Weekend Economists' Winter Carnival Weekend: January 23-25, 2009

[Demeter]

It's Carnival! No, not the pre-Lenten blowout, it's the Winter Carnival in Houghton, Michigan!

Now, if you have ever been there, you will know why Finnish immigrants migrated there: it's just like home. One would think that celebrating SUMMER (all 4 days of it) would be a better option, but there it is. And since here in the Lower Peninsula we actually went above freezing for at least 3 hours today, I'm celebrating. Indoors.

Because tonight it's going down to zero or lower, again. At least we have a President, thoughts of whom can keep us warm and whose rapid righting of the world will keep us in far less danger of nuclear annihilation by pissed off foreigners.

Yes, the weather and the whether outside is frightful, but at least we have a Dream--a dream coming true.

And in that vein, here is Mark Fiore's latest offering on the Inauguration:

http://www.markfiore.com/inauguration_2009_0


May it be enough to get you all through the dreadful economic tidings below.

[Demeter]

1. EXPLORE THE SUNSPOT CYCLE

http://spaceweather.com/glossary/sunspotplotter.htm?PHPSESSID=cvl1dgbv3c91ebelnpb5ippbn1


EXPLORE THE SUNSPOT CYCLE: Were you born under an active sun or a quiet sun? To find out, enter your birth date in the sunspot plotter at link.

The red curve traces monthly-averaged sunspot numbers tabulated by the Solar Influences Data Center in Belgium. Data points go all the way back to 1755, so you can investigate the relationship between solar activity and many historical events: Do stocks crash during solar minimum? Did NASA send astronauts to the Moon during Solar Max? How do sunspots affect the length of mini-skirts? If you find any interesting coincidences, be sure to tell the webmaster at spaceweather.com.

Will also entertain numerology, astrology, and other forms of divination....

[Demeter]

2. Bank Employing GOP House Leader’s Wife Got Bailout Bucks

http://www.propublica.org/article/bank-employing-gop-house-leaders-wife-got-bailout-bucks-090123

House Republican Whip Eric Cantor <1>, a rising star in the Republican party, has been a prominent voice demanding accountability in how the government doles out hundreds of billions for bank bailouts.

"I think most American taxpayers now are sort of scratching their head," Cantor told CNN in December, "wondering when all this bailout stuff is going to end. And probably thinking, 'You know, when is my bailout coming?'"

This Thursday, Cantor cast a high-profile vote opposing release of another $350 billion in bailout funds. Unpublicized until now was a recent development: The Treasury Department used $267 million of taxpayer funds to buy preferred stock in a private banking company that employs Cantor's wife.

The bailout for New York Private Bank and Trust (NYPBT) <2> came earlier this month as part of a Treasury Department program to boost "healthy banks" with extra capital. NYPBT is the holding company for Emigrant Bank <3>, a savings bank with 35 branches in and around New York City. Diana Cantor runs the Virginia branch of Emigrant's wealth-management division, called Virginia Private Bank & Trust, which targets an ultra-rich clientele.

Rob Collins, Cantor's deputy chief of staff, said the congressman didn't know the bank was seeking bailout money and never interceded on the bank's behalf with government regulators. He also said Cantor had never intended the bailout bill to be used to buy up stock in banks.

OOOPS!

[Demeter]

3. Obama to GOP: 'I won'

http://www.politico.com/politico44/perm/0109/postgame_report_1eda14f1-40e7-4ce7-a161-7f008ebaac3a.html

“How can you spend hundreds of millions of dollars on contraceptives?” Boehner asked. “How does that stimulate the economy?”

(SEND YOUR ANSWERS AND HELPFUL SUGGESTIONS TO BOEHNER'S CONGRESSIONAL EMAIL ADDRESS!)

[Demeter]

4. Newspaper Jacket Keeps Homeless People Warm

http://springwise.com/non-profit_social_cause/newspaper_jacket_keeps_the_hom/

Aiming to make things a fraction easier for homeless people in Canada—who face winter temperatures of as low as -30 degrees Celsius—Canadian ad agency TAXI developed the 15 Below Jacket, a garment that owes its insulating properties to old newspapers. Distributed to the homeless by the Salvation Army, the jacket's durable, waterproof and wind-resistant case has internal pockets in the sleeves, body and hood for its owner to fill with newspaper. Readily available from recycling bins, bunched-up newspaper is an excellent insulating material.

The garment was named '15 Below' to reference the Celsius mark at which a cold warning is issued, urging the homeless to get off the streets. It's also a nod to the design competiton that produced it, which celebrates TAXI's 15th birthday. Creative director Steve Mykolyn came up with the concept, winning the privilege of testing his prototype in a meat locker. Supervised by a paramedic, the design helped him survive eight hours in -28 degree conditions, after which 3,000 jackets went into production (in December 2007).

When stuffed, the jacket—created by Canadian designer Lida Baday—looks like a garment anybody could wear, avoiding stigmatization of its wearers. In the summer months it can be emptied and used as a raincoat, folded up into a backpack to be transported, or filled and used as a pillow. An altruistic project that rubs off very well on all involved, sponsors are currently being sought to fund distribution in other countries.

SOMEHOW, I'D PREFER SOCIALISM....

[Demeter]

5. Gossip about the Obama-Geithner philosophy on China

http://economistsview.typepad.com/economistsview/2009/01/threading-a-needle.html

with nice dig at Geithner.

[Demeter]

6. Firms Keep Lobbying as They Get TARP Cash

http://online.wsj.com/article/SB123267702062508887.html

who, when and how much

[Demeter]

7. Wall Street’s Sick Psychology of Entitlement

http://clusterstock.alleyinsider.com/2009/1/wall-streets-sick-psychology-of-entitlement


John Carney | Jan 22, 09 4:27 PM

The news that Merrill Lynch paid out $15 billion in bonuses is sure to ignite new questions about the wisdom of bailing out Wall Street. Merrill Lynch took $10 billion from the TARP, allegedly to fill holes in its balance sheet. But instead of using that to repair its financial health, it simply put the money into the pockets of its employees. There is no way to defend this disgusting payout.

But that won’t stop Bank of America, which now owns Merrill, from defending the bonuses. And across Wall Street there are lots of people who actually believe that Merrill did the right thing.

How can so many smart people be so dumb?

Easily. There is a sick psychology of entitlement on Wall Street that was created during the bubble years. Many simply cannot believe that they do not deserve huge pay packages. Their brains have not caught up with the idea that they are working in broken institutions that would be unable to pay to keep the lights on if not for the fact that Washington has given them billions of taxpayer dollars.

Of course, smart people are very good at rationalizing their fantasies, especially when the fantasy serves to make them money. There are three rationales they’ll offer when pressed on this. Each one is easily skewered.

* "We made money. It was just one part of the firm that lost it all. So we deserve to be paid." Sorry, buddy. That’s not the way capitalism works. Ask the guy who just lost his job installing seat belts in GM cars. He was really good at that but since no one is buying those cars, he’s out of a job. Being really good at what you do doesn’t matter if your firm is broke—and your firm is broke. It’s now on taxpayer supported life-support.

* "We didn’t use taxpayer money to pay the bonuses." This is the most ridiculous idea ever. Money is fungible. If you use billions to pay bonuses and then need to ask the government for money to stay alive, you are using taxpayer money to fill in the hole you dug by paying the bonuses.

* "We’ll lose all the greatest people if we don’t pay them." Oh really? Where will they go? Who, exactly, is going to hire them? Also: so what? That’s how capitalism works. Failing firms that cannot afford to pay for talent lose that talent to successful firms. That’s an important part of market discipline.

* "If we don't pay bonuses when firms take the TARP, they won't take it." This is the most sophisticated argument for huge bonuses. In Germany, this actually happened. As it turns out, executives would rather risk their firm collapsing due to lack of capital than give up their big paydays. But there's an easy solution to this: throw the bastards out. The boards of every single financial company that turned down bailout bucks with a bonus limit could demand a full accounting of why a bank's executives think it is healthy enough to forgo a bailout. And if they aren't satisfied they should just fire the management.

Look. We’re not hysterical opponents of paying big bonuses. Actually, I'm on the record as defending huge bonuses from a couple of years ago. If your firm makes money, it can decide how to reward its employees. If it loses money, it can still decide to pay bonuses if it still has cash on hand. But when you pay yourself a bonus with taxpayer money you are simply taking money from someone who earned it and giving it to someone who didn't. If the government hadn’t supplied the means for redistributing that money, you’d just be a mugger.

It was only a few months ago that we were being told that Merrill Lynch, among others, desperately needed billions of dollars to survive, that without injections of new capital the financial system would come crashing down around us. If any of this was true, it should have been impossible for Merrill to pay out $15 billion in bonuses. Even the sharpest critics of the bailout never imagined that it would be used to make wealthy idiots even wealthier.

All of this is a reminder of why it is very, very dangerous to allow the government to rescue firms instead of allowing the market to decide who should survive. Perhaps instead of a bailout, we should have confined the TARP to overseeing the orderly dissolution of failed financial institutions.

[Hugin]

9. I've been saying this since I first heard of the TARP stupidity...

"Even the sharpest critics of the bailout never imagined that it would be used to make wealthy idiots even wealthier."

I not only 'imagined' it, I was sure of it...

[Tansy_Gold]

14. And you weren't alone, either.

Why oh why oh WHY aren't the SMWers in charge? WE are the smartest people in the room.



Tansy Gold, writing note to self to remind self to write note to Obama. . . . . . . ...

[Demeter]

16. Morning Tansy and Prag, I Mean Hugin

It's up to 9.4F and the Windchill is 2F and the sun shines brightly. The power went out for 2 hours at 1 am.

And in economic news, there's a bunch of weird stuff coming down.

[DemReadingDU]

22. Me too

I (and thousands of others) called and faxed congressman and senators around the country, to vote no on that TARP bill. Did they listen to us. No.

Something is clearly wrong with our government when our congressmen and senators don't listen to the will of the people.

:(

[Demeter]

24. Well, Some of the CongressCritters listened, Until dollars were stuffed in their ears.

Sigh

[DemReadingDU]

26. Basically, the TARP vote was orchestrated

I have heard that the the vote had to pass with both Republicans and Democrats. They were 'told' by the House and Senate Leaders, that they had to vote for it, except those in hotly contested districts where they could vote no. Go back and look who didn't vote for the TARP. Chances are very good that the congressman/senator who voted for TARP (both Dems and Repubs) were in safe districts and were going to be re-elected anyway. Those who voted against the TARP were most likely in hotly contested districts, and this was a way to pick up votes in their upcoming election.
Sometimes our government stinks.

[UpInArms]

30. I wish I could nominate this post for its clarity and ease in understanding

thanks for this - Demeter!

:yourock:

[Hugin]

32. I agree, there's some good points of rebuttal in there on the TARP nontroversy.

To coin a new word. :D

[Demeter]

49. You Are Entirely Welcome, UIA

Glad to be of service.

[Demeter]

8. In Ironic Twist, U.S. Taxpayers Are Approaching Net Debt-Free Status

http://zerohedge.blogspot.com/2009/01/in-ironic-twist-us-taxpayers-are.html


Posted by Tyler Durden at 9:33 AM

BofA estimates that the U.S. Treasury and Federal Reserve combined, now are responsible for directly supporting about 70% of the banking system liabilities and 20% of shareholders' equity. Presuming there is virtually no equity value in U.S. banking, which would of course be the case without systemic support, then liabilities equal assets. In that case, in a government mediated vicious circle, U.S. taxpayers have indirectly paid off 70% of the loans that the US banking system has underwritten to U.S. taxpayers...

We say one resolution to this whole problem is balance the two sides of the equation: write off the taxpayer loans that the government supports, remove the systemic crutches, inject any new rescue funding at the preferred level, and voila - here is your bank rescue.


I'M NOT SURE I CAN FOLLOW HIS REASONING...WHAT DO YOU THINK?

[Hugin]

10. Well, for one thing he doesn't cite where the percentages are coming from...

It's another call for a debt forgiveness 'Jubilee'.

Which might work if not for the fact there's people out there who feel 'entitled' to every
cent of the foolish derivatives they've stacked on top of this fiasco.

But, without knowing the totals I can't be sure.

A bank 'rescue' is not the overall solution. It'll collapse again and again until the "Jobs and Wages drain" is plugged.

[Tansy_Gold]

15. I think he needs to supply me with a balance sheet

I used to be an accountant. Seriously.

He's talking generalities. Show me a before and after balance sheet (it ain't "BS" for nothin') and I'll tell you what I think.


TG, who acually has some time this week-end for WEE

[Hugin]

33. But, I thought you were going to be out...

counting mothballed train-cars!

:lol:

[Demeter]

11. More On India's Fraud Scandal

Here is a link to my original post from Friday on the Satyam scandal:


http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=102&topic_id=3702913&mesg_id=3702988

and here are some additional links with more detail. First, directly from India via Naked Capitalism:

http://www.nakedcapitalism.com/2009/01/guest-post-lessons-from-india.html

Guest Post "Lessons From India"


Our guest blogger Lune (who in one of his past lives worked on the Hill) was just in India and gives us his take on the Satyam Computers case, which has gotten scant coverage in the US. The Indian government's reaction to its biggest corporate scandal ever makes for a useful object lesson.

From Lune:

We Americans have typically prided ourselves on having the most reliable, transparent, and well regulated financial markets in the world. That reputation has taken quite a beating in the past couple of years, arguably starting with Enron and accelerating in the past year; so much so that we have begun looking at such countries as Sweden, Japan, and the UK for possible examples of how to deal with our current financial troubles. Perhaps another good example might be India.

While much of the world's attention has been consumed by the drama in the US and Europe, India has been rocked with what is being called the biggest corporate fraud in its history, something akin to America's Enron and Lehman.

Satyam Computers, one of the largest IT firms in India, has been embroiled in an accounting scandal. To summarize briefly, this autumn, Satyam's founder and (now former) chairman, B. Ramalinga Raju, proposed to Satyam's board that the company buy two unrelated firms substantially owned and run by his family members.

In December, the board agreed and announced its decision, only to be greeted by a massive investor revolt over this non-arms-length deal. Within a few days, the deal was scuttled. Soon afterward, several board members resigned, and the company became the focus of closer scrutiny by investors and the press. On Jan. 7th, Ramalinga Raju resigned as chairman of Satyam and admitted that the company inflated its earnings for the past several years and engaged in accounting fraud to the tune of ~Rs. 7,000 crore (Rs. 70 bil or $1.4 bil). A more detailed account and timeline can be found here.

While the details of exactly what happened will take some time to figure out, the government's response has been swift:

From the WSJ: Within a week of Ramalinga's resignation, he, his brother, and Satyam's CFO have been arrested and are currently in jail awaiting trial on criminal charges of conspiracy, cheating and falsification of records.

The entire board of the company has been dismissed by the government, and a new board has been constituted with members nominated by the central government including one former member of SEBI, the Securities and Exchange Board of India (India's version of the SEC). This new board will hire a new CEO, and other key executives, with the stated goals being "to restore the company's credibility, customer confidence and employees' morale and to safeguard the interest of investors and other stakeholders."

From the Business Standard and The Hindu: SEBI has announced that it will conduct a "peer review" of the financial statements of every company in the Nifty and Sensex indices (indices consisting of the 80 largest and most actively traded Indian companies, akin to the US DJIA or S&P 500) for both the 3rd quarter and for the past year. A peer review is to consist of an analysis of the statements along with the working papers used by the company's auditor to certify the statements. This peer review will be done by an auditor unrelated to the company's current accounting firm, selected from a panel of independent auditors to be named by the government.

From The Economic Times: In addition, SEBI is developing criteria for additional companies to be peer reviewed, targeting companies with the highest likelihood of having engaged in similar fraudulent practices. For example, it is looking at including companies with multiple subsidiaries or companies whose shares have risen abnormally just before the announcement of results.


Certainly, we will need to see whether all these initial efforts are followed through, and India's extensive government corruption is well documented, so this may all still come to nothing.

That said, the Indian government's rapid and comprehensive response, including the arrest and criminal charges for the perpetrators of the fraud, the sacking and reconstitution of the company's board with truly independent and activist members (despite Satyam being a fully private company), and the investigation of the largest companies and those that might be most suspicious in the eyes of investors will do a great deal to restore the Indian people's confidence in their private markets. Furthermore, it stands in stark contrast to the kid gloves with which we have treated our own fraudsters.

Why is Dick Fuld still roaming the streets after making false statements about Lehman's health right up until its implosion? How about Angelo Mozilo? And why haven't the incompetent boards of such companies as Citi been dismissed? And would things have been better if after the implosion of Bear Sterns, the SEC ordered a "peer review" of all major investment and commercial banks so that it could deal with problems before they blew up into Lehman and Citi sized disasters?

While skeptics often dismiss "socialist" countries like India for confiscatory taxation and state-sponsored market manipulation, it is ironic to note that India at least, appears to be taking comprehensive steps to ensure the integrity of its free markets while not (yet) spending a dime of public money bailing out its bad apples. The U.S., in contrast appears to be doing the exact opposite...

GOOD QUESTIONS! HOW ABOUT IT, MR. PRESIDENT?

