Friday, July 16, 2010

The Country Club.

Once upon a time there was a country club that catered to the crème de la crème of society. Members were apparently blessed with wealth, class, dignity and all the other attributes expected of the elite. Certain protocols were expected to be maintained when the ‘pretty people’ mingled and socialized in the confines of the exclusive club.

One day a garish patron entered the club full of bravado and unmitigated audacity. (Think: Rodney Dangerfield in Caddy Shack) The patron—Mr. Tinman and his mistress Mz. Suchs demanded the best service, repeatedly sending their carefully prepared cuisine back to the kitchen complaining that it was not up to the standards that one would expect for guests of their eminence and import.

Finally after making life difficult for the staff and ruining the meals of the other patrons—to whom they felt infinitely superior—the maitre de presented the bill for the meal. The cheque was in the amount of $13.4 Billion— a reasonable sum considering that the amount really did not matter since it would ultimately be paid by Mr. Tinman’s benefactor,Mr. Federalas, to whom they relied upon to maintain their position in the social strata.

Mr. Tinman complained loudly about the service and the conditions in which he and his guest had to dine. After disrupting the entire evening of the other patrons and belittling the staff, Mr. Tinman grudgingly paid the bill and added a paltry gratuity of $550 million—a mere 4.1% of the bill.

After the obnoxious guests had departed for their summer home in the Hamptons, the staff and management met to discuss what should be done about the frequent visits from Mr. Tinman and his entourage. It was decided that putting up with his crass and discourteous behaviour was unacceptable and that his membership should be revoked at the club.

Upon hearing of this decision, the kindly benefactor—Mr. Federalas--pleaded with the management of the Club to allow Mr. Tinman to keep his membership since if it was revoked the Tinman family would have a hissy fit and make life terrible for everyone that they came in contact with—especially other members of the club.

After some deliberation management acquiesced since they knew that in order to survive they had to accommodate even the spoiled brats that belonged to the club. The members of the club soon became accustomed to the obnoxious behavior of Mr. Tinman and actually some members began to emulate his behavior since it was so entertaining to pretend that membership in the country club meant that you could behave in any manner you wished without regard for others.

Over time the status of the club declined and became a refuge for disingenuous hypocritical ‘low lifes’ who loved to put on airs that they had class and dignity. The staff and management eventually changed and became as obnoxious as the patrons. Everyone lived happily ever after.

Spare Me The Sudden Outrage The Reformed Broker

Mr. Brown posted this to his blog in April of 2010. Cant get a prognostication much more accurate than this.

Spare Me The Sudden Outrage The Reformed Broker


The SEC Just Blew It

Tuesday, June 29, 2010

Robert Rubin: Architect of Doom (excpet for his buddies)

At some point in time the realization that the world has been conned by a group of plutocrats will become painfully obvious--as if it hasn't already.

Institutional Risk Analytics

Saturday, June 5, 2010

How's Supply Side Economics Working Out For You ?

The four stated goals of Supply Side Economic Policy
1. Reduce government spending,
2. Reduce income and capital gains marginal tax rates,
3. Reduce government regulation of the economy,
4. Control the money supply to reduce inflation

Government Spending

Effective Individual Income Tax Rates

Adjusted Monetary Base

Wealth Distribution

Total Government Debt as a % of GDP

It seems to be working out rather well for the banks.
Six Giant Banks Made $51 Billion Last Year

Friday, June 4, 2010

And not going away any time soon....

OTC Derivatives: Failed Banks or Failed Nations? - Hera - The Mises Community

This is a comprehensive discussion about the risk that UNREGULATED derivatives play in the world economy. An opinion like this--coming from a strong proponent of the Austrian School says volumes about how badly out of whack Wall Street, K Street and The Beltway have become.

Well worth the read !

OTC Derivatives: Failed Banks or Failed Nations? - Hera - The Mises Community

Friday, May 28, 2010

The Profitability of Business Ethics

New ethics column at

Monday, May 10, 2010

Sure, Go Ahead: Blame the Socialists.

