having to bail out Fannie Mae because of the extremely bad management practices, and yes, illegal accounting practices that stuck us with a huge mess and an even bigger bill. Morgensen interviews Representative Alan Grayson, a Florida Democrat, who is one congress critter doing his oversight responsibility while others wallow in the political contributions from their regulatees.

With all the turmoil of the financial crisis, you may have forgotten about the book-cooking that went on at Fannie Mae. Government inquiries found that between 1998 and 2004, senior executives at Fannie manipulated its results to hit earnings targets and generate $115 million in bonus compensation. Fannie had to restate its financial results by $6.3 billion.

Almost two years later, in 2006, Fannie’s regulator concluded an investigation of the accounting with a scathing report. “The conduct of Mr. Raines, chief financial officer J. Timothy Howard, and other members of the inner circle of senior executives at Fannie Mae was inconsistent with the values of responsibility, accountability, and integrity,” it said.

That year, the government sued Mr. Raines, Mr. Howard and Leanne Spencer, Fannie’s former controller, seeking $100 million in fines and $115 million in restitution from bonuses the government contended were not earned. Without admitting wrongdoing, Mr. Raines, Mr. Howard and Ms. Spencer paid $31.4 million in 2008 to settle the litigation.

When these top executives left Fannie, the company was obligated to cover the legal costs associated with shareholder suits brought against them in the wake of the accounting scandal.

Now those costs are ours. Between Sept. 6, 2008, and July 21, we taxpayers spent $2.43 million to defend Mr. Raines, $1.35 million for Mr. Howard, and $2.52 million to defend Ms. Spencer.

“I cannot see the justification of people who led these organizations into insolvency getting a free ride,” Mr. Grayson said. “It goes right to the heart of what people find most disturbing in this situation — the absolute lack of justice.”

What’s the difference between getting justice and getting retribution? Well, in terms of missing it by light years, compare the treatment between social activist Van Jones and practitioners of accounting malpractice like Raines, Howard and Spencer (or tax dodgers who get gifts from Wall Street Bankers like our SOT). It’s the difference between a slap on the wrist and a slap across the face.

And Next Up, A Good Game of RISK

If you still need motivation to get on my bandwagon for new bank regulation, go read “Back to Business: Wall Street Pursues Profit in Bundles of Life Insurance.” While the nation is having a good scream over communists in the White House and Bolshevik health care reform, the bankers are playing Risk with your tax dollars.

After the mortgage business imploded last year, Wall Street investment banks began searching for another big idea to make money. They think they may have found one.

The bankers plan to buy “life settlements,” life insurance policies that ill and elderly people sell for cash — $400,000 for a $1 million policy, say, depending on the life expectancy of the insured person. Then they plan to “securitize” these policies, in Wall Street jargon, by packaging hundreds or thousands together into bonds. They will then resell those bonds to investors, like big pension funds, who will receive the payouts when people with the insurance die.

The earlier the policyholder dies, the bigger the return — though if people live longer than expected, investors could get poor returns or even lose money.

Either way, Wall Street would profit by pocketing sizable fees for creating the bonds, reselling them and subsequently trading them. But some who have studied life settlements warn that insurers might have to raise premiums in the short term if they end up having to pay out more death claims than they had anticipated.

The idea is still in the planning stages. But already “our phones have been ringing off the hook with inquiries,” says Kathleen Tillwitz, a senior vice president at DBRS, which gives risk ratings to investments and is reviewing nine proposals for life-insurance securitizations from private investors and financial firms, including Credit Suisse.

“We’re hoping to get a herd stampeding after the first offering,” said one investment banker not authorized to speak to the news media.

Oh, that’s just great! The same folks left unregulated and un-rebuked from the mortgage meltdown (and rewarded with subsidies) get to misprice yet another set of iffy securities. If this isn’t a more “exotic” investment than credit default swaps and harder to price, I’ll turn in all my Phd class credits (including the one specifically geared to Risk Theory) for an electrician’s license. Investment bankers seem to be on hyperdrive to find the next big thing before congress even realizes the horses are back out of the barn again.