[Demeter]

12. And More Globally, "Indians flee Dubai as dreams crash"

http://www.daijiworld.com/news/news_disp.asp?n_id=55704&n_tit=Indians+Flee+Dubai+as+Dreams+Crash++-+Fall+out+of++Economic+Crisis

It's the great escape by Indians who've hit the dead-end in Dubai.

Local police have found at least 3,000 automobiles -- sedans, SUVs, regulars -- abandoned outside Dubai International Airport in the last four months. Police say most of the vehicles had keys in the ignition, a clear sign they were left behind by owners in a hurry to take flight.

The global economic crisis has brought Dubai's economic progress, mirrored by its soaring towers and luxurious resorts, to a stuttering halt. Several people have been laid off in the past months after the realty boom started unraveling.

On the night of December 31, 2008 alone more than 80 vehicles were found at the airport. "Sixty cars were seized on the first day of this year," director general of Airport Security, Mohammed Bin Thani, told DNA over the phone. On the same day, deputy director of traffic, colonel Saif Mohair Al Mazroui, said they seized 22 cars abandoned at a prohibited area in the airport.

Faced with a cash crunch and a bleak future ahead, there were no goodbyes for the migrants -- overwhelmingly South Asians, mostly Indians - just a quiet abandoning of the family car at the airport and other places.

While 2,500 vehicles have been found dumped in the past four months outside Terminal III, which caters to all global airlines, Terminal II, which is only used by Emirates Airlines, had 160 cars during the same period.

"The construction and real estate industry has been hit following the global slowdown and the direct fallout is that professionals working in the realty industry are rapidly losing their jobs," said a senior media professional, in-charge of a realty supplement in Dubai. "In fact, my weekly real estate supplement usually had 60% advertisement and ran into 300-odd pages. In the last seven weeks, it's down to 80 pages and with fewer advertisements," he added.

Mumbai resident D Nair (name changed) had been living in a plush high-rise in Sharjah for the past four years. However, the script went horribly wrong when his contract was terminated. Nair used all his credit cards to their maximum limit, shopping for people back home. He then discarded his Honda Accord before returning to India for good. Nair, who stays in a rented apartment in Navi Mumbai today, has a Rs15 lakh loan with a Dubai bank.

Another such victim of the meltdown said he bid goodbye to his car in a small bylane near the airport and hailed a cab. "I was scared because a number of us were doing the same and did not want to be questioned by the police. There was no way I could afford to pay the EMI of 1100 Dhirams for my Ford Focus," he told DNA on condition of anonymity.

When contacted, the dealer for Asgar Ali cars in Sharjah said, "We are helpless and do not know how to tackle this issue. A large number of such owners are from Indian, Sri Lanka, Bangladesh and other South Asian countries."

[Demeter]

13. Bob the Impaler Does Microsoft

http://www.cringely.com/2009/01/bob-the-impaler/


Microsoft announced this week its first-ever layoffs, which brought out the naysayers and predictors of doom, but not me. I see cutting these 5000 jobs as good, with my only caution being that it really should be 20,000 at least. Fifty thousand would be better.

I am not, nor have I ever been, a big fan of Microsoft. Lots of smart people at Microsoft do great work and lots of other people at Microsoft do not do great work. It would be nice if most of the 5000 being let go were the latter variety, but who really knows?

This is a complex subject so I am going to take it one piece at a time. First there is the issue of Microsoft having never before had a layoff. In one sense why would they? The company makes so darned much money – or at least they have historically – that layoffs in the traditional sense of cutting fixed costs have hardly been necessary. But there is a problem with not having layoffs and that’s the sad fact that it makes it difficult to get rid of people who simply don’t belong. There are a lot of folks at Microsoft who should have departed long ago, but why? It’s comfortable in a way, the benefits are good, and once you’ve been around for a few years, heck, there’s not much they could ever do to get rid of you. There are people – possibly thousands of people – coasting at Microsoft because of the company’s policy of simply allowing it.

Next let’s consider how big a layoff this really is – 1400 people right away and up to 5000 by sometime in 2010. Microsoft has, depending on how you count it, about 100,000 employees. If the average time in service is 10 years that implies that 10 percent of the Microsoft workforce leaves every year, which feels about right. That’s 10,000 folks leaving of their own accord EVERY YEAR. So what does this layoff mean, anyway? “Over the next two years we’ll be eliminating 5000 positions.” It means nothing.

The company’s intent MIGHT BE to permanently eliminate 5000 jobs over two years, but all that would mean under this scenario is that their hiring during that period would be limited to 15,000 replacements.

The real problem at Microsoft is one that every other public company would love to have – they make too much profit. So unlike every other public company, Microsoft traditionally manages its earnings not by cutting expenses but by increasing spending. It’s a legacy technique invented years ago by legendary CFO Frank Gaudette and embraced by Bill Gates and Jon Shirley because it accomplished the task of meeting Wall Street expectations, allowed the company to hide spectacular true profit margins, while still generally keeping anti-trust officials off Microsoft’s back.

The problem at Microsoft typically hasn’t been, “Oops, we’re not going to make enough money this quarter; how do we boost earnings?” It has been, “Oops, we’re going to beat Wall Street estimates by too much; what can we spend money on to bring our numbers into proper alignment?”

It’s a great problem for a CFO to have.

But what happens, then, when you finally do have a bad quarter? For Microsoft it triggers a number of interconnected decisions and events. If it were run like a normal company Microsoft could simply cut a bunch of expenses, move some money around and – like IBM does right now – look terrific to Wall Street. But Microsoft doesn’t want to do that for a number of reasons, most of them familiar to erstwhile Y2K vigilantes who hid in the mountains in late 1999 waiting for the end of the world. Simply put, Microsoft’s current system has built into it about $100 BILLION in hidden financial resources in the form of accounting rules that could be changed and whole businesses that could be jettisoned or even sold. But having spent all these years building up that fat in case it might eventually be needed, Microsoft is loathe to make the changes required to start burning that fat in fears that the whole technique will be compromised and the fat burned before it is truly needed.

So they leave things pretty much as-is, announce a first-ever layoff that’s as close to meaningless as possible, and cut a few expenses to generate a projected $1.5 billion savings. Why not? We’re in the worst economy of our lives. Making ONLY $4 billion in profit last quarter will be quickly forgiven.

I’m not saying here that Microsoft has fudged any numbers. Just the opposite, I’m saying that for maybe the first or second time ever they AREN’T fudging numbers.

Microsoft is in trouble. While they don’t this year need any of the doomsday techniques they’ve carefully built into the system, eventually they will. Its simply inevitable as the world goes more and more mobile and Microsoft can’t control a majority of that mobile business. It’s not that the PC is dying but that it is being supplanted – supplnated by platforms and business models that Microsoft does not control.

Anything less than majority market share in every segment means Microsoft is losing and losing big.

Steve Ballmer doesn’t appear to have any sense what to do about this and should leave the company. Certainly the “beat Google” war is already over and Microsoft lost, whether Ballmer knows it or not. Google, too, will fail in time, but not to Microsoft.

Redmond can continue to own the desktop but what happens when desktops disappear? The company will eventually start whittling itself down, earnings will continue to look good, Wall Street will continue to be impressed (sort of) but it won’t make any difference at all to the endgame, which is oblivion or — worse still — irrelevance.

Instead of 5000 positions, the company should drop 50,000. It should decide what businesses it is in and close or sell the rest. It should be a lot better than it is at running its true core – the muscle that’s been hiding beneath all that fat.

The big question is whether Microsoft will do it, or even CAN do it?

I have my doubts, one of which is that it even matters.


I POSTED THIS IN THE WRONG PLACE--IT HASN'T ANYTHING TO DO WITH INDIA, UNLESS YOU COULD THE H1 VISA SCANDALS...

[Hugin]

35. AnneD and I have pointed out several times that this was happening in the US during the Republican..

S&L crisis.

People would simply disappear in the night leaving Houses, Cars and Everything.

I remember filling a young couple's gas tank for them as they had made it as far as
the middle of nowhere (Where I live) and they'd run out of money for more. They said
that tank would get them as far as where their families were... They were quite honest
with me about their situation and weren't the typical cardboard sign crowd. (Which I'm
seeing more of lately, too.) It was kind of depressing.

I doubt I could afford to be so generous now.

The :tinfoilhat:er in me thinks this is the reason for the sudden interest in securing
the borders and airports is that TPTB want their money and they want it now.

[Demeter]

48. You're Scaring Me, Now

I don't like the menace of the Bush years to continue. I've had enough of fear and hatred.

[ozymandius]

17. Has anyone heard from Ghost Dog?

Fatal storms hit Spain and France

Torrential rains and winds of up to 172km/h (107mph) have been battering northern Spain and south-west France.

At least one million homes in France are without electricity, roads and railways have been blocked and airports ordered closed, authorities there said.

Residents in affected areas in both countries have been warned to stay indoors.

[Demeter]

19. No, Not Yet.

Morning, oh Wizard of Ozy!

[Demeter]

18. Icelandic government becomes first to be brought down by the credit crunch

http://www.dailymail.co.uk/news/worldnews/article-1126682/Icelandic-government-brought-credit-crunch.html

By Graham Smith



The government of Iceland today became the first to be effectively brought down by the credit crunch.

After several nights of rioting over the financial crisis, Prime Minister Geir Haarde, surrendered to increasing pressure and called a general election for May.

A poll would not normally be held until 2011.

Haarde also revealed that he had been diagnosed with a malignant tumour of the oesophagus and would not seek re-election.

'I have decided not to seek re-election as leader of the Independence Party at its upcoming national congress,' he told a news conference.

The global financial crisis hit Iceland, which has a population 320,000, in October, triggering a collapse in its currency and financial system under the weight of billions of dollars of foreign debts incurred by its banks

The economy is set to shrink 10 percent this year and unemployment is surging.

Critics wanted Haarde, the central bank governor and other senior officials to resign.

Some senior figures in his party have also said they favour an early election, but Haarde had up to now vowed to defy plunging popularity and stay on.

Protests had been held weekly since the crisis broke last year, but since Tuesday have been held every night.

On Thursday, police used teargas on demonstrators for the first time since protests against the North Atlantic island's entry into the NATO alliance in 1949.

Special forces had to rescue Haarde from his car after he was surrounded by an furious mob hurling eggs and cans outside the government offices, in Reykjavik.

The seething crowd spattered the building with paint and yoghurt, yelling and banging pans, hurling fireworks and flares at the windows and even lighting a fire in front of the main doors.

'There were a couple of hundred (protesters) when they had to use the gas,' police spokesman Gunnar Sigurdsson said. 'It went on for two hours or so. There were no arrests. Some injuries, but not serious.'

Latvia, Bulgaria and other European countries hit hard by the global economic meltdown have also seen unrest.


SO, I GUESS THAT BUSH DOESN'T EVEN COUNT? AND THE GOP MELTDOWN IS ONLY OF LOCAL SIGNIFICANCE? OR MAYBE IT'S A SIGN THAT AMERICANS ARE TOO STUPID TO GET THEIR GOVERNMENT TO RESPOND APPROPRIATELY?

[Demeter]

20. We'll have to go begging to the IMF, says Cameron (Britain)

http://www.independent.co.uk/news/uk/politics/well-have-to-go-begging-to-the-imf-says-cameron-1513416.html

By Andrew Grice, Political Editor and Sean O'Grady
Friday, 23 January 2009


Britain risks bankruptcy and a humiliating bailout by the International Monetary Fund (IMF) because of Gordon Brown's borrowing, David Cameron said yesterday. With official confirmation that the economy has entered recession expected today, the Tory leader delivered his strongest warning yet: "If we continue on Labour's path of fiscal irresponsibility, at some point – and it could be very soon – the money will simply run out."

His speech to the Demos think-tank in London raised the spectre of the 1976 bailout, when James Callaghan's Labour government was forced to make deep public spending cuts in return for a £2.3bn loan from the IMF...

As in 1976, investors' concerns are putting sterling under severe selling pressure. So far the depreciation of the pound – down to 23-year lows against the dollar and the subject of discussions within the G7 – has failed to bring in more export orders. UK car production has slumped 47 per cent on last year, it was revealed yesterday.

The human costs of the downturn are being laid bare. Repossessions almost doubled in the third quarter of last year, according to the Financial Services Authority. A total of 13,161 properties were reclaimed by banks and building societies during the three months to the end of September – 92 per cent more than during the same period of 2007, with arrears also escalating. An increasing number of families are turning to their local authorities to house them, with the number on council waiting lists now 1.77 million – up 100,000 on last year....

The economy is expected to stumble further during 2009 – by as much as 2.8 per cent, according to the European Commission forecast on Monday. The Governor of the Bank of England, Mervyn King, declared earlier this week that the world economy had "fallen off a cliff" in recent months, a verdict few seem ready to dispute.

[DemReadingDU]

28. How come we in the U.S. didn't see any riots against Bush

I marvel at other countries (though Iceland is small) to riot to such an extent that brings down their leader. You would think a big country like ours, the more people who could riot to protest Bush, Iraq invasion, torture, illegal spying, bailouts for the banksters. Hardly a peep. Sure the GOP is now in a meltdown, but if enough people were truly interested in our government, Bush should have been protested/rioted out of office years ago.

[Hugin]

38. There were several protests in DC prior to the Iraq War consisting of Half a million people...

They weren't covered by the media.

Also, last summer there was an Independent Trucker protest where they blew their horns outside
the Capital. While it was going on the Press (such as it is) went to great pains to silence the
sound of the horns blowing in the background of interviews around the city. But, if you listened
carefully you could still hear it.

[DemReadingDU]

39. Yes, I know about these protests, but

but there is not enough interest in the majority of Americans to protest enough to bring down an evil leader, like what happened in Iceland.

[Hugin]

40. Please, don't get me wrong I agree with you...

Somewhere there's a tipping point, though. The US just hasn't hit it yet. It'll happen
when more people have nothing more to lose and then WATCH OUT.

Too much... "It must suck to be them." and not enough looking out for others.

Funny how a cartoon movie I watched recently sums it up so well... The character voiced
by Sam Elliott said, "It takes a big man to defend himself, but, it takes a bigger
man to defend others."

I wasn't aware that the population of Iceland was only 350,000... With the smaller population
tipping points are reached at a faster clip. There aren't as many bubbles of denial for TPTB
to hide in.

[DemReadingDU]

42. Tipping point

You're right. Not enough people have reached that point yet. With more businesses closing and even more people becoming unemployed, there's going to some some, uh, turmoil, when people have nothing further to lose.

[Hugin]

45. Sadly, when it reaches the tipping point it has gone too far...

More often than not it's a reactionary movement which targets the wrong things.

Change doesn't require a tipping point... But, it does require empathy.

[Demeter]

21. Where You Won't Shop In 2009

Tom Van Riper, 01.20.09, 02:00 PM EST

Store closings and bankruptcies will hit a host of well-known stores in the coming year.
10 Retailers Set To Shutter Stores

While industry executives and shoppers will remember 2008 as the year the party ended, figure 2009 to be the year of the hangover. Already, Circuit City, Linens 'N Things and Mervyn's stores are going away. Sharper Image is too, though the company will continue to sell some of its high-end gadgets through license agreements with other retailers.

More pain is on the way. One-third of U.S. women recently surveyed by America's Research Group said they plan no clothing purchases--none--in 2009. Normally, it's just 4%. That means the market is still far too saturated with stores.

Expect closings to rattle the likes of Lane Bryant, Gap (nyse: GPS - news - people ), and Starbucks (nasdaq: SBUX - news - people ). It's the inevitable counterpunch to the days of retailers fighting hand over fist for market share during an era of loose credit and minuscule interest rates...

Retailers at risk in 2009, he thinks, include outerwear specialist Eddie Bauer and teen-apparel-seller Pacific Sunwear, along with Zales, the big jewelry chain. All three shuttered at least 8% of their U.S. stores last year, with many more closings expected.

http://www.forbes.com/2009/01/20/retail-bankruptcy-economy-biz-commerce-cx_tvr_0120closings.html

[Demeter]

23. Daily Reckoning's Apologia for Bankers (What CAN They Be Thinking?)

http://www.dailyreckoning.com/Issues/2009/DR012309.html

People working in the financial sector got paid better than any other professional class...
...which didn’t seem so bad, says Floyd Norris in the New York Times, when they appeared to be the smartest people on the planet. But now that we’ve discovered that they were the world’s biggest dumbbells, the high salaries add insult to injury.

In the Bubble Epoque, every mamma wanted her baby to grow up and be an investment banker. Because that’s where the money was. Now...the money ain’t there no more. The banks are broke. And the people who work in the financial sector are taking big pay cuts. First, their bonuses – which depend on the profitability of the industry – are cut automatically. Then, their salaries will come down too.

Financial sector salaries rise with the credit cycle, says a study done by the National Bureau of Economic Research. “Wages in finance were excessively high around 1930 and from the mid-1990s until 2006,” says the report. When animal spirits run high, in other words, the financial industry is able to make a buck. When they run low, earnings and wages in the sector fall. And when earnings in the financial industry go down, so do the economies that depend on them.

It was not a coincidence that New York City went broke in the ’70s, says the report. Speculators were few, credit was low, and the financial industry was in a slump. Coming soon: lower property prices in Manhattan and London.