The thing that I find fascinating is that the problem of bureaucracy is a systemic problem worldwide. I tend to agree that socialism—as defined and demonstrated by Marxists –is an inefficient theory of both political economy, and implicitly, social justice. Where I begin to have a problem with criticism of socialism is that the antagonists are as much to blame for the world’s woes as the failed Marxists. It is interesting to note that since the collapse of the Berlin Wall—and essentially Marxist political economy, the deterioration of individual economies—and as a consequence—the global economy government deficits, financial malfeasance, and other macroeconomic problems have proliferated. This is not to categorically assign blame to ‘capitalists’ but only to point out that much of our troubles have been self-inflicted by the free-market liberal democratic paradigm. Hypocritical politicians have campaigned on the principles of smaller government while the empirical evidence clearly reveals that law makers who claim to seat on the right side of the political teeter tooter are as complicit as those who are deemed to be socialists.(Obama did not create the problems and has merely taken over what the Bush Administration attempted to do to stop the economy from collapsing) The consequences of supply side economics are testament to how ideology can be easily corrupted by the lust for power and influence. Example: For Americans to blame their financial woes on ‘socialism’ is like blaming the boogieman. Reagan, Bush I and Bush II talked a good game on fiscal restraint and trickle down economics—but unfortunately the reality of the current situation seriously tarnishes their credibility. Ironically, it was the left wing Clinton that turned in the best economic performance since Eisenhower—although the surpluses and boom years were more an economic aberration due to the policies of an unbridled Fed than a consequence of his economic policies.

Another irony that I see in the current debate about the scourge of socialism is that the social democratic countries—namely Norway, Sweden and Finland have economic metrics with regard to fiscal management that reveal a lower financial risk than that of America and the U.K. The Scandinavian countries have managed their economies well during these tumultuous times—although they too have experienced problems in the past—and have been able to deliver a standard of living to its citizens that consistently top the rankings made by the World Bank and other institutions. While I agree that Marxism and other forms of extreme socialism will not make the world a better place in which to live—and that I think it is quite valid to make pronouncements to that effect—solely blaming socialism for the current mess is insufficient—modern capitalism and hypocritical proponents of liberal individualism warrant much of the blame.

While the deficiencies of socialism are acknowledged and the burden placed upon us by a burgeoning public sector are obvious—it seems to me that no one has the political will to address the realities of a massive downsizing of government that will be required to remedy the problem. While resources must be moved from the unproductive sector of the economy to a venue that encourages innovation and economic efficiency, the problem of ridding the public sector of literally millions of jobs seems to be constantly swept under the rug. Politicians are excellent at doing the Ostrich trick. How would a government deal with massive unemployment and the necessity of converting a static and lethargic workforce to a mobile and enthused segment of the economy? The Leviathan has to be disassembled and this certainly won’t happen without massive opposition and possible social unrest. When a politician can explain to me how and when that inevitable task would be undertaken I will be encouraged. The dilemma is daunting and will require much misery to be endured by the middle class. The social ramifications are immense.

However, in the end, the mechanism of the free market will handle this—it always has and always will—whether under the guise of capitalism—socialism—theocracy—fascism—monarchy or whatever man can throw in its way. Free markets prevail under any political context—it is just a matter of how long it can remain somewhat in balance under the misguided rule of politicians and financiers who spout their ideology but inevitably succumb to the vices of excessiveness. People have no idea what is on the horizon—I find it very disconcerting. The foundations of our society has fissures running throughout—the structure that holds our societies together and ensure that justice prevails is about to collapse on itself. The memory of the 2007-2008 economic fiasco is quickly fading—the renewed bubble in the stock market attests to the fact that no one is willing to take responsibility and that the status quo is still guiding our path into a financial abyss that has not been witnessed by the world for several hundred years. The culprit—when the history books are written--might be socialism, but the reality of the situation is that endemic greed and elitist arrogance and contempt have exploited the people who form the heart of a society that embraces liberty and the repercussions will be dramatic and filled with personal suffering and misery. When the individuals that are responsible for innovation and production—the middle class—are alienated and disenfranchised anarchy prevails. History has shown that at times like this liberty is often usurped by tyrants and man reverts to cruel and harsh measures to protect what he deems to be rightfully his.

There is only one solution to what ails us: the innate response that our planet and all its living beings employ to endeavor to survive. This will be the work of God—it won’t be pleasant but it will serve to readjust the imbalances that our deviation from virtuous behavior has caused. Later this year, when the markets truly meltdown, people will begin to appreciate the gravity of the predicament that mercenary capitalists and megalomanic politicians have placed our world in. Civilization will soon be ripe for tyrants to emerge and take advantage of the chaos.

It is fine to blame socialists for all our woes—but the evidence clearly reveals that the conservative right and big business are as complicit as the progressives in creating a situation that will change our world drastically over the next decade.

Friday, April 23, 2010

While the Banks were Diddling the Public, The SEC was.....