Mommas should now be urging their babies to go into other lines of work – politics, maybe. The whole financial sector is busted. And if the financial sector is broke, the rest of the economy can’t function – at least, that’s the argument. So, the politicians and economists are desperately looking for solutions. What solution do they find? Shift more power and money to...surprise...politicians! The bankers may be broke, but the politicians act as though money is no problem. “How much do you need,” they ask?

“Don’t insure the banks – nationalize,” writes James Saft in the International Herald Tribune . He believes nationalization – complete government takeover – is the cheapest and most efficient way to bring the banks back to life.

Just a few months ago, ‘nationalization’ was practically a dirty word. No one – except a brain-dead Bolshevik – would have thought it desirable for a government bureaucracy to manage capitalism’s money. Now, few people can think of anything better.

The idea is typically simple-minded. When the bankers saw high earnings and no risk, the last thing they wanted was interference. Like gangsters, they would fight to keep rivals from muscling into their territory. But now, the wages of sin are going down...and the risks seem too high. They’re facing bankruptcy and they’re discouraged.

Everyone wants to offload the risks of the financial sector onto the taxpayer.

But wait...how can capitalism work without capitalists running its most important industry? And of course, there’s the additional cost. In private hands, the financial sector allocates capital and takes risks. The bankers make mistakes...but are least their intentions are pure; they are motivated by greed. In the fat hands of the government, on the other hand, decisions will be more political – they will be made to appease pressure groups, to favor trendy causes, to pay-off supporters or punish opponents. From an economic standpoint, these will slow down real growth...and cause strange misallocations of capital and financial distortions. Instead of being driven by naked, honest greed, in other words...the economy will be whipped forward by corruption, favoritism, and hidden political agendas.

Here at The Daily Reckoning , however, we are squarely against nationalizing the banks. Not that we think bureaucrats won’t do as good a job; how could they do worse? We just don’t think they’ll be as much fun to watch....



Today, when you get a check marked “insufficient funds,” you don’t know whether it is you or the bank that is out of money. And so, the authorities on both sides of the Atlantic rush to make their deposits, before the banks close forever. If it were up to us, none of them would get bailouts. Not because it would be the best thing to do for the economy; we just like to see grown bankers cry. It is good for them; we will explain why. Read on...

SUPER BAAADDDD
by Bill Bonner

Bankers are idiots, sometimes

As a professional class, bankers are thought to be as immoral as Russian pimps and as incompetent as Renaissance electricians. Thanks to them, the banking system is in trouble. Thanks to the failure of the banking sector, the American and UK economies are in trouble. And thanks to the failure of the Anglo-American economy, the whole world is in trouble.

Everyone is on the bankers’ case. In France, even Jerome Kerviel is criticizing his bosses at Societe Generale for not preventing him from taking “crazy risks.” Meanwhile, in Britain, Sir Fred Goodwin, recently esteemed head of the Royal Bank of Scotland, is now said to be the “world’s worst banker,” according to the Times . Trevor Kavanagh, writing in the SUN , says he is “criminally incompetent.” His purchase of ABN Amro is said to be the “worst acquisition in history.” In the new world, meanwhile, ISI group figures that the top four US banks alone have $1.2 trillion in bad assets. The total market value of those four banks is only about half of that amount. The banks are ‘effectively insolvent,’ says Nouriel Roubini. So, the feds have taken them into their care, if not yet into their custody.

But the bankers are ingrates. They borrow, but they don’t lend. They take but they don’t give. They party ’til the wee hours...and then, when the bill is served, they play dead.

The New York Times reports: “At the Palm Beach Ritz-Carlton last November, John C. Hope III, the chairman of Whitney National Bank in New Orleans, stood before a ballroom full of Wall Street analysts and explained how his bank intended to use its $300 million in federal bailout money.

“Make more loans?” Are you kidding, Mr. Hope seemed to say: “We’re not going to change our business model or our credit policies to accommodate the needs of the public sector....”

Bankers don’t make loans in the hopes of getting ‘good citizenship’ awards. They lend money when they think they can make a buck. The remarkable thing is that they’re so bad at it. They lent recklessly when there was little hope of getting their money back. Now, with the widest spreads in history – the difference between their cost of money and their return on it – it’s easier to rob a bank than get a loan from one. There are two explanations for this anomaly – both of them wrong.

The first is that bankers are wicked. A report in the Daily Express , for example, tells us that RBS “bosses spend 50k pounds on champagne banquet” celebrating Burns Night on Friday, before announcing a 45 billion pound loss on Monday morning. Over in the United States, the Wall Street Journal gave out word on Tuesday that much of the $140 million donated to fund the biggest inauguration in history came from banks that had received bailouts.

But wait, say the bankers’ defenders; they’re not evil, they’re just incredibly stupid. Evil bankers might have sold sub-prime debt to widows and orphans, but they never would have kept it in their own accounts. At the end of 2007, for example, the aforementioned Sir Fred Goodwin had shares of RBS worth nearly 6 million pounds; now his pile will barely buy a mid-size apartment in a bad section of London.

We do not reject the ‘bankers are stupid’ hypothesis completely; we simply add an important nuance: they are not stupid permanently; they are – like the rest of us – only stupid episodically.

Among the queerest financial stories of the last week was the proposal to create a ‘bad bank.’ It hardly seemed necessary. There were already dozens of them. The idea is to transfer all the sins of the bubble era to the ‘bad bank’ – funded with public money. Then, the bad bank will be crucified so that the rest of us can have life, and have it more abundantly. We first saw the idea floated in the pages of the New York Times last week. Now, it has made its way to the Financial Times in London, gaining favor as the measure of sin increases. The SUN says British taxpayers are on the hook for as much as 2 trillion pounds. In America, the bankers face $3.5 trillion in losses, says Mr. Roubini.

But if the ‘bad bank’ idea could work, why not create a super baaaddd bank? We could use it to get rid of all our mistakes. Writers could unload their bad novels. Businessmen could sweep their errors under its broad carpet. What the heck, let people get out of bad marriages without penalty; the super baaaddd bank could pay the alimony and divorce costs.

The hitch with the bad bank idea is so obvious even a banker could spot it. If the cost of mistakes is reduced, people might make more of them. Like the rest of us, bankers are neither good nor bad, but subject to influence. Unlike metallurgy or particle physics, banking does not have a rising learning curve. It’s not science. Instead, it’s more like love and gambling...with a circular learning pattern. They learn...and then they forget. They get carried away in the boom upswing; then they get whacked when it turns down.

So let them have a good beating. It will give them of a lesson that will last a lifetime...and give the next generation a solid banking sector.

Enjoy your weekend,

Bill Bonner

[Demeter]

25. Other Bon Mots (but not terribly useful) from Daily Reckoning

Mr. Obama is jumping the gun...

“Starting today, we must pick ourselves up, dust ourselves off and begin again the work of remaking America,” he says.

Hold on...there are some huge busts that have to happen first... We’re watching for busts in U.S. government debt (U.S. Treasury paper)...the dollar...and finally, after a big run-up, gold. Then, Americans can rebuild on a more solid foundation.

The gist of the world economy for the past quarter century was a division of delusion, which led to huge bubbles. Americans pretended to have good money. Asians pretended to have a good customer. Bankers pretended to have good credits. And Wall Street pretended that toxic assets were good ones.

http://www.dailyreckoning.com/Issues/2009/DR012209.html

File this one under divination by gold bugs. Interesting to read...

[Demeter]

27. Come Around Later This Evening for More Scope and Scandal

Reality is calling me away. On the other hand, I'm down to 16 emails to mine for juicy tidbits for the hungry WE....may have to start reading original sources soon!

Post them if you've got them! And carry on!

After all, it's carnival!

[DemReadingDU]

29. The Automatic Earth: January 23 2009: The Malibu Barbie House

January 23 2009: The Malibu Barbie House

Ilargi: There are days when it's hard to figure out what the biggest story in the economy is, the main trend. Like today: is it Wall Street’s sick sense of entitlement, which led to Merrill Lynch CEO John Thain being kicked out the door, or is it the growing unrest around the planet, which today culminated in the demise of the Iceland government? Or is it maybe Obama saying his $825 billion stimulus is on track, while HuffingtonPost reports it's been rejected? Or the ongoing downfall of Britain, which today -surprise!- admits to being in a recession, while even the word depression doesn't cover its situation anymore?

And then, while logging some wood in the rare breaks I allow myself during these long days, I realized it’s all part of the same story.

John Thain redecorated his office to the tune of $1.2 million, 2/3 of which went to the guy who now reinvents the White House, while Merrill’s employees were being handed pink slips. Thain is an obvious idiot. But he is of course by no means alone. And the sick sense of entitlement is not restricted to Wall Street either. It’s the norm in circles of bankers and politicians across the planet. Which is the reason the Icelandic prime minister was forced out today after days, even weeks, of increasingly violent protests. It will also be the reason for many more governments to tumble this year and next, and more after that.

Still, that's the easy part in this. The harder one will come to unfold because of the sense of entitlement that exists all across our societies, that is to say our own ideas about what we are entitled to. It’s not just the bankers who, in Meredith Whitney's words, try to keep their Malibu Barbie Houses. Most of those homes belong to people who are not bankers. And there's many Barbie homes outside of Malibu. The majority among us live in Barbie houses. We just don't call them that. If we look back, say 100 years, and see the size of homes, and the average living space per capita, we find that while the population of our societies has exploded in the last century, so too has the sense of entitlement we feel concerning the amount of space we want, and think we deserve. "Vastly" more people, who all want vastly more space. We can all figure out the trendline there.

We are also confident in telling ourselves we have a right to a nice and warm and fast car, and instantly available world-class health-care, and the best possible education for our children-so they can in time buy their own Barbie homes-, and supermarkets full of products flown, shipped and trucked in from exotic places all around the globe. So we're not really that different from John Thain, are we? He merely has an even higher entitlement pattern than most of us do, not a structurally different one.

I've been critical of Obama's choices for his economic team, and I won't take back one word of that. However, the fiercest criticism should go to his message of getting America back on the track of economic growth. That notion, which is nothing but a fallacy, deserves more scrutiny than any other one. Our economies are shrinking, not growing, and they will continue on down that path for a very long time. Perpetual growth is over, and if you look closely, it has been for at least 30 years. Education, health care and many other fields have become more expensive and less affordable during that time. Who needed day-care in the 1960’s? Who could not afford to go to a doctor? Today, both parents need to work full-time -or more- just to pay the monthly bills. It wasn't like that in the 1960's. Not at all. So were our parents so much less happy than we are? Not at all.

The fallacy of perpetual growth has led us into a sense of entitlement that is based on complete blindness and utterly wrong assumptions. If we are not awake enough to leave that behind, we will be the reason for fighting in the streets, in our own Barbie neighborhoods. If we want to prevent that from happening, we need to take not one, but 826 steps back. But the president of Hope and Belief talks about resuming the economy of growth. That is not possible. People need a reality check. They need to adjust to living on less personal, corporeal, space. If you think or hope that the PM of Iceland is the last one to be thrown out by the wayside, you need to start thinking instead of believing.

NOTE: TIME magazine published its list of the Best 25 Financial Blogs. Of course, The Automatic Earth is nowhere to be found. And that is just fine by me. We have added about 30% more regular readers since Jan 1, and would be comfortably, make that very comfortably, in the Top Ten of Gongol's list of Finance Blogs if we'd open our stats to the public.

Look, Stoneleigh and I have been right about so many things so much of the time, our record speaks for itself. Thank you all who have recognized that. We don't write to try and maximize profits for the investor community, we're here to try and prevent damage for those who don't belong to that community. They are the people who belong here. A financial blog used to be about enhancing profits. Today, it's about minimizing losses. That is a crucial difference, something for which there still is far too little attention. We're here for the bottom part of the population, not for the richest part. We want you to be alright, we're not pre-occupied with making you wealthy. There's plenty places for that if that's your thing.

The credit crisis is not an opportunity, it's a threat. And that is why what we provide is badly needed. I don't care what TIME Magazine thinks, or Gongol, or anybody. It's very clear to me why I do what I do. Not to make you money, but to save it for you. We've been doing great so far. 5 days ahead of our first anniversary, it's grown so much bigger than we ever would have thought, even though we knew all along what was coming. We have saved our combined readership many millions of dollars. That's why we're here. Please remember to donate part of that to The Automatic Earth, so we can continue doing what we do. We're in this together.

various articles to read, followed by the comments section
http://theautomaticearth.blogspot.com/2009/01/january-23-2009-malibu-barbie-house.html

Edit: Also check out the primers by Stoneleigh and Ilargi located in the upper right section.

[DemReadingDU]

46. The Automatic Earth: January 24 2009: Tragedy only resides in reality

January 24 2009: Tragedy only resides in reality

Ilargi: Well, couldn't someone have warned me? In my head, it was carved in stone that January 28 '08 was our first day doing The Automatic Earth. Turns out, it was the 22nd. We missed our own anniversary. That will have to be rectified tonight, and with a vengeance.

To me, though, it feels like it's been way longer than just a year. That may have something to do with the fact that we were already doing the Oil Drum before TAE started, but somehow I think it’s primarily to do with the increasing intensity and the long hours that go into this work. There's a huge difference between what I thought would happen back in the day and what there is now. As Stoneleigh recently said, we must be a remarkable source of information for posterity. Our readership has grown enormously in the past 12 months. And that is a compliment for all you readers in my view. I realize full well that what I post here every day is not the easiest dinner to metabolize. And that that hurts our reader numbers enormously. People just happen to like bite-sized offerings, but that's not good for them. Having to chew is a good thing.

And I have often thought about other ways to present the material, but I get whistled back all the time. I don’t want this to be a site like so many others, that feed you a pre-fab opinion; I think I already provide more than enough of my views every day. In the end, it's about you, about your mind forming a picture of what you see going on around you. Since the main media, well paid reporters who have access to all the sources and all the people, incessantly fail to do what should be considered their jobs, you can't get the kind of information from them that would be sufficient.

We need to, every single day, dig through tons of garbage to find the morsels that count. It's a shame and a pity, but it's also very obviously the reality we live in. And there is no doubt in my mind that it's the main reason why what were once the best and best sold newspapers and TV news shows are being hit so badly in the present crisis. People may be suffering, but they would still be willing to pay for information that clues them in to what is really happening. The internet has many spots for ideas, opinions and ways to work that are independent, that don't have the political agenda's that kill off the multi-million established news organizations.

Sure, Rupert Murdoch still makes money, but it comes at the expense of both the readers and the journalists. The lowest common denominator works great, just look at politics, media, TV shows and the Billboard top 100, but there is a high price being paid for that. The best -as in most honest and open- musicians, reporters, thinkers and representatives are thrown overboard. And the world winds up with not even mediocrity, but something even way below that. It’s not the medium common denominator we're talking about, after all, it's the bottom feeders that rule our world. Still, when the bottom feeders are consistently wrong in what they say about matters that affect people directly, and the credit crunch certainly fits that bill, there will necessarily be a move away from them.

In the case of TAE, or more broadly financial blogs, people will always first tend to go to those sites that are run by investors and economists. Most of them will by satisfied with that, since reading them will unleash a sufficient amount of feel-good chemicals in their brains. And as you can see daily in what we post, economists, and anyone else with a degree in whatever field, can still be wrong in what they say a hundred times in a row, and still be asked for a 101'st opinion. Insight, people feel, comes from cramming thousands of pages of material written by other people into your head. The excuse for not getting it right even if you have that degree can be found in the media all the time: it could not be foreseen, and nobody foresaw it.

At TAE, we all know that that is nonsense. For a year now, and in the years before that, my dear friend Stoneleigh and yours truly have been living proof that much if not most of what has happened, and much of what is about to, could and can indeed be foreseen. Because thousands of people every day have come to understand that, we now have all you great people with us every day. And that is as much a tremendously proud feeling as it is a grand responsibility.

As for the next year: we haven't seen anything yet. The bankruptcies and lay-offs have yet to start. Our governments will continue to make the exact wrong decisions, because their focus is on the rear-view mirror, on going back to where we were, on the return of the perpetual growth economy. It will never come back. That record is not just skipping, it's been broken into a million little pieces, and there's no reserve copy. Nor is there a trillion dollar needle that will make us ever hear the song again.

The media we have, and the political systems, will not recognize this until it's far too late, until they will be wiped away and thrust way off the stage. We cannot prevent that phase from playing out first before we get to look at what we have left, and that is very tragic, and it will be the end for millions of us. It’s a part of the drama that has to be played out. We won't stop trying to restore what we once had until what we actually DO have hits us over our heads with a vengeance.

Yes, that is tragic. And it is because it is true. Tragedy only resides in reality. Dreams can be scary, but they're never tragic.

It's time for me to start that anniversary party with that foretold vengeance. Thanks for being here, and thanks for your past and future donations that make this joint possible. We have a journey ahead of us that will be harder than we can imagine today for many among us. At least, you don't have to do it on your own. That is our pledge, mine and Stoneleigh's. Look around you, get closer to the people around you, seek out those who need help now or will need it in the future. The nuclear family is no more, and neither is their abode, the McMansion. People need people.

various articles to read, followed by the comments section
http://theautomaticearth.blogspot.com/2009/01/january-24-2009-tragedy-only-resides-in.html

[Demeter]

50. Point by Point Nitpicking of the Above

1. One man's survival is another man's entitlement. I was one of 4 kids under the age of 6 in a 1000 sq. ft. Cape bungalow.