Yesterday I mentioned that 'It is not lack of regulation--it is the failure of regulators to do their jobs properly that is the problem. If regulators are not able to carry out their duties under the current regulatory system--another layer of bureaucratic entanglements will not remedy the problem that has become pervasive in our society.'

A new report from ABC News suggests that while the markets were crashing in 2008 SEC officials were busy attending to their own vices. I also stated that' until corporations and governments embrace and promote the cultivation of moral character in both private sector leadership and regulatory bodies nothing will be solved in eradicating the self-destructive behavior demonstrated by so many individuals and groups in contemporary society.'

Thursday, April 22, 2010

Further Reform is NOT What We Need

The battle cry for further reform echoes through the corridors of finance and the committee rooms of government bureaucracies.
Not enough Regulation? GIVE YOUR HEAD A SHAKE.

Enron et al, Madoff, Robert Stanford, AIG, Bernie Ebbers, AIG, Lehman, Goldman: all were in the headlights of various regulatory bodies for extensive periods of time before being indicted by the various regulatory bodies. It is not lack of regulation--it is the failure of regulators to do their jobs properly that is the problem. If regulators are not able to carry out their duties under the current regulatory system--another layer of bureaucratic entanglements will not remedy the problem that has become pervasive in our society.
Indeed, financial reform is needed, but is needed to update a system that has not undergone any substantive changes since The New Deal. Much has changed since the 1930s although the root of the problem has not: A lack of moral character exhibited by many individuals in positions of power.
Regulation is a poor replacement for morality but it is the only tool that can be used to maintain a semblance of honesty, accountability and transparency in the financial system. Until corporations and governments embrace and promote the cultivation of moral character in both private sector leadership and regulatory bodies nothing will be solved in eradicating the self-destructive behavior demonstrated by so many individuals and groups in contemporary society.
Morality is what is missing not regulation. They are not the same thing--regulation is merely a somewhat inferior substitute of the former.

Here is a partial list of US Financial and Regulatory Agencies

Commodities Futures Trading Commission (CFTC)

Federal Deposit Insurance Corporation (FDIC)

Federal Reserve Board

Office of the Comptroller of the Currency (OCC)

Office of Thrift Supervision (OTS)

Security & Exchange Commission (SEC)

The problem currently encountered on Wall Street have been faced previously--and have been dealt with in an effective manner. Below is William K. Black's testimony to Congress with regard to the Lehman debacle.

Wednesday, April 21, 2010

Bill Moyers Journal . Watch & Listen | PBS

Bill Moyers Journal . Watch & Listen | PBS

How did Big Finance grow so powerful that its hijinks nearly brought down the global economy – and what hope is there for real reform with Washington politicians on Wall Street's payroll? Bill Moyers talks with authors Simon Johnson and James Kwak, two of the nation's most respected economic experts and authors of the new book 13 BANKERS: THE WALL STREET TAKEOVER AND THE NEXT FINANCIAL MELTDOWN.

Friday, April 16, 2010

IMAGINE THAT: SEC Sues Goldman Sachs

April 16 (Bloomberg) -- The U.S. Securities and Exchange Commission today charged Goldman Sachs Group Inc., accusing the company and one of its vice presidents of defrauding investors by misstating and omitting key facts about a financial product tied to subprime mortgages.

The SEC announced the case in an e-mail release.

Washington, D.C., April 16, 2010 -- The Securities and Exchange Commission today charged Goldman, Sachs & Co. and one of its vice presidents for defrauding investors by misstating and omitting key facts about a financial product tied to subprime mortgages as the U.S. housing market was beginning to falter. Additional Materials

The SEC alleges that Goldman Sachs structured and marketed a synthetic collateralized debt obligation (CDO) that hinged on the performance of subprime residential mortgage-backed securities (RMBS). Goldman Sachs failed to disclose to investors vital information about the CDO, in particular the role that a major hedge fund played in the portfolio selection process and the fact that the hedge fund had taken a short position against the CDO.

"The product was new and complex but the deception and conflicts are old and simple," said Robert Khuzami, Director of the Division of Enforcement. "Goldman wrongly permitted a client that was betting against the mortgage market to heavily influence which mortgage securities to include in an investment portfolio, while telling other investors that the securities were selected by an independent, objective third party."

Kenneth Lench, Chief of the SEC's Structured and New Products Unit, added, "The SEC continues to investigate the practices of investment banks and others involved in the securitization of complex financial products tied to the U.S. housing market as it was beginning to show signs of distress."

The SEC alleges that one of the world's largest hedge funds, Paulson & Co., paid Goldman Sachs to structure a transaction in which Paulson & Co. could take short positions against mortgage securities chosen by Paulson & Co. based on a belief that the securities would experience credit events.

According to the SEC's complaint, filed in U.S. District Court for the Southern District of New York, the marketing materials for the CDO known as ABACUS 2007-AC1 (ABACUS) all represented that the RMBS portfolio underlying the CDO was selected by ACA Management LLC (ACA), a third party with expertise in analyzing credit risk in RMBS. The SEC alleges that undisclosed in the marketing materials and unbeknownst to investors, the Paulson & Co. hedge fund, which was poised to benefit if the RMBS defaulted, played a significant role in selecting which RMBS should make up the portfolio.

The SEC's complaint alleges that after participating in the portfolio selection, Paulson & Co. effectively shorted the RMBS portfolio it helped select by entering into credit default swaps (CDS) with Goldman Sachs to buy protection on specific layers of the ABACUS capital structure. Given that financial short interest, Paulson & Co. had an economic incentive to select RMBS that it expected to experience credit events in the near future. Goldman Sachs did not disclose Paulson & Co.'s short position or its role in the collateral selection process in the term sheet, flip book, offering memorandum, or other marketing materials provided to investors.

The SEC alleges that Goldman Sachs Vice President Fabrice Tourre was principally responsible for ABACUS 2007-AC1. Tourre structured the transaction, prepared the marketing materials, and communicated directly with investors. Tourre allegedly knew of Paulson & Co.'s undisclosed short interest and role in the collateral selection process. In addition, he misled ACA into believing that Paulson & Co. invested approximately $200 million in the equity of ABACUS, indicating that Paulson & Co.'s interests in the collateral selection process were closely aligned with ACA's interests. In reality, however, their interests were sharply conflicting.

According to the SEC's complaint, the deal closed on April 26, 2007, and Paulson & Co. paid Goldman Sachs approximately $15 million for structuring and marketing ABACUS. By Oct. 24, 2007, 83 percent of the RMBS in the ABACUS portfolio had been downgraded and 17 percent were on negative watch. By Jan. 29, 2008, 99 percent of the portfolio had been downgraded.

Investors in the liabilities of ABACUS are alleged to have lost more than $1 billion.

The SEC's complaint charges Goldman Sachs and Tourre with violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Exchange Act Rule 10b-5. The Commission seeks injunctive relief, disgorgement of profits, prejudgment interest, and financial penalties.

SEC Sues Goldman Sachs, Alleging Fraud in CDO Tied to Subprime -

Wednesday, April 14, 2010

Politicians and Wall Street: ...and the beat goes on.

The news is quickly becoming farcical! Soon news of corporate-government misconduct and executive privilege will be relegated to either the back pages or the comic section of newspapers--if there are any actually left.
Whitman's ties to financial giant Goldman Sachs

Tuesday, April 13, 2010

Lehman Used ‘Alter Ego’ to Transfer Risks -

"Greenspan is nothing if not a representative leader of his time. We live in a culture where accountability and responsibility are forgotten values. When “mistakes are made” they are always made by someone else."
It is difficult to fathom the level of hubris that causes people to blatantly disregard regulations and laws in the pursuit of money and power. Well--perhaps its not--since it permeates our culture. Justification for the 'excesses of privilege' are rationalized ad nauseam while the foundations of Wall Street crumble. The only way a free market can work in a productive, sustainable and fair manner is if all participants embrace the concept of honesty, responsibility and accountability. Unfortunately, evidence is beginning to mount with increasing frequency and credibility that many of the institutions of finance that are supposed to fuel the entrepreneurial nature of the middle class have, instead, opted to enrich themselves and a very small but powerful group of sycophants by creating investment vehicles that are self-serving and ostensibly exploitative to the middle class. In order to keep the roulette table spinning certain liberties have had to be taken with regard to the truth, responsibility, transparency and accountability. This is not isolated to a few Bernie Madoffs. The discomforting thing is that this contagion has spread to the upper echelons of power in both Washington and Wall Street. Until some semblance of personal virtue becomes a defining characteristic of the financial ethos, the foundations of capitalism will continue to deteriorate until what we now refer to as Wall Street will crumble like a derelict casino.
The evidence stacks up as the bubble inflates.