You don't grow up in such crowding and willingly revert to it. Not without going mad, anyway. It drove my mother nuts, for sure. There is nothing wrong with the size of a house if its maintenance and operating costs are minimized and it's designed for energy efficiency.

I'll grant you that such consideration is the LAST thing a developer has in mind, but that doesn't mean it can't be done. Retrofitting is very possible, especially if there are some structural features worth preserving. Otherwise, tearing down and rebuilding is the more economical way to go. It will happen. People just won't make millions doing it, but we'll have shelter and income.

2. Cars is not the point. Transportation, safe, reliable and good for all abilities and ages, is. Also, decentralization, so that transport isn't so necessary. A total redesign; but it too will happen.

3. Education is not optional. This whole mess is due to Reagan and his heirs gutting education. Education doesn't cost, it pays.

4. In 1960, a doctor could set a bone, diagnose measles, and that's about it. Today we can cure many diseases and prevent many more. There is no comparison. Instead of letting this knowledge and these trained medical personnel go rusty, we must use them or lose them. Health care and public health measures don't cost, they pay!

5. Obama's economic team is not even assembled yet. They'll go out on a shakedown cruise, and then he will start listening to other points of view, because frankly, he's got has-beens and second-stringers. It took 30 years to get things this screwed up. Give the guy 30 months, at least, before giving up. And I wouldn't even assume that his goal is to revert to a bubble. That was Paulson's goal, and Bush's.

6. Happiness is where you find it. Cheney finds happiness in murder, torture and blowing things up. That's not normal. Most people are happy with work, love, and family. Those are things worth fighting for.

[DemReadingDU]

54. Good points!

BTW, I was the oldest of 8 kids. By the time the 8th was born, parents had a house with 4 bedrooms and 2 baths. But we learned early how to share and get along. Today, every morning around 7, whoever is available, we chat on the Internet. Sometimes my daughter joins us. A quick way to stay in-touch, and hear the latest family news.

I haven't given up on Obama, time will tell how his team shapes up. It took how many years, since Reagan, for us to get in this economic mess? No one can expect Obama to fix anything in 2 years or 4 years, or even 8 years. I'd say 20 years, at the minimum, because this mess we're in, has been growing that long, and it's going to take that long to clean things up.

[Tansy_Gold]

55. Tansy's doom and gloom here

I'm not sure we have the luxury of four or eight years.

[Demeter]

56. That's Why We Needed Impeachment

And that's why I'm all for impeaching Pelosi, too. Some (most) people get to Congress thinking that they can stall indefinitely--witness the GOP Southern idiots today--and nobody gets hurt (well, not their sources of funding, anyway.)

This is such a damaging tactic--they would stampede for Bush, but let several million faceless voters call for action, and they might as well be deaf.

And as for time, it is what it is. The longer it takes, the greater the losses and the pain inflicted on innocent and evil alike. That's the problem of being social critters. If we were all hermits, we wouldn't have these problems, and wouldn't even need to discuss them.

[burf]

31. Morning all!

I don't know if this has been posted elsewhere but here goes: SAN FRANCISCO (MarketWatch) -- 1st Centennial Bank of Redlands, Calif. was seized by the Federal Deposit Insurance Corp. and state regulators on Friday. It was the third bank failure this year, and brings to 28 the number of banks that have closed since the beginning of the current credit crisis.

The dateline on the story was : Last update: 1:13 a.m. EST Jan. 24, 2009

I guess they have resorted to middle of the night weekend press releases.

[Hugin]

36. Early Early Saturday morning news dumps...

Thanks for finding this burf.

[Demeter]

51. No, You Are the First to Post It.

Thanks! How would you like bank closings as a permanent assignment? You are a natural for it!

[Tansy_Gold]

34. Obama's favorite suit maker files for bankruptcy

http://www.sj-r.com/breaking/x1278516381/Obamas-favorite-suit-maker-files-for-bankruptcy

CHICAGO — The Chicago-based company that makes suits preferred by President Barack Obama has filed for bankruptcy.

Hartmarx Corp. and its U.S. subsidiaries filed for Chapter 11 protection Friday. The company says its Canadian and other non-U.S. affiliates have not sought bankruptcy protection.

Hartmarx makes business, casual and golf apparel under its own brands, including Hart Schaffner Marx. The clothier’s products can be found in department stores and mail-order catalogs.

The company has arranged up to $160 million of debtor-in-possession financing and is seeking court approval to continue operating its business and paying employees.

Hartmarx made a tuxedo, a topcoat and a suit for Obama’s inauguration. The company also made the dark-navy custom-made suit Obama wore Election Night in Chicago.

*****************************

ARE YOU GONNA 'GET IT' NOW, MR. OBAMA?

HOW MANY AMERICAN JOBS ARE GONNA BE LOST BECAUSE OF THIS? IS IT GONNA HIT HOME FOR YOU NOW OR ARE YOU JUST GONNA MOVE ON UP TO A MORE EXPENSIVE LABEL NOW THAT YOU'RE THE PREZ? SO EASY TO FORGET YOUR ROOTS, AIN'T IT, MR. O?

OR DO YOU FUCKIN' CARE?

IT'S ABOUT THE JOBS, MAN. THE MAKIN' THINGS JOBS. NOT THE MAKE-WORK JOBS.



Tansy Gold, and yes, I'm mad as hell >>>>>>>>>>>>

and it should be noted that this is on the DU front page immediately under the post that $180,000 worth of Sarah Palin's used duds are in trash bags at RNC HQ.

:puke:

[Hugin]

37. I will only add...

At least he was buying local.

[Tansy_Gold]

41. He "was". . . . but will he continue to do so? Will he be able to?

http://www.suntimes.com/news/politics/obama/1317167,CST-NWS-TUX06.article

President-elect Barack Obama is sticking with his Chicago-based suit maker, Hartmarx, to make a tuxedo, a topcoat and a suit for his inauguration Jan. 20.

The custom black tuxedo, made by union workers at the Hart Schaffner Marx plant in Des Plaines, is sold at Nordstrom department stores for $895.

Hartmarx also is making two more suits for Obama, but he will wear only one of his Hart Schaffner Marx suits on Inauguration Day.

Obama had previously bought six Hart Schaffner Marx suits. Those suits retail under the Gold Trumpeter collection for $1,500 apiece. The suits are single-breasted, 97 percent worsted wool and 3 percent cashmere. The pleated pants have 1?206-140?-inch cuffs.

The 121-year-old Hartmarx, maker of menswear labels Hickey Freeman and Hart Schaffner Marx, is the largest U.S.-based menswear maker and one of the few, if not the only, men's topcoat manufacturers in North America.

"We are thrilled at the opportunity to create a wardrobe for someone as dynamic as President-elect Obama and to participate, in however small way, in our nation's civic activities," said Brett Schenck, president of Hart Schaffner Marx. "Equally positive is that we are being embraced as an American, union-made manufacturer that prides itself on quality, value and fit."

http://www.suntimes.com/business/1389288,obama-Hartmarx-credit-crunch-012109.article

January 20, 2009

BY SANDRA GUY [email protected]

Even as Chicago men’s suitmaker Hartmarx Corp. reveled in President Barack Obama wearing one of its Hart Schaffner Marx suits at his inauguration Tuesday, Hartmarx officials were facing a credit crunch that could threaten the 125-year-old company’s existence.

Hartmarx has been scrambling to negotiate new credit arrangements after banks cut back the company’s U.S. credit lines, according to reports in Women’s Wear Daily and on financial blogs.

The outcome could be bankruptcy protection or a management takeover, according to the reports.

Hartmarx CEO Homi Patel could not be reached for comment Tuesday.

Hartmarx has enjoyed unprecedented publicity since last August, when Obama was first reported to be wearing the Hart Schaffner Marx label. The suits are made in Hartmarx’s factory in Des Plaines.

But the company’s stock has plummeted to 27 cents from $3 last September as its profits eroded in a brutal retail market. Hartmarx, which has $172 million in debt and a market capitalization of $9 million, continues to operate on a normal schedule.



http://www.chicagotribune.com/business/chi-fri-notebook-retail-obama-nov14,0,1043176.story

Obama's popularity suits Hartmarx
Local clothier looks to cash in on picks by president-elect
By Sandra M. Jones | Tribune reporter
November 14, 2008

It's not exactly an endorsement deal, but it's about as close to a presidential seal of approval as you can get.

Barack Obama's penchant for wearing Hart Schaffner Marx suits from Chicago-based Hartmarx Corp. has captured international attention, so, no surprise, the money-losing suitmaker is doing what any red-blooded American company would do: Cash in on the president-elect's popularity.

The day after the election, the company's Hart Schaffner Marx division put a marketing slogan on its Web site to capture all those Obama fashion devotees who are searching online for his suitmaker.

The slogan reads: "Dressing Presidential. Pick your power suit. President-elect Barack Obama found his at Hart Schaffner Marx."

Hartmarx, the largest U.S. suitmaker, has been inundated with calls about the two-button, wool-cashmere blend Hart Schaffner Marx suits that Obama favors. Images of the president-elect wearing the custom-made suits have been transmitted around the globe as he addressed the Democratic Convention in Denver, made his historic acceptance speech in Chicago and toured the White House with President George W. Bush.

Not since John F. Kennedy almost single handedly killed the men's hat business has a president wielded so much fashion influence, said David Wolfe, creative director of New York-based Doneger Group.

"Obama represents this bellwether change in consumer attitude," Wolfe said. "He is perfectly positioned to be the unintentional spokesman for a young-and-professional-but-cool image."

The company that started making suits in 1887 when Grover Cleveland was president has had a hard time of late as casual wear relegated suits to the back of the closet. So, who can blame the company for attempting to ride Obama's coattails?

Hartmarx's customer service center has been fielding calls about Obama's famous suits since August, when media outlets began to write about Obama's penchant for Hartmarx suits.

Because it is a wholesale company—it shut down its retail chain years ago—the manufacturer decided its Web site was the best way to reach potential customers.

"I've been in the business for a while and haven't seen quite this frenzy," said Brett Schenck, president of Hart Schaffner Marx. "It's usually the frenzy behind the first lady."

While suit sales have been down for years and the dismal state of retail these days isn't helping, Schenck said the Obama factor is giving the company a lift. An off-the-rack version of the suit retails for about $1,500.

Obama's transition office did not return a telephone call requesting comment. Schenck says the Obama camp "hasn't shown any disapproval whatsoever" about the slogan.

The company took pains to wait until after the election to put up a slogan in an effort to remain non-partisan, he said. The suits are made in Des Plaines at a union shop.

As for what else is in Obama's closet, fashion guru Wolfe foresees a burgeoning interest in Obama's casual wardrobe.

"When JFK was president, there was a big interest in his Hyannisport wardrobe," Wolfe said. "Whatever is the Chicago equivalent will probably become very hot.




All emphasis is added by Tansy Gold, as is the following commentary:

I want to make this personal, not just for DU and the WEE and SMW folks, lurkers as well as posters.

I grew up in Arlington Heights, Illinois, which is two suburbs over from Des Plaines. My grandparents and an aunt and uncle lived in Des Plaines. These are the suburbs that flourished in the post-war boom, when manufacturing gave a middle class lifestyle to working class people.

Way back then, my boyfriend's dad managed a local men's wear store at one of the first big under-one-roof malls in the area. Hart Schaffner & Marx was the featured label. He made a good living selling a good product, and to this day, 45+ years later, that BF still knows how to dress and looks damn good when he does.

But 45+ years later, most of us are reduced to wearing cheap imported crap manufactured by slave labor. We have to have eighteen pair of brand name imported shoes and thirty-six imported logo tee-shirts and the latest this and the newest that and we don't care how or where it's made. We gotta gotta gotta have it, and we never think that when all the jobs go, we won't be able to buy all this shit.

So there in DC sits the guy who seemed to be one of us, at least on some issues. He bought his suits from the union shop in the suburbs. He bought his tuxedo and his topcoat from them, too. Aww, warm fuzzies all around!

Except that on the day he was sworn is as president, on the day he mounted to the bully pulpit with a congenial congress already in session, on the day he donned that tuxedo and danced in the spotlight, the Chicago Sun-Times reported that the company faced bankruptcy, which of course was announced on the day Obama made his radio address, supposedly addressing his stimulus package.

Am I the only one who sees the tragic irony in this? When indeed does it/will it finally hit home? Has Obama opened the door to the bubble, stepped inside, and thrown the deadbolt?

Or was he there all the time?



I'm not. I'm



Tansy Gold

[DemReadingDU]

43. I am hesitant about Obama too

On one hand, we are no longer under the Republican rule, but Obama has surrounded himself with some of the same people who got us in this mess. Partly, I think he did this because they all have experience, but will they lead Obama astray, or will Obama figure out that what they propose, is more of the same. Obama needs to understand that doing the same thing, and expecting different results, is not going to work.

Maybe Obama is thinking that his stimulus package is needed to help companies like Hartmarx, and others, stay in business. Really, I'm hoping that Obama hasn't thrown the deadbolt yet, he's just weighing all the factors, and then determining the best course for our country.

[Tansy_Gold]

44. Yes, yes, and yes again

And it's most scary, as you and I and others here know only too well, that when facing the biggest economic crisis in 80 years, and which may be the biggest crisis of his presidency -- certainly the biggest domestic crisis -- he chooses as his advisers those who orchestrated the crisis. Does not bode well.

Obama is not an economist, and I have feared from the beginning that he did not have enough hands-on experience with the economy. (By the way, before anyone calls me a PUMA, I feared from the beginning that HRC had TOO MUCH hands-on experience and that it was the wrong kind.) He's also not an historian, and for all his interest in Lincoln and FDR, he needs to understand that the economy he has inherited is radically, fundamentally different from 1860, 1930, or even 1990. As a former community activist, he may have more experience with the importance of a paycheck and less with the importance of a steady job.

Long-term gains may involve short-term pains. The sooner that's made clear, the sooner we can get started.


Tansy Gold, no sooner

[DemReadingDU]

47. WaPo: Downturn Accelerates As It Circles The Globe

1/24/09 Downturn Accelerates As It Circles The Globe
Economies Worse Off Than Predicted Just Weeks Ago

The world economy is deteriorating more quickly than leading economists predicted only weeks ago, with Britain yesterday becoming the latest nation to surprise analysts with the depth of its economic pain.

Britain posted its worst quarterly contraction since 1980 on the heels of sharper than expected slowdowns reported from Germany to China to South Korea. The grim data, analysts said, underscores how the burst of the biggest credit bubble in history is seeping into the real economies around the world, silencing construction cranes, bankrupting businesses and throwing millions of people out of work.

"In just the past few days, we've had a big downward revision, we're seeing that an even bigger deceleration is on the way than we thought," said Simon Johnson, former chief economist at the International Monetary Fund and a senior fellow at the Peterson Institute for International Economics.

The depth of the troubles, analysts say, indicates that nations may need to spend more than the billions of dollars already planned on stimulus packages to jump-start their economies, and that a global recovery could take longer, perhaps pushing into 2010.

Analysts are particularly concerned about the slowdown in China and the recession in Europe. There is mounting concern about the stability of the euro and the British pound, which dropped to a 24-year low against the dollar yesterday. Analysts are fretting about the possibility of a debt default in a euro-zone country that could send fresh shock waves through global financial markets.

The problems in Europe now appear to be as bad if not worse than those in the United States. In the last quarter of 2008, the British economy shrank at an annualized rate of 6 percent. That is worse than economists expected, but also showed the British recession may be even harsher than the one in the United States, where analysts predict data expected next week will show the U.S. economy to have contracted between 5 and 5.5 percent in the last quarter of 2008.

more...
http://www.washingtonpost.com/wp-dyn/content/article/2009/01/23/AR2009012304172.html?hpid=topnews

[Demeter]

52. Obama Plans Fast Action to Tighten Financial Rules By STEPHEN LABATON

http://www.nytimes.com/2009/01/25/us/politics/25regulate.html?_r=1&hp


WASHINGTON — The Obama administration plans to move quickly to tighten the nation’s financial regulatory system.

Officials say they will make wide-ranging changes, including stricter federal rules for hedge funds, credit rating agencies and mortgage brokers, and greater oversight of the complex financial instruments that contributed to the economic crisis.

Broad new outlines of the administration’s agenda have begun to emerge in recent interviews with officials, in confirmation proceedings of senior appointees and in a recent report by an international committee led by Paul A. Volcker, a senior member of President Obama’s economic team.

A theme of that report, that many major companies and financial instruments now mostly unsupervised must be swept back under a larger regulatory umbrella, has been embraced as a guiding principle by the administration, officials said.

Some of these actions will require legislation, while others should be achievable through regulations adopted by several federal agencies.

Officials said they want rules to eliminate conflicts of interest at credit rating agencies that gave top investment grades to the exotic and ultimately shaky financial instruments that have been a source of market turmoil. The core problem, they said, is that the agencies are paid by companies to help them structure financial instruments, which the agencies then grade.