Lehman Used ‘Alter Ego’ to Transfer Risks -

No One is to Blame for Anything.

Friday, April 9, 2010

Major U.S. banks masked risk levels: report | Reuters

Transparency and accountability are the cornerstones of ethics in the financial industry. It appears that the major banks have nothing but contempt for such matters.

(Reuters) - Major U.S. banks temporarily lowered their debt levels just before reporting in the past five quarters, making it appear their balance sheets were less risky, the Wall Street Journal said, citing data from the Federal Reserve Bank of New York.

The paper said on Friday 18 banks, including Goldman Sachs Group (GS.N), Morgan Stanley (MS.N), J.P. Morgan Chase (JPM.N) Bank of America (BAC.N) and Citigroup (C.N), understated the debt levels used to fund securities trades by lowering them an average of 42 percent at the end of each period.

The banks had increased their debt in the middle of successive quarters, it said.

Citi, Bank of America, Goldman Sachs, JPMorgan Chase and Morgan Stanley were not immediately available for comment when contacted by Reuters outside regular U.S. business hours.

Excessive leverage by the banks was one of the causes that led to the global financial crisis in 2008.

Due to the credit crisis, banks have become more sensitive about showing high levels of debt and risk, worried their stocks and credit ratings could be punished, the Journal said.

Federal Reserve Bank of New York could not be immediately reached for comment by Reuters.

Major U.S. banks masked risk levels: report | Reuters

See My Squiggly Lines for comments on derivatives and the 5 major U.S. Banks.

Thursday, April 8, 2010

The Collapse of the Reform Initiative

Unfortunately Andrew Cockburn is probably right on the mark.

The irony is that any regulation will be ineffective if our culture does not embrace--and reestablish-- some form of moral ethos

Andrew Cockburn: Financial Reform Bids Collapse Into Farce

Monday, April 5, 2010

Bubble Redux

Sometimes the truth hurts. Prevarication and recurrent opaqueness will continue to fuel the bubble that is currently being formed. The financial malfeasance that is being condoned by Washington and the continued influence of Wall Street lobbyists on legislators will ensure that the lessons that should have been heeded in 2007-2008 will be abrogated by spurious reform.

Greenspan's inability to accept at least some responsibility for the bizarre economic policies since the crash of 1987--Band-Aid on top of Band-Aid, the abject failure of supply side economics to distribute wealth equitably--as is the principle of capitalism--and the politicization of everything that represents liberty will eventually turn its back on the perpetrators of the colossal scam that is debasing the foundations of the capitalist paradigm.

Where is the next bubble? The Interest Rate derivatives market is a prime candidate--especially if rates rise and make a mockery of the presuppositions that are the basis for derivative algorithms.

Things are truly out of whack and the 'silent majority' will soon wake up to the reality of the situation.

"There must be some way out of here,” said the joker to the thief,
“There’s too much confusion, I can’t get no relief.
Businessmen, they drink my wine, plowmen dig my earth,
None of them along the line know what any of it is worth.”

“No reason to get excited,” the thief, he kindly spoke,
“There are many here among us who feel that life is but a joke.
But you and I, we’ve been through that, and this is not our fate,
So let us not talk falsely now, the hour is getting late.”

All along the watchtower, princes kept the view
While all the women came and went, barefoot servants, too.

Outside in the distance a wildcat did growl,
Two riders were approaching, the wind began to howl.

All Along the Watchtower: Bob Dylan 1968

As performed by the Master

Love him or hate him: Robert Reich calls things as he sees them--often with great clarity, insight and veracity.
Robert Reich (Greenspan, Summers, and Why the Economy Is So Out of Whack)

I Saw the Crisis Coming. Why Didn’t the Fed? Michael J.Burry

Saturday, April 3, 2010

Robert Reich (The Paper Entrepreneurs Are Winning Over the Product Entrepreneurs (A Thirty Year Retrospective))

Can't say we weren't warned...

but....Reaganomics was far too intriguing.

Robert Reich (The Paper Entrepreneurs Are Winning Over the Product Entrepreneurs (A Thirty Year Retrospective))

Currently 12 banks in the USA control 50% of the country's deposits.
in 2003: 25 banks controlled 50% of the country's deposits
in 1998: 42 banks controlled 50% of the country's deposits
in 1984: 64 banks controlled 50% of the country's deposits.

Do the math !!!!!!


Friday, April 2, 2010


Andrew Maguire is an independent metals trader turned whistleblower at the center of a storm for exposing what could be the largest fraud in history involving countries, banks and government leaders.