“Until we deal with the compensation model, we’re not going to deal with the conflict of interest, and people are not going to have confidence that the ratings are worth relying on, worth the paper they’re printed on,” Mary L. Schapiro, who testified earlier this month before being confirmed by the Senate to head the Securities and Exchange Commission.

Timothy F. Geithner, the nominee for Treasury secretary, made similar comments in written and oral testimony before the Senate Finance Committee.

Aides said they would propose new federal standards for mortgage brokers who issued many unsuitable loans and are largely regulated by state officials. They are considering proposals to have the S.E.C. become more involved in supervising the underwriting standards of securities that are backed by mortgages.

The administration is also preparing to require that derivatives like credit default swaps, a type of insurance against loan defaults that were at the center of the financial meltdown last year, be traded through a central clearinghouse and possibly on one or more exchanges. That would make it significantly easier for regulators to supervise their use.

Officials said that the proposals were aimed at the core regulatory problems and gaps that have been highlighted by the market crisis. They include lax government oversight of financial institutions and lenders, poor risk management efforts by banks and other financial companies, the creation of exotic financial instruments that were not adequately supported by their issuing companies, and risky and ill-considered borrowing habits of many homeowners whose homes are now worth significantly less than their mortgages.


The regulatory changes are a major piece of a broader package being prepared by the new administration to address the market crisis. Another piece to be issued soon will provide the strategy for how the government will go about repairing the declining banking industry. Congress recently approved the second $350 billion in spending from the Troubled Assets Relief Program.

The White House has come under increasing political and market pressure to disclose how it intends to manage the program, and there is nervous expectation on Capitol Hill that the administration will need to spend more than $350 million. That plan is expected to focus on reducing foreclosures, revising the bank bailout program, and buying or issuing guarantees for the rapidly deteriorating assets that have been discouraging more private investment in the banks.

Senior aides have vowed to move quickly on the administration’s financial regulatory agenda. The Emergency Economic Stabilization Act, approved last fall, requires the White House to make regulatory recommendations to Congress by April 30, although the administration is preparing to make legislative and regulatory proposals sooner.

Mr. Obama is expected to make one of his first foreign trips to a summit of the leaders of the Group of 20 nations in London on April 2, and officials said the administration will have outlined the details of its proposed regulatory overhaul by then.

Officials have been grappling for nearly a year to figure out how to better oversee the financial system, particularly as a number of large and inadequately supervised companies have encountered problems. In a sweeping regulatory blueprint unveiled last March, Treasury Secretary Henry M. Paulson Jr. proposed a broad consolidation of banking and financial agencies, including merging the Securities and Exchange Commission and the Commodity Futures Trading Commission. That proposal is not included in the current plans.

Other elements of the regulatory overhaul, such as the requirement that hedge funds register with and be more closely supervised by the S.E.C., would mark a sharp departure from the policies of the Bush administration. Many hedge funds now voluntarily register and subject themselves to some regulation, but the Bush administration opposed attempts to make registration and tighter oversight mandatory, even though that was proposed by William H. Donaldson, a chairman of the commission appointed by President George W. Bush.

But other proposals the Obama administration is preparing to make, like tighter federal regulation of mortgage brokers, had been recommended in Mr. Paulson’s blueprint.

Officials said some credit default swaps with unique characteristics negotiated between companies might not be able to trade on exchanges or through clearinghouses. But standardized or uniform ones could.

“We want to make sure that the standardized part of those markets move into a central clearinghouse and onto exchanges as quickly as possible,” Mr. Geithner testified. “I think that’s really important for the system. It will help reduce risk and the system as a whole.”

The new trading procedures for derivatives could also enable regulators to impose capital and collateral requirements on companies that issue credit default swaps that would make them safer investments. American International Group, one of the largest issuer of such swaps, never had to post collateral and nearly collapsed as a result of issuing a huge volume of such instruments that it was unable to support.

Officials said the plan may include a broader role for the Federal Reserve in protecting the economy from companies whose troubles pose systemwide risks, as the report issued under the leadership of Mr. Volcker, a former Fed chairman, has proposed. The report was issued this month by a subcommittee of the Group of 30, a not-for-profit body of senior representatives from various governments and the private sector. The group’s members include Mr. Geithner and Lawrence H. Summers, the director of the White House National Economic Council.

Administration officials have begun to study ways to control executive compensation.

For example, they are preparing proposals to limit executive pay at companies that receive money under the bank bailout program. In response to written questions by Senator John Kerry, Democrat of Massachusetts, Mr. Geithner said that in such circumstances the administration was planning to set a limit and that any compensation over that amount would “be paid in restricted stock or similar form that cannot be liquidated or sold until government assistance has been repaid.”

“Excessive executive compensation that provides inappropriate incentives,” Mr. Geithner said, “has played a role in exacerbating the financial crisis.”

[Demeter]

53. : Ambrose Evans-Pritchard Is "SERIOUSLY ALARMED" over Britain's Economy

http://blogs.telegraph.co.uk/ambrose_evans-pritchard/blog/2009/01/20/seriously_alarmed

And he blames it all on Baby Boomers. Funny. I didn't think Reagan or Thatcher were Boomers....

[Demeter]

57. How the Ensure that an Aggregator (or Bad) Bank Isn't Another Taxpayer-Financed Boondoggle for the

http://robertreich.blogspot.com/2009/01/how-ensure-that-aggregator-or-bad-bank.html


How the Ensure that an Aggregator (or Bad) Bank Isn't Another Taxpayer-Financed Boondoggle for the Banks That Got Us Into This Mess

It looks increasingly likely that a big chunk of the TARP II funds will be used to set up what's being called an "aggregator" -- or "bad" -- bank to buy up the bad assets that continue to hobble the balance sheets of private-sector banks. That's what Hank Paulson and Sheila Bair suggested Friday. Obama officials-in-waiting seem to view the idea favorably.

A Bad Bank is surely better than the piecemeal, unpredictable, and opaque approach of TARP I. But in order that the Bad Bank not turn into another giant taxpayer-financed boondoggle for the benefit of shareholders, creditors, executives, traders, and directors of the banks that got us into this mess in the first place, any Bad Bank purchase of their toxic assets ought to carry conditions similar to the ones I suggested recently for dispensing TARP II funds.

Until the taxpayer-financed Bad Bank has recouped the costs of these purchases through selling the toxic assets in the open market, private-sector banks that benefit from this form of taxpayer relief must (1) refrain from issuing dividends, purchasing other companies, or paying off creditors; (2) compensate their executives, traders, or directors no more than 10 percent of what they received in 2007; (3) be reimbursed by their executives, traders, and directors 50 percent of whatever amounts they were compensated in 2005, 2006, 2007, and 2008 -- compensation which was, after all, based on false premises and fraudulent assertions, and on balance sheets that hid the true extent of these banks' risks and liabilities; and (4) commit at least 90 percent of their remaining capital to new bank loans.

[Hugin]

58. Hank is still giving advice?

"That's what Hank Paulson and Sheila Bair suggested Friday."

Oh, and look... It's still being viewed positively!

Nothing is going to change. :eyes:

[Tansy_Gold]

60. "nothing is going to change."

My greatest fear. . . . .




Well, at least you changed your name. I guess that's something. :hi:



I'm still



Tansy Gold

[Joanne98]

59. K&R

[Demeter]

61. A Moment of Truth. Laugh or Cry, It's Your Call

[Tansy_Gold]

63. Exactly why I'm glad I work at home. . .. .

I've NEVER fared well in the corporate environment.



Poor, but reasonably content and not harassed,



Tansy Gold

[Demeter]

65. You're not The Only One, Tansy. Happy Sunday!

[Tansy_Gold]

69. Same back atcha!

:hi: (again)

[Demeter]

62. More About Madoff:Busting Bernie Madoff: One Man's 10 Year Crusade

http://clusterstock.alleyinsider.com/2008/12/busting-bernie-madoff-one-mans-10-year-crusade

Henry Blodget | Dec 17, 08 9:38 PM


Wall Street Journal has published a detailed account of private fraud investigator Harry Markopolos's efforts over the past 10 years to persuade the SEC that Bernie Madoff was running a gigantic Ponzi scheme (or, at best, was front-running).

Markopolos submitted extensive analysis to the SEC in 2005, which we've embedded below. The SEC did conduct an investigation thereafter, in the course of which Bernie Madoff "mislead" them about the nature of some of his dealings with his primary fund-of-funds promoter Fairfield Greenwich Group.

The SEC subsequently interviewed both Madoff and members of FFG and required both firms to change the way they described their relationship. The SEC says it was specifically looking for evidence of a Ponzi scheme during this investigation, but didn't find any.

An excerpt from the WSJ:

Mr. Markopolos says his suspicions started in late 1999, after a colleague returned from New York with tales of Bernard Madoff's impressive trading gains. Whether the markets were up, or down, Mr. Madoff managed to clock in with steady gains. He reportedly used a strategy of trading stocks as well as various options to protect against losses.

Mr. Markopolos says his bosses liked the look of those returns -- and asked him why he couldn't do the same thing.

Under pressure to deliver, Mr. Markopolos and a colleague at their Boston trading outfit tried to reconstruct Mr. Madoff's purported strategy. Their results paled in comparison.

"It doesn't make any damn sense," Mr. Markopolos, 43 years old at the time, then told a colleague, who confirmed the conversation. "This has to be a Ponzi scheme."

His bosses told him to go back and check his math. After all, Mr. Madoff by that time was renowned as a legendary investor.

Mr. Markopolos turned to Daniel DiBartolomeo, a top financial mathematician in Boston. Mr. DiBartolomeo says he spent hours poring through Mr. Markopolos's data, and ultimately agreed: The strategy Mr. Madoff said he used couldn't have achieved the returns he boasted of.

In early 2000, Mr. Markopolos shared his explosive concerns with Edward Manion, a staff examiner at the SEC's Boston office.

"This sounds serious," Mr. Manion told him, inviting Mr. Markopolos in for a meeting.

In May, 2000, Mr. Markopolos says he sat down with Mr. Manion and an SEC attorney.

Mr. Markopolos argued his case: A key part of Mr. Madoff's strategy relied on buying and selling options on the Standard & Poor's 100-stock index. But Mr. Markopolos said his research showed that weren't enough options on the S&P 100 to support the strategy Mr. Madoff's stated strategy, given all the money he seemed to be managing. So something else must be going on.

Mr. Markopolos, a native of Erie, Pa., who had trained in unconventional warfare as a reservist in the Army, says he came to "consider Madoff a domestic enemy."... Keep reading >

The case fell through the SEC's cracks. Markopolos kept hounding the agency for another five years until 2005, which the SEC requested more information. Markopolos sent them the following 21-page email, which is entitled "The World's Largest Hedge Fund Is A Fraud." (To make easier to read, click the "full-screen" icon in the lower right-hand corner of the player).

Markopolos Madoff Complaint
View SlideShare document or Upload your own.

Sometime after receiving the email, the SEC conducted an investigation. Below are the case opening and closing descriptions written by the SEC. In the SEC's own words:

The Staff received a complaint that Bernard L. Madoff...operates an undisclosed multi-billion dollar investment advisory business and that BLM operates this business as a Ponzi scheme...

uring an SEC investigation of BLM (Madoff's firm) that was conducted earlier this year, BLM--and, more specifically, its principal, Bernard L. Madoff--mislead the examination staff about the nature of the strategy implemented in the...customers accounts, and also withheld from the examination staff information about certain of these customer accounts.

The SEC, which is ordinarily extremely tough on those who mislead it (see Martha Stewart) offers no explanation of why it was not more troubled by this behavior in this case.

Madoff SEC Recommendation
View SlideShare document or Upload your own.

As the SEC looks into its own conduct, the critical question will be why it failed to uncover the Ponzi scheme even though it was specifically looking for it. The answer probably lies in the failure to subpoena specific information instead of relying on voluntarily produced (fabricated) documents.

It is also hard to understand why, if Madoff "mislead" the SEC in the early stages of the investigation, the agency wasn't more aggressive in its investigation.

I DETECT THE HAND OF AIPAC, PERHAPS? NO BUSHIES HAVE BEEN NAMED AS VICTIMS, TO MY KNOWLEDGE...

[Demeter]

66. The Madoff Saga: Perils of Fraudulent Conveyance

http://www.informationarbitrage.com/2008/12/the-madoff-saga-perils-of-fraudulent-conveyance.html

Say you were an investor in Madoff's funds. A few years back you decided to diversify. You asked Madoff for your money back and you got it. You then invested the proceeds in an array of other assets. Madoff then goes bust in a massive fraud. One day you get a letter from a bankruptcy trustee. The letter says that you need to repay a large chunk of your original investment in order to satisfy the claims of other investors who were less fortunate (or smart) than you. Is this fair? Is this right?

The concept being applied by the Court and the bankruptcy trustee is called Fraudulent Conveyance:

The basic structure and approach of the Uniform Fraudulent Conveyance Act are preserved in the Uniform Fraudulent Transfer Act. There are two sections in the new Act delineating what transfers and obligations are fraudulent. Section 4(a) is an adaptation of three sections of the U.F.C.A.; § 5(a) is an adaptation of another section of the U.F.C.A.; and § 5(b) is new. One section of the U.F.C.A. (§ 8) is not carried forward into the new Act because deemed to be redundant in part and in part susceptible of inequitable application. Both Acts declare a transfer made or an obligation incurred with actual intent to hinder, delay, or defraud creditors to be fraudulent. Both Acts render a transfer made or obligation incurred without adequate consideration to be constructively fraudulent - i.e., without regard to the actual intent of the parties - under one of the following conditions:

(1) the debtor was left by the transfer or obligation with unreasonably small assets for a transaction or the business in which he was engaged;

(2) the debtor intended to incur, or believed that he would incur, more debts than he would be able to pay; or

(3) the debtor was insolvent at the time or as a result of the transfer or obligation.

In my career I always thought of this as being something brought about by corporations in an attempt to disadvantage certain investors, e.g. the split of Marriott International and Host Marriott, with Host Marriott bondholders getting an instant downgrade by being left with a heavily leveraged capital structure. A different example in the investment world is when hedge funds enter into "side letter" agreements with certain investors, providing them with preferential redemption rights in order that they can exit without regard to the customary lock-ups to which other investors are subject. The aggrieved parties in the Madoff case, however, are individuals and firms with no knowledge of the fraud being perpetrated and with no preferential rights. Every investors' right to redeem (or not to invest) appeared to be just the same as any other. So why should those who got out be forced to suffer the same fate as those who didn't, even though they were operating with exactly the same information and with the same rights?

The template for this kind of treatment was set in the Bayou case, where the fraudulent conveyance concept was used to claw back funds from investors who had exited as far back as two years prior to its implosion. It seems to me that this interpretation could have a chilling effect on asset managers in general and hedge funds specifically. I recently redeemed from a few hedge funds because, well, I wanted to. I don't know anything special. I just want to deploy my assets elsewhere. Does this mean that I need to be worried that I might get a letter in a few years asking me to repay a portion of what I've redeemed because a fraud was subsequently determined to have taken place? Investors can't place money worrying about stuff like this. If there is an even playing field, the chips have to fall where they may. It is no different than a game of musical chairs: everyone has an even chance, but when the music stops some are left without chairs. It sucks but it is what it is.

The Madoff fraud is a tragedy of epic proportions, and there is almost no punishment sufficient for the monster that caused this widespread damage. However, those who innocently exited the situation should not have their lives turned upside down on a retrospective basis due to a highly legalistic ruling with little appeal from a common sense perspective. What Madoff did was bad enough and the numbers who are suffering is massive: to enlarge the circle of damage to those who long left the fund seems neither fair nor just. Sometimes law and common sense just have to come together. This is one of those situations.

TOUGH COOKIES, BUDDY. ILL-GOTTEN GAINS WILL BE CLAWED BACK.

[Demeter]

67. Madoff Said to Use Unregistered Side-Unit for Clients (Update5)

http://www.bloomberg.com/apps/news?pid=20601087&sid=aKgINkd9m988&refer=home


By David Scheer and David Glovin

Dec. 15 (Bloomberg) -- Federal investigators working through the weekend to unravel Bernard Madoff’s alleged $50 billion Ponzi scheme found evidence he ran an unregistered money-management business alongside his firm’s brokerage and investment-advisory subsidiaries, two people with knowledge of the inquiry said.

Clients of the undisclosed unit may have included hedge funds, according to the people, who declined to be identified or to name the funds because the probe isn’t public. Investigators from the U.S. Securities and Exchange Commission are looking for signs that others participated in the alleged fraud and are examining why Madoff’s wife’s name appeared on documents linked to transactions under scrutiny, the people said. His wife, Ruth Madoff, has not been accused of any wrongdoing.

Ira “Ike” Sorkin, a lawyer at Dickstein Shapiro LLP in New York representing Madoff, declined to comment. Calls to residences listed in the Madoffs’ names in Manhattan, Montauk, New York, and Palm Beach, Florida, weren’t answered. John Heine, an SEC spokesman, also declined to comment.

Sorkin said on Dec. 13 that the situation was “a tragedy.”

More than a dozen SEC inspectors have been working around the clock examining records at Bernard L. Madoff Investment Securities LLC in New York after his sons told authorities Dec. 10 he’d confessed to orchestrating a Ponzi scheme with more than $50 billion in losses, the biggest in history. People with knowledge of the probe who initially said they suspected the loss estimate was too high now say it may be roughly accurate.

Wilpon, BNP Paribas

The $50 billion figure may reflect the amounts of money clients were told they had in their accounts at the firm, not the amounts they originally invested, two of the people said. Customers who believed they had amassed investment gains over time may have been misled, the people said.

Clients facing losses range from New York Mets owner Fred Wilpon’s Sterling Equities Inc. to hedge funds such as Fairfield Sentry Ltd. The alleged scam has ensnared more than 25 companies, including some of the biggest financial-services firms such as BNP Paribas SA in Paris and Nomura Holdings Inc. in Tokyo, which have said they may lose money because of trading or lending tied to Madoff’s firm. In all, companies, individuals and foundations have disclosed about $24 billion of investments with Madoff, according to data compiled by Bloomberg and media reports.

Where Money Went

Investigators are still trying to figure out where customers’ money went. Madoff, 70, told his sons last week he had as much as $300 million left, according to an SEC lawsuit filed in federal court in Manhattan. The agency is looking for additional money that may be recovered for victims, two people said. In a regulatory filing in January, Madoff’s firm listed $17 billion in assets under management.

Details of the side business that the SEC is scrutinizing -- including how much client money it held, who besides Madoff may have been involved and how it was kept separate from the firm’s registered investment-advisory unit -- couldn’t be determined.

The SEC’s complaint said he conducted “certain investment advisory business” on a separate floor and that he was “cryptic” about those activities when talking with other employees. In registration documents, the company said its advisory unit served between 11 and 25 clients, yet many times that number of people, firms and funds have said they entrusted their savings to Madoff.

Advisory Activities

His advisory activities were a mystery to most people at the company, said two employees who declined to be identified, citing concern that they might be drawn into the probe. The firm on Third Avenue in midtown Manhattan occupied several floors, with market-making and proprietary trading units on the 19th floor, and back-office functions on the 18th, the employees said. The advisory operations were on the 17th floor.

While traffic flowed between the 18th and 19th floors, the 17th floor wasn’t linked to the others and there was virtually no interaction between the groups, according to the employees.

Madoff’s sons, who ran the market-making and proprietary units, told employees their father kept them in the dark about the advisory unit, the employees said. While Madoff seldom appeared on the 18th and 19th floors during the workday, he was known to inspect during the evening for sloppy desks or window shades that weren’t fully drawn, one of the employees said.

The only person the employee recalled seeing Madoff consult with on the 17th floor was an executive known by his first name, Frank.

Reached by phone at home, Madoff official Frank DiPascali referred calls to his lawyer, Marc Mukasey, a former federal prosecutor now at Bracewell & Giuliani in New York, who declined to comment. His father is U.S. Attorney General Michael Mukasey, a former New York federal judge.

Black Mercedes

No one answered the door today at DiPascali’s home in Bridgewater, New Jersey, which tax records show was assessed at $1.38 million this year. A black Mercedes sat on the circular driveway in the almost seven-acre parcel, which includes a pond. A project to replace siding on the house is in progress and a construction permit in DiPascali’s name hung in a front window.

In court documents, U.S. criminal prosecutors and the SEC said Madoff confessed that his advisory business, which catered to rich people and institutional investors as well as hedge funds, was “all just one big lie.” The business had been insolvent for years, according to the SEC’s account of his statement. In a Ponzi scheme early investors are paid with money raised from subsequent victims.

Sons

Madoff made the admissions to his sons, Mark and Andrew, who turned him in to U.S. authorities, according to Martin Flumenbaum, a lawyer at Paul, Weiss, Rifkind, Wharton & Garrison LLP in New York who represents the brothers.

He was arrested Dec. 11 and charged at federal court in Manhattan with a single count of securities fraud. Madoff was released that day on a $10 million bond guaranteed by his wife and secured by his Manhattan apartment. A day later, a federal court froze the firm’s assets and appointed Lee Richards, an attorney at Richards Kibbe & Orbe LLP in New York, as a receiver.

The Securities Investor Protection Corp. announced today that it is liquidating Madoff’s brokerage and named Irving Picard, a lawyer at Gibbons PC in New York, trustee to return cash and securities to customers. While the Washington-based SIPC provides as much as $500,000 in insurance for any missing money in individual brokerage accounts, it does not protect against investment losses.

To contact the reporters on this story: David Scheer in New York at [email protected]; David Glovin in U.S. District Court in New York at [email protected].
Last Updated: December 15, 2008 18:23 EST

[Demeter]

89. SEC Skipped Normal Inspection of Madoff Hedge Fund

http://www.nakedcapitalism.com/2008/12/sec-skipped-normal-inspection-of-madoff.html

So how did Madoff get away with his $50 billion fraud? Time will tell when and how it started, although I'd hazard the dot com bust. Madoff may have been unwilling to report losses, and assumed (initially) that no one would be hurt if he fibbed if he could eventually trade his way out of trouble. But given the freakish consistency of his returns, it could have been phony from the get go.

The critical bit was that Madoff's firm executed its own trades. No nasty third-party records to diverge with what the customer statements showed.

But another shocker came to light today: the SEC, via its own protocols, should have inspected the Madoff Ponzi operation prior to the end of 2007 and failed to. Why? Evidently, due to Madoff's good reputation in the industry.

What is particularly curious (if my assumptions are correct) is that Madoff kept his registered status, which meant he would at some point have the SEC knocking on his doors. I am assuming he registered in 2006 because that is when the SEC has an initiative underway to register hedge funds with over $25 million in assets under management. Some evaded it by getting investors to agree to 2 year+ lockups (that put them in a different category). But the registration requirement was nullified when a hedge fund manager sued successfully, claiming that the SEC was misusing its statutory authority under the Investment Advisers Act of 1940. Most hedge fund then removed themselves from registration; for some reason Madoff did not. Did he somehow think he could bluff the SEC, or did he have a death wish? (Note: I am assuming the Madoff investment operation was considered to be a hedge fund, otherwise, it should have been registered as an investment adviser long ago).

In any event, that particularly day of reckoning did not come to pass.

A former Madoff employee called me, in many ways as gobsmacked as everyone else about the massive fraud. He said that the firm was very compliance oriented in the other aspects of its business, and was if anything overly zealous. That squeaky-cleanness in the activities visible to the marketplace in retrospect served as useful cover.

But the former employee also said that even at the time, some things that did not add up, although since the rest of the firm was on a separate floor from the investment operation, they didn't think about them too deeply.

1. The returns were too good, too consistent. "it meant Bernie was either a genius or a crook." Since Bernie had been an innovator and was genuinely (by appearances) a really nice guy, it was hard to see him as a crook.

2. The operations types in the investment arm were way way overpaid (someone had seen the pay stubs) and seemed not very smart and not very good. Many were related (ie, family members, but not the Madoff family)

3. The investment arm was peculiarly secretive and what they said about its strategy did not mesh with the returns.


The former employee is also pretty certain that the Madoff family members were in the dark and not part of the fraud.

From Bloomberg:

Bernard Madoff’s investment advisory business, alleged to be a Ponzi scheme that cost investors $50 billion, was never inspected by U.S. regulators after he subjected it to oversight two years ago, people familiar with the case said.

The Securities and Exchange Commission hasn’t examined Madoff’s books since he registered the unit with the agency in September 2006, two people said, declining to be identified because the reviews aren’t public. The SEC tries to inspect advisers at least every five years and to scrutinize newly registered firms in their first year, former agency officials and securities lawyers said....

“Given what the SEC claims is the magnitude of the fraud, this is something you would hope an inspection would have uncovered,” said Mercer Bullard, a University of Mississippi law professor and former mutual-fund attorney at the SEC. “It’s hard to imagine a fraud of this alleged size not being accompanied by significant and pervasive compliance problems.”...

More than a decade earlier, in 1992, Madoff faced regulatory scrutiny as part of a lawsuit the SEC brought against two Florida accountants, whom it accused of raising $441 million while selling unregistered securities over three decades, according to SEC statements and a press report at the time.

Madoff told the Wall Street Journal at the time that he had managed the funds unaware they had been raised illegally. The SEC determined that the investors’ money was all accounted for, and didn’t accuse him of wrongdoing, according to the report....

Such a large Ponzi scheme -- in which early investors are paid with money raised from subsequent victims -- should prompt lawmakers to review how the U.S. polices brokerages, wealth managers and unregistered advisers, such as hedge funds, said James Cox, a securities law professor at Duke University in Durham, North Carolina....

Barry Barbash, a former head of the SEC’s investment management division, said the agency has tried to focus its inspections on money managers who pose the biggest risks. The regulator uses criteria such as which securities a firm is buying and who its clients are, said Barbash, a partner at Willkie Farr & Gallagher LLP in Washington.

“Given the state of SEC resources and given the way that they go about determining whether an inspection is necessary, it wouldn’t surprise me that a newly registered firm wasn’t inspected,” Barbash said.

Any suspicions about Madoff may have been dampened because of his association with industry groups, watchdogs and politicians.

He sat on a committee of academics, regulators and executives formed in 2000 by former SEC Chairman Arthur Levitt to advise the agency on new stock-market rules in response to the growth of electronic trading. Madoff has led the trading committee at the Securities Industry Association, Wall Street’s biggest trade group, and served as chairman of the Nasdaq Stock Market.

Since 2000, he has given at least $100,000 to the Democratic Senatorial Campaign Committee and more than $23,000 to the party’s candidates, including Senator Charles Schumer of New York and Senator Frank Lautenberg of New Jersey, who leads a charitable foundation that invested with Madoff.

“You can see where people would pull the shades down over their eyes in terms of recognizing what could be one of the great frauds of our time,” Levitt said in a Bloomberg Television interview. “I’ve known him for nearly 35 years, and I’m absolutely astonished.”

[acmavm]

82. Why would anyone be surprised that the bush** SEC failed to find any

'wrong doing'?

[kickysnana]

73. Same as receiving stolen merchandise n/t

[Demeter]

64. [b] It was looting, and it is high time the media starts describing it in those terms [/b]

New York Times Pulls Punches On Wall Street Bubble Era Pay

http://www.nakedcapitalism.com/2008/12/new-york-times-story-pulls-punches-on.html


Why is no one willing to call things by their proper names, and instead resort to euphemism and double-speak?

A New York Times story today, "On Wall Street, Bonuses, Not Profits, Were Real," makes its most important point in its headline, and managed to get some good data points on how rich investment bank compensation was in the peak years, but otherwise glosses over the fundamental nature of what went on.

It was looting, and it is high time the media starts describing it in those terms.

Let us turn the mike over to Nobel Prize winner George Akerlof and Paul Romer. From the abstract of their 1993 Brookings paper:

Our theoretical analysis shows that an economic underground can come to life if firms have an incentive to go broke for profit at society's expense (to loot) instead of to go for broke (to gamble on success). Bankruptcy for profit will occur if poor accounting, lax regulation, or low penalties for abuse give owners an incentive to pay themselves more than their firms are worth and then default on their debt obligations.

Bankruptcy for profit occurs most commonly when a government guarantees a firm's debt obligations. The most obvious such guarantee is deposit insurance, but governments also implicitly or explicitly guarantee the policies of insurance companies, the pension obligations of private firms, virtually all the obligations of large or influential firms. These arrangements can create a web of companies that operate under soft budget constraints. To enforce discipline and to limit opportunism by shareholders, governments make continued access to the guarantees contingent on meeting specific targets for an accounting measure of net worth. However, because net worth is typically a small fraction of total assets for the insured institutions (this, after all, is why they demand and receive the government guarantees), bankruptcy for profit can easily become a more attractive strategy for the owners than maximizing true economic values...

Unfortunately, firms covered by government guarantees are not the only ones that face severely distorted incentives. Looting can spread symbiotically to other markets, bringing to life a whole economic underworld with perverse incentives. The looters in the sector covered by the government guarantees will make trades with unaffiliated firms outside this sector, causing them to produce in a way that helps maximize the looters' current extractions with no regard for future losses...."


Re-read the key phrase: "pay themselves more than their firms are worth and then default on their debt obligations." This has happened en masse in what formerly were investment banks who have now become wards of the state.

But no one is willing to call this activity for what it was. In fact, some are still urging that we not squelch "financial innovation," which Martin Mayer described as

... a way to find new technology to do what has been forbidden with the old technology....Innovation allows you to go back to some scam that was prohibited under the old regime.



But we digress. Dick Fuld reportedly spends much of his days allegedly wondering why he didn't get a bailout. He should instead be thanking his lucky stars he is not in jail. Bankruptcy fraud is criminal, and fraudulent conveyance is subject to clawbacks. How could Lehman possibly have been producing financials that showed it had a positive net worth, yet have an over $100 billion hole in its balance sheet when it went under? No one has yet given an adequate answer on where the shortfalls were.

Commonwealth countries have a much simpler solution. If a company is "trading insolvent," that is, continuing to do business when it is in fact broke, its directors are personally liable.

We have said repeatedly that one of the triggers for the crisis was permitting investment banks to go public (prior to 1970, no NYSE member firm could be listed). We had dinner with one of our long-standing colleagues who was responsible for Sumitomo Bank's investment in Goldman Sachs and had (and continues to have) close and frequent dealings with the firm. He said that the change in the firm's behavior after it went public was dramatic. Before, it would deliberate (one might say agonize) important business decisions,. Waiting two years to enter a new field was not unheard of. But after the partners cashed in and were playing with other people's money, the firm quickly became aggressive in its use of capital in expanding the size and scope of its activities.

But the New York Times article gives an anodyne portrayal:

As regulators and shareholders sift through the rubble of the financial crisis, questions are being asked about what role lavish bonuses played in the debacle. Scrutiny over pay is intensifying as banks like Merrill prepare to dole out bonuses even after they have had to be propped up with billions of dollars of taxpayers’ money. While bonuses are expected to be half of what they were a year ago, some bankers could still collect millions of dollars.

Critics say bonuses never should have been so big in the first place, because they were based on ephemeral earnings. These people contend that Wall Street’s pay structure, in which bonuses are based on short-term profits, encouraged employees to act like gamblers at a casino — and let them collect their winnings while the roulette wheel was still spinning...

For Wall Street, much of this decade represented a new Gilded Age. Salaries were merely play money — a pittance compared to bonuses...

While top executives received the biggest bonuses, what is striking is how many employees throughout the ranks took home large paychecks. On Wall Street, the first goal was to make “a buck” — a million dollars. More than 100 people in Merrill’s bond unit alone broke the million-dollar mark in 2006. Goldman Sachs paid more than $20 million apiece to more than 50 people that year, according to a person familiar with the matter. Goldman declined to comment.


The bulk of the piece is about Dow Kim, former co-president of Merrill's fixed income business, and does deliver some detail about how Kim and his subordinates were paid. But it fails to delve into how the profits were illusory, the bad decisions made, how the fixed income area in particular lead to the end of Merrill's independence. Perhaps the author, Louise Story, assumed the tale has been well told elsewhere. However one effort to demonstrate the business was on the wrong track, falls woefully short. It discusses a CDO deal that went bad, but fails to establish whether Merrill took losses by virtue of retaining a big interest ("The losses on the investment far exceed the money Merrill collected for putting the deal together" does not clearly say that Merrill, as opposed to investors, suffered. One assumes so, but the drafting is ambiguous).

Even more glaring, the story mentions Merrill's disastrous, end of cycle $1.13 billion acquisition of mortgage originator First Franklin, without mentioning that deal came a cropper (Merrill shut the unit down only a year and a couple of months after it completed the transaction).

Other stories have given some of the sordid details about Merrill's ill fated mortgage expansion (a Wall Street Journal piece, "Merrill Upped Ante as Boom In Mortgage Bonds Fizzled," is one of many examples), Giving short shrift to the staggering level of strategic errors and lax risk oversight means the article fails to pin responsibility clearly for the mess on Kim and his fellow business heads. The article simply assumes the connection, but by talking about the profits without giving sufficient detail on the colossal errors, it makes Kim and his lot seem far more innocent than they really were.

[Demeter]

68. Letter: For feds to bail out Cerberus is the 'epitome of ignorance'

http://www.tcpalm.com/news/2008/dec/10/letter-feds-bail-out-cerberus-epitome-ignorance/?feedback=1#comments

Cerberus Capital Management is one of the largest private equity investment firms in the United States with huge assets and amounts of cash at its disposal. Cerberus bought Chrysler from Mercedes for $7 billion. Evidently, Chrysler is not performing up to the standards of financial return that Cerberus expected. So the investment firm is looking for the American taxpayer to bail them out — to the tune of $7 billion; just what Cerberus paid for the company — even though Cerberus has enough cash to bail Chrysler out without government funding.

On the home page of Cerberus Capital Management it states: “We hold ourselves and all of our portfolio companies and management teams to the highest ethical standards and business practices.”

I guess their interpretation of the phrase “highest ethical standards” means to have someone else (us, the taxpayers) pay for their shortfalls.