Although the main stream media are doing the ostrich trick with this potential bombshell, it is very disconcerting if the claims made by Mr. Maguire are true


Robert Reich (The Fed in Hot Water)

It is becoming increasingly clear that Washington and Wall Street are in dire need of a--whats a polite way of saying this?---amelioration? It is inevitable that there will be a 'bloodletting' in both locales--it is just a matter whether this will happen through positive and comprehensive reform or-as mankind has habitually demonstrated--by way of self-induced razing. Unfortunately history has favored the latter alternative.
Robert Reich exposes the Fed's malfeasance and condescension in this recent blog.

Robert Reich (The Fed in Hot Water)

Thursday, March 18, 2010

The Futility of Financial Reform

As I mentioned on Saturday March 13th it is unlikely that effective or relevant change to what ails Wall Street will be accomplished due to the excessive influence that lobbyists from the banking community have on the legislators. The following article by Chris Whalen of Institutional Risk Analytics sheds light on this discouraging situation.

Why is the President's Working Group Oppossing the FDIC Reform Proposals on Residential Mortgage Securitization by Banks? (from Zero Hedge and Jesse's Cafe Americain)

We hear that the FDIC rule making process could start as soon as next month, but more likely will wait till the FDIC's board meeting in May. We also hear that the President's Working Group (PWG) on Financial Services is preparing a "white paper," in cooperation with the Federal Reserve Board and the Office of the Comptroller, to block the FDIC reform effort. This campaign, which apparently was orchestrated by the largest dealer banks, is intended to derail the new rules proposed by the FDIC mandating greater transparency and disclosure for bank sponsored residential mortgage securitization deals.

The President's Working Group, in case you don't know, is an informal group created in 1988 by President Ronald Reagan that allows the executives of the biggest banks to influence public policy in Washington, but without going through the trouble of registering as lobbyists or other public disclosure. Sometimes referred to the "plunge protection team," the PWG is part of the invisible government of Washington," an agency which operates within the government, but at the behest of private interests.

Barry Ritholtz has a nice summary on the PWG in his book, Bailout Nation, and also in his Blog, "The Big Picture." As Barry notes, the PWG is every bit as incompetent as most other people in Washington, but they do have one special skill: pushing the banking industry's agenda in Washington via informal "guidance" and white papers that are written by and for compliant regulators. The PWG essentially acts as a super-lobbying channel for the largest banks focused right at regulators. Only "team players" need apply.

The Federal Reserve Bank of New York and the OCC in Washington are reportedly drafting the "guidance" on reform of bank securitizations and at the request of the PWG. No clue whether the White House is involved directly yet or if this is merely a Tim Geithner operation. These PWG white papers are never released to the public even though the Treasury acts as the de facto public affairs organ for this corporate influence group.

We called out former Wachovia Bank CEO and Goldman Sachs (GS) banker Robert Steel on the subject of the PWG last year at the Chicago Fed's international banking conference. He was unapologetic and more than a little offended, or so he claimed. The PWG acts with impunity in Washington, in part because the members of Congress understand their subordinate role. We hear that Senator John Warner (D-VA) is now competing with Judd Gregg (R-NH) to be the next "Senator from Wall Street" and specifically seems to be angling to join a private equity firm. Gregg's tastes seem to run more along the lines of a large OTC derivative dealer bank.

The fact that the PWG is in league with the Fed and Treasury against the FDIC board is all you need to know about the politics of reforming private label mortgage securitization.

If Barack Obama were really interested in reforming Washington, he would rescind President Reagan's executive order and disband the PWG for good. Allowing the big banks which participate in the PWG to lobby financial regulators and members of Congress without any public disclosure is a national scandal and makes a mockery of any claim by Barrack Obama to be changing the business of Washington.

We noted in our comment last Tuesday in American Banker, "Viewpoint: Stop Blocking FDIC Securitization Effort," that "the practical policy issue is the losses observed in failed banks over the past two years, averaging over 30% of total assets, versus just 11% on average in the S&L crisis. The common factor in failed banks with high loss rates is unsafe and unsound securitizations practices, thus the FDIC initiative on securitization."

It is very telling to us that the FDIC is advocating greater openness and transparency in bank sales of mortgage loans to securitizations, but the Fed and OCC are standing with the larger dealer banks that arguably caused the financial crisis in complex structured assets. Hopefully these federal agencies and the industry groups they seem to be allied with will realize that the FDIC's rule making process holds the potential to revive private label mortgage finance and that they can influence the outcome - but only if they participate constructively.

One mortgage market veteran who ran risk for one of the largest private conduits in the business put the situation succinctly last week: "You can argue against the FDIC securitization proposals, looking at them in a bundle, as perhaps being overkill, but each piece of their proposal, taken separately, is pretty compelling. The other bank regulators and industry groups could easily negotiate a better, more streamlined deal that would help the market if they bothered to push back and participate constructively, instead of simply attacking the FDIC."

Chris Whalen, Institutional Risk Analytics, March 15, 2010
The President's Working Group on Financial Markets consists of:
  • Tim Geithner, The Secretary of the Treasury, as Chairman of the Working Group;
  • Ben Bernanke, The Chairman of the Board of Governors of the Federal Reserve System,
  • Mary Shapiro, The Chairman of the Securities and Exchange Commission; and
  • Gary Gensler, The Chairman of the Commodity Futures Trading Commission.
It appears that in addition to the clandestine lobbyists peddling their influence on the Senators assigned the task of reforming an obvious defective financial system, the Obama administration have chosen to have the foxes guard the henhouse.

The following articles will attest to how much influence Wall Street and the 'Too Big to Fail' crowd have on Financial Reform. Seems strange that citizens who have lost their savings, homes and jobs due to the misdeeds and breaches of trust of some members of Wall Street have little or no say in determining how to ensure that these transgressions wont happen again--perhaps sooner than many people think!

Deutsche Bank, JPMorgan, UBS Are Charged With Derivatives Fraud

Chamber, Wall Street mobilize lobbyists to clip Sen. Christopher Dodd's financial reform plan

Fearing Powerful Lobbying From Industry, Financial Reform Proponents Target Key Lawmakers

Hedge Funds, Private Equity Firms, Payday Lenders Seek Financial Security from Congress

Effective Regulation: Part 4 Turning Good Ideas Into Good Outcomes Goldman Sachs (pdf)

In-Your-Face Influence Peddling

Bernanke Will Tell Congress Bank Oversight Aids Monetary Policy

House Republicans Huddle With Lobbyists to Kill Financial Reform Bill

Citigroup Taxpayer Ownership Doesn’t Prevent Lobbying

Top 10 lobbying fights over financial reform overhaul legislation

Monday, March 15, 2010

The 21st Century Opus of Delusions and the Madness of Crowds

In 1841 Charles MacKay published Extraordinary Popular Delusions and the Madness of Crowds which describes phenomena such as 'national delusions, 'peculiar follies' and 'philosophical delusions'. If Mackay were alive today he most certainly would include the recent Wall Street fiasco with events such as the South Sea Bubble and the infamous Dutch Tulip Mania.
On March 14th Sixty Minutes did a piece on the MBS and CDS induced 'panic' which gripped Wall Street--and as a consequence the rest of the world --which can be viewed below.
Several buzzwords come to mind while viewing this video.
  • incompetence
  • delusion
  • greed
  • hubris
  • malfeasance
  • corruption
  • condescension
There are many other monikers and adjectives that come to mind but I try to keep this blog free of profanity.

Watch CBS News Videos Online

Institutionalizing CSR through B Corporations

As the ethical transgressions of various members of the business community come to light as a consequence of the Wall Street fiasco, I thought that this would be of interest to readers. This is from the Crane and Matten blog:

Crane and Matten blog: Institutionalizing CSR through B Corporations

Saturday, March 13, 2010

U.S. bankruptcy-court investigation of the collapse of Lehman Brothers Holdings Inc.

It appears that the blogosphere has put a bear hug on the Lehman bankruptcy estate auditors report. (see below). The greed, negligence and malfeasance that occurred at Lehman screams for finance reform--reform that thoroughly addresses subjects such as accountability, transparency and responsibility. Unfortunately, with lobbyists calling the shots in Washington it is doubtful that anything genuine or tangible will get accomplished. Having Wall Street lobbyists as the de facto legislators is akin to a drug dealer driving a crack addict to a Narcotics Anonymous meeting.

More from Jesse's Cafe American and Naked Capitalism

Friday, March 12, 2010


This essay by James Quinn of Financial Sense is interesting. It compliments the generational discoveries of Neil Howe and William Strauss--authors of Millennials Rising: The Next Great Generation (2000) and The Fourth Turning. (1997) Both this essay and the books mentioned should be requisite reading for all politicians and CEO's.