This has to be the epitome of arrogance. For Congress to agree is the epitome of ignorance.

[Demeter]

70. Bad Times Spur a Flight to Jobs Viewed as Safe By LOUIS UCHITELLE

http://www.nytimes.com/2009/01/25/business/25safe.html?ref=business



AfTer years of struggling to get their wages up, the nation’s workers are trying to find jobs that will simply last, at least through the deep recession.

Fearing layoffs, investment bankers at a Merrill Lynch or a Morgan Stanley are joining small Wall Street firms for less pay but with signed employment guarantees. Academics are migrating to community colleges, which are adding teachers as enrollment rises. And in Eastern Wisconsin, workers furloughed from a paper mill they fear will not reopen are training as truck drivers and welders.

“Looking online and in newspapers and talking to my instructors, I’ve decided that trucking and welding stand out as jobs that are available and will continue to be available, and a lot of my friends agree,” said Dan Geneen, who has picked up a truck-driving certificate and is learning welding since he was let go by the paper mill last fall.

Trucker and welder are hardly glamorous careers to most Americans. But there is a new allure developing around jobs likely to keep a person employed, at reasonable pay, through a prolonged downturn. Government employment once offered that promise, certainly in the Great Depression. But government hiring is less than robust now, at 181,000 additions over the last year, mostly at the state and local level. That is far from offsetting the 2.5 million jobs lost in the 13 months of recession.

With his economic recovery package now before Congress, President Obama promises to generate thousands of steady jobs, some of them in government. Until those positions appear in abundance, however, the hunt for safe work is occurring mainly in the private sector — and the hunting is not easy.

“The companies doing the least hiring right now are very often the companies that offer the safest jobs,” said Susan Houseman, a senior economist and labor expert at the Upjohn Institute, a research group in Michigan.

With employers shedding half a million jobs a month, some economists, like Nancy Folbre of the University of Massachusetts in Amherst, liken safe jobs to high ground amid the turbulent flood waters of lost employment.

“There is a danger in using the term ‘safe jobs’ for this perch,” Ms. Folbre said. “That makes them sound like sinecures, and they are not.”

Such is certainly the case on Wall Street. The flow to the smaller boutique firms often involves top people at big but shaky investment banks. Fearful they will be laid off, they move on before the ax falls, said Cheryl Solit, a partner at Solit Tessler & Company, a placement firm in Short Hills, N.J., that helps such executives make the switch to jobs with less initial compensation but more security, although in these hard times, not that much more.

“The no-layoff clauses in the contracts they sign are usually for one or two years,” she said, “and usually in the form of guaranteed compensation. The new employer is not likely to lay you off when he has to pay you anyway.”

Community colleges are turning out to be a similar mecca as enrollment rises because of the recession. Laid-off workers are flocking to the schools to retrain for other occupations, and young people are enrolling in greater numbers to avoid the higher tuitions of a four-year college, said James Jacobs, president of Macomb Community College in Warren, Mich.

At 41,000 students, Macomb’s enrollment is up 10 percent from last year, Mr. Jacobs said. With the recession driving enrollment, he is adding to his staff of 220 full-time teachers and 750 adjuncts. Most of the new hires are adjuncts, though the courses they teach there and at another community college often add up to full-time work.

Since enrollment is rising, they are assured of work semester after semester, Mr. Jacobs said. The annual pay is $40,000 or less — usually less — and no benefits. Still, they are coming back.

“If you spent six or seven years and hundreds of thousands of dollars getting a graduate degree and you end up doing this, that is not a happy thought,” Mr. Jacobs said. “But it is steady work.”

That is precisely what Mr. Geneen, the displaced paper mill worker, seeks from his course work at Fox Valley Technical College in Appleton, Wis., where he earned a truck driver’s certificate in December and is now learning to be a welder.

He was laid off in September as an operator of a coating machine when the NewPage paper company in Kimberly, Wis., shut — a victim of plunging demand. Mr. Geneen, 47, had worked at the mill since high school. He says he is not even trying to match the $60,000, with overtime, he earned at NewPage.

Steady work, even in a recession, is his current goal, which makes him reluctant to exercise his recall rights even if NewPage reopens. “I don’t want to have the same thing happen to me again five years from now, when I’m older,” he said.

Taking advantage of a federal subsidy to train for what he considers a safer occupation, he completed a 10-week course to become a commercial truck driver. Even though truck shipments are off sharply and drivers’ employment has fallen, Mr. Geneen sees a need for truck drivers, in good times and bad. So do 34 others who were laid off at NewPage and took the same course.

“Two of my classmates just this week applied at a trucking company advertising for tractor-trailer drivers,” Mr. Geneen said. “They were hired on the spot and told to report for work on Feb. 1. They didn’t even meet with the personnel people.”

Mr. Geneen says he plans to drive a truck, preferably within Wisconsin. But with his wife, Kathy, earning $40,000 a year as a certified public accountant and with enough severance from his mill job to help carry the family for a while, Mr. Geneen has enrolled in a yearlong course to qualify as a welder. It is another occupation chronically short of qualified people, even in a recession. At $40,000 a year or so, welders’ work would not match his old pay but would provide a backup plan for the future.

“I want options that will hold up in a failing economy,” he said.

As the recession deepens, the only industry in the private sector adding jobs in significant numbers is health care, according to data from the Bureau of Labor Statistics, and it is doing so across the board, from physician to bed pan attendant.

Government used to be a refuge, particularly postal work and public school teaching. But the post office has been shrinking its payroll for several years. Public school employment — mainly kindergarten through high school — rose through August to nearly 8.1 million jobs, but it has fallen each month since as declining tax revenue forces cutbacks.

Those cutbacks rarely apply to math and science teachers, who are often in short supply. “Teaching math in a high school in an affluent suburb,” said Tom Geoghegan, a labor lawyer in Chicago and a Democratic candidate for Congress, “that is my idea of the ultimate safe job.”

[Demeter]

71. Six Errors on the Path to the Financial Crisis By ALAN S. BLINDER

http://www.nytimes.com/2009/01/25/business/economy/25view.html?ref=business


WHAT’S a nice economy like ours doing in a place like this? As the country descends into what is likely to be its worst postwar recession, Americans are distressed, bewildered and asking serious questions: Didn’t we learn how to avoid such catastrophes decades ago? Has American-style capitalism failed us so badly that it needs a radical overhaul?

The answers, I believe, are yes and no. Our capitalist system did not condemn us to this fate. Instead, it was largely a series of avoidable — yes, avoidable — human errors. Recognizing and understanding these errors will help us fix the system so that it doesn’t malfunction so badly again. And we can do so without ending capitalism as we know it.

My list of errors has six whoppers, in chronologically order. I omit mistakes that became clear only in hindsight, limiting myself to those where prominent voices advocated a different course at the time. Had these six choices been different, I believe the inevitable bursting of the housing bubble would have caused far less harm.

WILD DERIVATIVES In 1998, when Brooksley E. Born, then chairwoman of the Commodity Futures Trading Commission, sought to extend its regulatory reach into the derivatives world, top officials of the Treasury Department, the Federal Reserve and the Securities and Exchange Commission squelched the idea. While her specific plan may not have been ideal, does anyone doubt that the financial turmoil would have been less severe if derivatives trading had acquired a zookeeper a decade ago?

SKY-HIGH LEVERAGE The second error came in 2004, when the S.E.C. let securities firms raise their leverage sharply. Before then, leverage of 12 to 1 was typical; afterward, it shot up to more like 33 to 1. What were the S.E.C. and the heads of the firms thinking? Remember, under 33-to-1 leverage, a mere 3 percent decline in asset values wipes out a company. Had leverage stayed at 12 to 1, these firms wouldn’t have grown as big or been as fragile.

A SUBPRIME SURGE The next error came in stages, from 2004 to 2007, as subprime lending grew from a small corner of the mortgage market into a large, dangerous one. Lending standards fell disgracefully, and dubious transactions became common.

Why wasn’t this insanity stopped? There are two answers, and each holds a lesson. One is that bank regulators were asleep at the switch. Entranced by laissez faire-y tales, they ignored warnings from those like Edward M. Gramlich, then a Fed governor, who saw the problem brewing years before the fall.

The other answer is that many of the worst subprime mortgages originated outside the banking system, beyond the reach of any federal regulator. That regulatory hole needs to be plugged.

FIDDLING ON FORECLOSURES The government’s continuing failure to do anything large and serious to limit foreclosures is tragic. The broad contours of the foreclosure tsunami were clear more than a year ago — and people like Representative Barney Frank, Democrat of Massachusetts, and Sheila C. Bair, chairwoman of the Federal Deposit Insurance Corporation, were sounding alarms.

Yet the Treasury and Congress fiddled while homes burned. Why? Free-market ideology, denial and an unwillingness to commit taxpayer funds all played roles. Sadly, the problem should now be much smaller than it is.

LETTING LEHMAN GO The next whopper came in September, when Lehman Brothers, unlike Bear Stearns before it, was allowed to fail. Perhaps it was a case of misjudgment by officials who deemed Lehman neither too big nor too entangled — with other financial institutions — to fail. Or perhaps they wanted to make an offering to the moral-hazard gods. Regardless, everything fell apart after Lehman.

People in the market often say they can make money under any set of rules, as long as they know what they are. Coming just six months after Bear’s rescue, the Lehman decision tossed the presumed rule book out the window. If Bear was too big to fail, how could Lehman, at twice its size, not be? If Bear was too entangled to fail, why was Lehman not?

After Lehman went over the cliff, no financial institution seemed safe. So lending froze, and the economy sank like a stone. It was a colossal error, and many people said so at the time.

TARP’S DETOUR The final major error is mismanagement of the Troubled Asset Relief Program, the $700 billion bailout fund. As I wrote here last month, decisions of Henry M. Paulson Jr., the former Treasury secretary, about using the TARP’s first $350 billion were an inconsistent mess. Instead of pursuing the TARP’s intended purposes, he used most of the funds to inject capital into banks — which he did poorly.

To illustrate what might have been, consider Fed programs to buy commercial paper and mortgage-backed securities. These facilities do roughly what TARP was supposed to do: buy troubled assets. And they have breathed some life into those moribund markets. The lesson for the new Treasury secretary is clear: use TARP money to buy troubled assets and to mitigate foreclosures.

Six fateful decisions — all made the wrong way. Imagine what the world would be like now if the housing bubble burst but those six things were different: if derivatives were traded on organized exchanges, if leverage were far lower, if subprime lending were smaller and done responsibly, if strong actions to limit foreclosures were taken right away, if Lehman were not allowed to fail, and if the TARP funds were used as directed.

All of this was possible. And if history had gone that way, I believe that the financial world and the economy would look far less grim than they do today.

For this litany of errors, many people in authority owe millions of Americans an apology. Richard A. Clarke, former national security adviser, set a good example when he told the commission investigating the 9/11 attacks that he wanted victims’ families “to know why we failed and what I think we need to do to ensure that nothing like that ever happens again.” I’m waiting for similar words from our financial leaders, both public and private.

Alan S. Blinder is a professor of economics and public affairs at Princeton and former vice chairman of the Federal Reserve. He has advised many Democratic politicians.


I'M NOT FOND OF BLINDER, AS I THINK HE IS BLINDER, BUT HERE'S HIS INPUT

[Joe Chi Minh]

72. An article for J Six-Packs like me (however abstemious), but perhaps good

to read for the rest of you mavens. Or at least some of you.

http://www.mirror.co.uk/news/columnists/maguire/2009/01/21/gordon-brown-must-nationalise-the-banks-115875-21058470/

[antigop]

75. "Barack Obama's oath sounds the defeat of 30 years of Thatcher-Reagan ideology."

Let's hope so.

[Joe Chi Minh]

86. The situation is at least propitious, if all too belated, for such a reversal of the Gadarene

rush and its awful outcome.

[Demeter]

77. Thanks, Joe! Great Post! Stop in Often!

[Joe Chi Minh]

85. Thank you very much, Demeter. Delighted to do so. In fact, wild horses,

wouldn't keep away, (though, unfortunately, thoroughbreds running round a track might, and indeed, do, sometimes).

In fact, Adam Smith is a very dear, personal friend of mine, and he's been indocrinating me with his quite unequivocal, as well as, particularly timely, views on the sovereign merits of a mixed economy, and something approaching proportionate levels of income tax.

[antigop]

74. Two PwC auditors arrested in India over Satyam

http://financialweek.com/apps/pbcs.dll/article?AID=/20090125/REUTERS/901259997/1036

Two officials at PricewaterhouseCoopers, the auditors of fraud-hit Satyam Computer Services accounts, have been arrested by the Andhra Pradesh state police, a senior police official said on Saturday.

“We arrested them last night after several rounds of interrogation. They will be sent to the court late in the evening,” A. Sivanarayana, additional director general of police in Hyderabad, told Reuters by telephone.

He did not specify the charges under which they were arrested.

PWC said in an emailed statement: “We greatly regret that two Price Waterhouse partners have been detained today for further questioning. We do not know the basis for them being detained.”

[Demeter]

76. Pfizer-Wyeth deal talks heat up: sources

http://news.yahoo.com/s/nm/20090124/bs_nm/us_wyeth_pfizer_15

NEW YORK/PHILADELPHIA (Reuters) – Pfizer Inc, the world's largest drugmaker, is in talks to buy Wyeth, sources familiar with the situation said on Friday, and one source put the possible value of the deal at about $67 billion.

Pfizer may pay about $50 per share for Wyeth, but the price may change as negotiations continue throughout the weekend, the source said. At $50 per share, Wyeth would fetch roughly $66.6 billion.

Such an acquisition, which sources said could come within days, would help Pfizer cope with a major gap in revenue in 2011 when its blockbuster Lipitor cholesterol treatment will begin to face U.S. generic competition...It would diversify Pfizer into vaccines and injectable biologic medicines by adding Wyeth's big-selling Prevnar vaccine for childhood infections and Enbrel rheumatoid arthritis treatment. Pfizer would realize major cost savings by streamlining areas that overlap.

But the deal also raises questions about whether another huge acquisition is the right medicine for Pfizer, which has struggled after digesting two huge deals in the past decade. And it threatens to spark another round of layoffs in the drug industry at a time the U.S. economy is already on its knees... Pfizer could pursue Bristol-Myers Squibb or biotech giant Amgen Inc if a Wyeth deal falls through. Biogen Idec has also been mentioned as a possible Pfizer target, Credit Suisse analyst Catherine Arnold said.

Pfizer has secured roughly $25 billion in funding for the Wyeth deal, one source close to the talks said. Getting financing for the deal helps Pfizer surpass one of the biggest hurdles amid tight credit markets. Pfizer would pay more cash than stock in the deal, but final details have yet to be nailed down, the source said.

Pfizer would pay two-thirds of the cost in cash and a third in stock for Madison, New Jersey-based Wyeth, The Wall Street Journal reported...One complication to the financing is that some of the cash on Pfizer's balance sheet is overseas and it would have to repatriate those funds to purchase Wyeth, one source explained. Pfizer may be able to purchase Wyeth's international assets separately and thus avoid the tax and foreign-exchange complications of repatriating funds, the source said...

Pfizer became the world's largest drugmaker with its purchase in 2000 of Warner-Lambert and the $60 billion acquisition three years later of Pharmacia...

"We have, for many quarters now, said that Pfizer essentially has no realistic way of replacing the many drugs that are scheduled to go generic apart from doing a mega-merger," Sanford C. Bernstein analyst Tim Anderson said in a research note.

The global economic downturn has created a buyer's market for cash-rich drugmakers, prompting several deals.

CAN YOU SAY ANTI-TRUST? I THOUGHT YOU COULD!

[Tansy_Gold]

83. Anti-trust, yes, but. . . . . .

This whole thing points out ONCE AGAIN that there is an enormous and unsustainable bias toward the stockholders' claims on profits.

It's not about making a product.

It's not even about selling a product.

It's certainly not about the workers at ANY of the companies involved.

It's SOLELY about bottom line distribution of wealth to stockholders.

Which, of course, is what anti-trust was all about in the first place.

Can you say "Duh!" I thought you could. :evilgrin:


Tansy Gold

[Demeter]

78. Did Merrill's Trading Desk Blow Up in Q4?

http://www.portfolio.com/views/blogs/market-movers/2009/01/24/did-merrills-trading-desk-blow-up-in-q4?tid=true

One of the big unanswered questions surrounding the fourth-quarter collapse of Merrill Lynch is how, exactly, it contrived to lose $15 billion in December. The general suspicion in the blogosphere is that it was all a function of marking to market loans which had been kept on the books at artificially high levels. But according to the WSJ, a large part of it might simply have been a trading-desk blowup of greater-than-Kerviel proportions:

Behind some of the losses in the quarter are two related trades that Merrill hasn't discussed publicly in detail.
Broadly, both trades are set up to generate returns from corporate bonds while hedging the exposure to the debt through derivatives using credit-default swaps. Those derivatives provide protection against defaults on the bonds.
Merrill, according to a person familiar with the situation, ran two versions of the trade. One was a plain-vanilla strategy while the other was a more complex version. According to this person, Merrill was one of the biggest traders in the complex trade among U.S. firms. European banks made similar trades.
The idea is that the two sides of the trades -- either the plain-vanilla version or the complex bet -- are supposed to move in tandem. For both trades, things went awry in the fourth quarter when bank-lending markets froze. That ultimately triggered a sharp drop in bond prices. The value of default insurance rose, but not enough to cover the drop in the bond prices.

Is it even possible to lose billions of dollars on a CDS basis trade? I look forward to hearing more about this, but if the basis gapped out by say 100bp, then you'd need to own $100 billion of bonds just to lose $1 billion on the trade.

Is there some kind of dataset anywhere of the CDS basis on corporate bonds? I'd love to have a look at what happened to the basis in the fourth quarter of last year, to see if there was any large spike which might explain what happened at Merrill. The WSJ report is a tantalizing taster, now I want to get my teeth into this story!

Update: Hemant, in the comments, makes an interesting point about duration: if you're hedging a five-year bond with a five-year CDS, and the bond has a modified duration of say three years, then a 300bp move in the CDS basis -- which can happen -- could result, he says, in a loss of 9% of the par value of the bond. Which means that a billion-dollar loss would require the desk to be holding "only" $11 billion in bonds.

OH, OKAY. WHATEVER.

[Demeter]

79. Price Watergate

http://skepticaltexascpa.blogspot.com/2009/01/price-watergate.html


"The chairman of one of India's largest technology companies said he concocted key financial results, including a fictitious cash balance of more than $1 billion, sending shock waves across India and likely prompting investors to question other corporate results as the once-hot economy slows. B. Ramalinga Raju, founder and chairman of Satyam Computer Services Ltd., said in a letter of resignation that he also overstated profits for the past several years, overstated the amount of debt owed to the company and understated the liabilities. Eventually, he said, the scheme reached 'simply unmanageable proportions' and he was left in a position that was 'like riding a tiger, not knowing how to get off without being eaten.' ... Satyam--the name means 'truth' in Sanscrit--was audited by PricewaterhouseCoopers and has had high-profile independent directors, including a Harvard Business School professor on its board. With 49 world-wide offices including eight in the U.S., Satyam was also one of India's flagship technology companies that have come to define a new, modern Indian industry that competes on the world stage. said it was examining Mr. Raju's statement and declined to comment further. ... Immediate comparisons were drawn to the watershed in U.S. corporate accounting and governance standards that stemmed from the Enron crisis a few years ago", my emphasis, Niraj Sheth, Jackie Range (JR) and Geeta Anand at the WSJ, 8 January 2009.

"The implosion of may batter the World Bank, which kept quiet until last month about its suspicions the firm engaged in bribery", Bob Davis at the WSJ, 8 January 2009.

"The huge accounting scandal at , ... could lead to an overhaul of corporate-governance standards in the country and force changes in how Indian companies do business. ... Yet there is no indication it was detected by the company's auditors, . 'It's kind of hard to miss $1 billion of cash,' said Dennis Beresford, a former chairman of the Financial Accounting Standards Board, a U.S. accounting watchdog. ... It also could embarass the World Council for Corporate Governance, a London-based organization that helped create the 'Golden Peacock Awards.' Satyam received a Golden Peacock Award for Corporate Governance last year", my emphasis, JR and Joann Lublin at the WSJ, 8 January 2009.

", the long-standing auditor of stricken software company Satyam, faces the prospect of disciplinary action by market regulator SEBI if it is found that it failed to verify the autheticity of financial documents furnished by the company. ... Independent auditors feel the regulator's approach may be too harsh. Officials at audit firms say that if they start verufying the veracity of all documents given to them, would become a full-fledged investigation into the company. ... 'How can we verify the authenticity of millions of pages while auditing a company with a turnover of thousands of crores in a few days?' said an auditor working with one of the big four accounting firms, who asked not to be named. Auditors certify that the financial statement reflect a "true and fair" picture of the state of affairs of the company, and not an accurate picture", he added. The SEBI official, however, rubbished this argument", my emphasis, Junior, 8 January 2009 at http://jraccountant.blogspot.com/2009/01/pwc-epic-indian-failure.html.

"Debate in Mumbai is now focusing on whether Satyam, India's fourth-largest computer software company, or its multinational auditors , was more to blame for what is possibly corporate India's worst scandal. ... Contrary to perceptions that this is a brand new financial scandal, the Satyam fraud appears to be the latest variant of financial scams involving manipulating information with the aim of duping investors, while involving regulatory and accounting practices not traditionally used in India. ... The general verdict of accountants in Mumbai is that Satyam's auditors blew it big time, whatever fraud and forgery the management could have produced to hoodwink them in a scandal that is estimated to have cost Satyam investors $2 billion on January 7 alone as the stock plunged by 77% on news of the fraud. ... PWC, formed in 1998 through the merger of Price Waterhouse and Coopers & Lybrand of London, faces a choice of either being found so utterly incompetent that it could not spot a $1.5 billion-sized accounting crater, or that it was party to the investor fraud that presented an annual 24% growth rate in Satyam balance sheets instead of an actual 3% growth rate. ... In other words, Satyam auditors have not apparently undertaken what traditionallly would have been the minimum independent verification of the client's accounts as a chartered accountant firm is supposed to do", Raja Murthy, 9 January 209 at http://www.atimes.com/.

" , which signed off on finances for several years without detecting the fraud by Satyam's founder and chairman, defended its procedures on Thursday. said, in a statement send by email, 'The audits were conducted by in accordance with applicable auditing atandards and were supported by appropriate audit evidence.' It said it is cooperating with regulators. ... A spokesman declined further comment. Srinivas Talluri, the partner who signed off on Satyam's most recent annual accounts in Hyderabad in April last year, couldn't be reached. ... Also in his letter, Mr. Raju said the company's cash and bank balances had been inflated by more than $1 billion dollars. 'This is the easiest thing to verify,' said Vinesh Chandok, national managing partner of accountant Grant Thornton", JR and Scott Patterson at the WSJ, 9 January 2009.

"Indian authorities moved to contain the fallout from the fraud at by arresting the company's founder, firing its remaining board members and launching an accounting review of India's biggest publicly traded companies. ... In an unprecedented action, the government also said it will install directors on a new 10-member Satyam board that will meet within one week. A board meeting that had been scheduled for Saturday was canceled. ... The Securities and Exchange Board of India , the chief markets regulator, said Friday it will review auditors' working papers relating to companies in the Sensex and the National Stock Exchange 50-share index in a bid to boost investor confidence in financial disclosures. ... C.B. Bhave, SEBI's chairman ... said recent results for big companies would be subject to peer review by another auditor; other company results will be subject to peer review by accounting firms on a random basis", Eric Bellman and John Kumar at the WSJ, 10 January 2009.

"If this scandal proves anything to transnational investors and corporations it would be that doing business in India may be less risky than doing so in the more criminal friendly USA. India is demonstrating that it has very little tolerance for white collar fraud and they are showing that corporate criminals will be swiftly punished. It is yet to be seen if most of those arrested will bribe themselves out of trouble but so far the punishment is more severe than anything we see in the U.S. In contrast to India, the U.S. coddles its corporate criminals by allowing them to stay on the job with big pay raises, or giving them golden parachutes so that they can retire in the Bahamas", Rob Sanchez, 12 January 2009 at http://blog.vdare.com/achieves/2009/01/12/satyam-scandal-wont-change-anything/

....more at link

[Demeter]

80. The Man Who Is Unwinding Lehman Brothers

http://www.nytimes.com/2008/12/14/business/14miller.html?ref=business


By JONATHAN D. GLATER

THESE days, it’s awfully hard to get on Harvey R. Miller’s calendar.

A 75-year-old lion of the bankruptcy bar, Mr. Miller has been consumed by the largest corporate liquidation in American history: Lehman Brothers, the storied investment bank that set off one of the most harrowing episodes in the financial crisis when it collapsed in mid-September.

Mr. Miller’s workdays begin around 8 in the morning and, if he is lucky, end near 11 at night. This combative, outspoken lawyer says that some days don’t seem to end at all, but merely expand into the next, dissolving into tense meetings and complicated hearings in overheated courtrooms.

Although Mr. Miller has been involved in landmark bankruptcy cases before — including those of Eastern Airlines, R. H. Macy and Global Crossing — Lehman’s is in a class by itself because of volatile markets, continuing government investigations, the involvement of federal regulators and a possible wave of other corporate implosions.

From his perspective as Lehman’s undertaker, Mr. Miller believes that the fallout from the firm’s messy bankruptcy could have been avoided. Regulators could have stepped in, he says, not necessarily to save Lehman, perhaps, but to head off the meltdown that followed. “They totally missed it,” he says. “Look what happened.”

When companies rushed to terminate contracts with Lehman, he says, investor confidence plummeted in just about everything — securities and the markets they trade on, corporate debts and the assets backing them, the power of the government and its readiness to use it. In the days after Lehman filed for bankruptcy, he notes, demand for corporate debt utterly evaporated.

The failure of a Wall Street firm poses its own special risks, because other companies that rely on it — such as counterparties to complex financial contracts known as derivatives — are all financially exposed to its collapse.

That’s why Mr. Miller says it was crucial for the government to head off the wholesale termination by counterparties of all their transactions with Lehman before the firm was forced into bankruptcy. “If the Fed or the Treasury said, ‘Let’s say to Lehman, there’s no bailout, we’re not going to save the company,’ they could have supported an orderly unwinding of all the transactions over a period of months,” he says. “It probably would’ve cost the economy a lot less money.”

A LOT MORE THAN YOU'LL EVER WANT TO KNOW ABOUT BANKRUPTCY AT LINK

OH, AND HECKOVA JOB, BUSHBOTS!

[Demeter]

81. Shareholder Value

http://norris.blogs.nytimes.com/2008/12/10/shareholder-value/


Three numbers, courtesy of Howard Silverblatt of Standard & Poor’s, shed some light on what companies did with their cash during boom times:

Over the last four years, since the buyback boom began, from the fourth quarter of 2004 through the third quarter of 2008, companies in the S.&P. 500 showed:

Reported earnings: $2.42 trillion
Stock buybacks: $1.73 trillion
Dividends: $0.91 trillion

As a group, every dime they made, and more, went to shareholders. Roughly $2 went to shareholders who sold out for every $1 that was paid in dividends to shareholders who held on to their shares.

[antigop]

84. Phil Gramm Says the Banking Crisis is (Mostly) Not His Fault

http://www.time.com/time/business/article/0,8599,1873833,00.html

The current financial crisis is not all Phil Gramm's fault. Who says? Well, Phil Gramm says. Big surprise. But in a lengthy defense of his record and analysis of the current mess Friday afternoon in Washington, Gramm did allow that it might be at least a teeny bit his fault. Call it the beginning — maybe — of the nuanced consideration of the causes of the crisis that was impossible during the fall election campaign.

As chairman of the Senate Banking Committee from 1995 through 2000, Gramm was Washington's most prominent and outspoken champion of financial deregulation. He played the leading role in writing and pushing through Congress the 1999 repeal of the Depression-era Glass-Steagall Act that separated commercial banks from Wall Street, and he inserted a key provision into the 2000 Commodity Futures Modernization Act that exempted over-the-counter derivatives such as credit-default swaps from regulation by the Commodity Futures Trading Commission (CFTC).

Now these laws are under fire, cited by critics — mostly but not exclusively on the political Left — as major precipitating causes of the financial meltdown. And while both were signed into law by Bill Clinton, Gramm has taken the most heat. (It hasn't helped that, since leaving the Senate in 2002, he's been working for Swiss banking giant UBS, which has sustained huge losses on bad mortgage securities and derivatives.)

So the American Enterprise Institute, a right-leaning think tank, invited Gramm in Friday to make his case and take some questions. The crowd was heavy on the conservative Washington notables — Cato Institute chairman emeritus William Niskanen, McCain campaign talking head Nancy Pfotenhauer and Iraq War architect Paul Wolfowitz were three that I recognized. But rabble off the street were welcome as well.

[burf]

87. The Phil Gramm charade

was on CSPAN Friday evening. His word smithing and lawyer-speak were exceptional. One that I recall was his assertion that the repeal of Glass-Steagall did not amount to deregulation. True, it did not, but it sure as hell led to incorporation of the investment and commercial banks that has been one of the cornerstones in creating the mess we presently find ourselves in. I could only watch his bullshit for a short time.

[DemReadingDU]

88. Martin Weiss: 5 Years of Interest Destroyed in 6 Weeks!

1/25/09 5 Years of Interest Destroyed in 6 Weeks! Martin Weiss

Last month, investors from all over the world — spooked by the debt crisis — flocked to buy long-term U.S. Treasury bonds.

They bought U.S. bonds with money earned from China’s export boom. They scooped up bonds with money gleaned from the savings of millions of Japanese families … with government money … oil money … even drug money.

Investors large and small, haughty and humble — Asian central bankers, mid-East sheiks, and retired Americans living on fixed income — all piled into Treasury bonds at the same time.

And they all had a similar goal: To escape the terrifying dangers … find what they thought was a safe haven … and grasp for something — anything — better than the near-zero yields on short-term Treasury bills.

Many reached out as far as they possibly could in maturity, buying the longest Treasury bond in existence — the 4.5% “long bond” expiring May 15, 2038.

But as the Treasury bond buying frenzy reached a crescendo on December 18 of last year, they didn’t get the coupon yield of 4.5%.

Instead, they had to pay such a high price for the bond, they wound up locked into the lowest Treasury-bond yield in history: A meager 2.52%!

That was bad enough.

But the saga of woes does not end there. The real disaster came with the events that have ensued since …

For each $10,000 in face value bonds, they paid an exorbitant $14,091. And now, the value of that bond has plunged to only $12,200, delivering a shocking loss of $1,890.

The summary of these results reads like a fixed-income horror story:

Annual yield: A meager 2.52%
Market loss: 12.85%
Years of
interest lost: 12.85/2.52 = 5.3
Time elapsed: 6 weeks

Conclusion: They lost the equivalent of more than FIVE YEARS OF INTEREST in just SIX weeks.

It was easily among the most disastrous Treasury bond investments of all time! Meanwhile, investors who followed our recommendation to buy strictly short-term Treasury bills didn’t lose a penny.

Now do you understand why we’ve been warning you not to touch long-term bonds with a ten-foot pole? And now do you see why we’ve been working so hard to find other, alternative, depression-proof sources of income and profits for you?

Mike, Larry and I tell you all about these unusual dangers — and unusual opportunities — in our video “7 Startling Forecasts for 2009.”

We explain exactly what we think is going to happen this year and what you should do about it immediately.

And we are extremely gratified with the respons so far: Just in recent days, a grand total of 65,431 individual investors have come to our website to view it.

Don’t be left behind. Especially not in these trying times! Turn up your computer speakers and click on the link below.

http://weiss.streamlogics.com/startlingforecast

Good luck and God bless!

Martin

Warning: The video comes offline Tuesday. So you only have a couple of days left to see it.
http://www.moneyandmarkets.com/5-years-of-interest-destroyed-in-6-weeks-2-29402

[Demeter]

90. Whew! Are We Having Fun, or What?

I'm down to 9 emails! I've also put plastic sheeting on the patio door (what a difference!), opened all my Xmas cards, cooked and ate a real meal with both kids and the grandpuppy, and various other homely tasks. And a nap.

That's my idea of a winter carnival--one where I DON'T have to go out in the cold!

So, I'm positively BUSHED! Goodnight all, and have a good week. Tell Canada to keep the Arctic to itself, too!

Please feel free to talk amongst yourselves...

[DemReadingDU]

91. Britain - Revealed: Day the banks were just three hours from collapse

1/24/09 Revealed: Day the banks were just three hours from collapse

Britain was just three hours away from going bust last year after a secret run on the banks, one of Gordon Brown's Ministers has revealed.

City Minister Paul Myners disclosed that on Friday, October 10, the country was 'very close' to a complete banking collapse after 'major depositors' attempted to withdraw their money en masse.

The Mail on Sunday has been told that the Treasury was preparing for the banks to shut their doors to all customers, terminate electronic transfers and even block hole-in-the-wall cash withdrawals.

Only frantic behind-the-scenes efforts averted financial meltdown.

If the moves had failed, Mr Brown would have been forced to announce that the Government was nationalising the entire financial system and guaranteeing all deposits.

But 60-year-old Lord Myners was accused last night of being 'completely irresponsible' for admitting the scale of the crisis while the recession was still deepening and major institutions such as Barclays remain under intense pressure.

The build-up to 'Black Friday' started on Monday, October 6, when the FTSE 100 dropped by nearly eight per cent as bad news on the economy started to multiply.

The following day, Chancellor Alistair Darling began all-night talks ahead of an announcement on the Wednesday that billions of pounds of taxpayers' money would be used to pour liquidity into the system.

more...
http://www.dailymail.co.uk/news/article-1127278/Revealed-Day-banks-just-hours-collapse.html

[Blue_Tires]

92. ttt - great stuff

too much for me to go through in one sitting

[DemReadingDU]

93. Welcome! check out our daily thread

ozymandius starts a thread every day for us market/economic watchers. Here is the thread for Monday 1/26/09
http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=102x3706710


edit: the daily thread is in the Latest Breaking News