21st Century Breakdown: by James Quinn

Lehman execs, auditor blamed for company's collapse - The Globe and Mail

As the dust settles from the financial tempest of 2008 it is becoming apparent that blame cannot justifiably be assigned to any one party--although the actions of the Clinton Administration and HUD seem to bare the brunt of the condemnation from critics and apologists for laissez-faire ideology. Like the Enron scandal, it is becoming apparent that many parties were complicit in the actions that led to the near systemic collapse of the financial system.
The recent findings of the court-appointed examiner of the Lehman debacle found that trick accounting--not unlike Enron-- and deceptive valuation practices for their alchemic portfolios led to exasperating the disaster that was brewing beneath the surface of Wall Street. The examiner, Anton Valukas, stated that while some of Lehman's management's decisions “can be questioned in retrospect” and the firm's valuation procedures for its assets “may have been wanting,” those responsible for the firm had used their business judgment and were largely not liable for the firm's collapse. But in a contradictory manner he goes on to say that the Lehman bankruptcy estate creditors could have claims against --Dick Fuld and chief financial officers Chris O'Meara, Erin Callan and Ian Lowitt.

It is interesting that, like Enron and the Credit Rating scandal, two essential bulwarks of the financial system were debased.
  • The notion of fiduciary duty was abused and exercised in an irresponsible manner.
  • The duties of the firm's auditors had been carried out in a “negligent” manner and that Lehman could pursue claims against the firm for “professional malpractice.”

In both these cases--as has become common in our society--the spirit of the law is largely ignored while the letter of the law is manipulated by contemptible 'wordsmiths'

The time has come for 'the authorities' to quit attempting to assign blame, ostensibly to divert accountability and responsibility from themselves, and to make an attempt at restructuring the regulatory apparatus to reflect the changes that have taken place in the mechanics of finance. However any effort will prove to be feckless and ineffectual unless the presence of both intellectual and moral virtue is established and nurtured in the character of those that will lead capitalism out of its self imposed dark ages.
It is quite possible that a financial tempest of greater pugnacity is on the horizon--if so and the lessons from 2008 are not heeded, the power of capitalist dynamics will not be so forgiving.

Lehman execs, auditor blamed for company's collapse - The Globe and Mail

Thursday, March 11, 2010

Escape Plan: Socialize your idiocy

If this is a precursor to financial reform in the USA perhaps it is time to abandon any hope that lawmakers will ever do the right thing.

"Money doesn't talk--it swears" Bob Dylan: It's alright Ma

Jesse's Café Américain: Investors Who Lost In Madoff and Stanford Schemes Want Government to "Make Them Whole"

Wednesday, March 10, 2010

The Invisible Hand at work.

The inherit function of the capitalist paradigm to find balance (harmony) is being validated during the recovery from the 'money lender' driven panic investors endured last year. Expectations of "The West" have become more prudential--albeit somewhat vigorously for many individuals--while our Asian counterparts are becoming increasingly perturbed with regard to wages and both working and social conditions. As the video indicates, the consequences of the One Child policy initiated by the Chinese are coming home to roost.
The nascent generation of Chinese are no longer prepared to work for low wages and austere working conditions. This 'generational turning' is used to getting what it wants--not impeded by competitive siblings. In the West on the other hand the new generation will be forced to lower expectations since much of their wealth has been effectively confiscated by the Wall Street bail out and ancillary stimulus package.
One generation--one from the East--one from the West--being compelled by free market forces that manifested as result of each societies diametric ethos.
One is to wonder what our politicians will do now to inhibit the natural corrective mechanism of the free market.
The invisible 'hand' works in wondrous ways.

Monday, March 8, 2010

Iceland Voters Reject Bank Bailouts in Crushing Electoral Defeat; Neo-Liberalism In Context

The market implosion of 2007-2008 effectively demonstrated the contempt that neo-liberal democracies have for the individual. However, in a recent referendum Icelanders rejected by a massive majority a bill that would saddle each citizen with $16,400 of debt in protest at U.K. and Dutch demands that they cover losses triggered by the failure of a private bank. Several Icelandic banks fell victim to the collateralized mortgage obligation and credit default swap fiascoes that rocked financial markets in 2007-2008. It is encouraging to see that the citizens of this democratic nation had the opportunity and the mettle to stand up to the shenanigans of the corporate elite and their politician sycophants.

Jesse's Café Américain: Iceland Voters Reject Bank Bailouts in Crushing Electoral Defeat; Neo-Liberalism In Context