Did the BFEE cause the banking crisis ON PURPOSE?

[Joanne98]

Private equity, as in Carlyle, stands to benefit. Well well well.. Isn't that special..

The Banks, Private Equity, and the Fate of Consumers
posted by Adam Levitin
The New York Times has an interesting op-ed about private equity investment in banks. Long story short: banks need money now, and private equity is one of the last remaining sources of capital available. PE investment strategy is to buy a control stake, maximize efficiencies, and resell the company in 5-7 years. Because current bank regulations require that an entity holding beyond a certain threshold of a bank's stock either register as a bank holding company (which subjects it to various regulation, including disclosure requirements) or forgo involvement in the bank's management, PE firms are reluctant to invest in banks. Private equity is about control and lack of transparency. PE smells a great buy in banks, however, so PE shops are pushing federal banking regulators to relax the regulations. Their argument: without us, the banks will fail and/or credit will contract, and this will be on your heads, banking regulators, so beggars can't be choosers.

The Times rightly notes that PE shops shouldn't get special treatment and if banks fail, well let that be a lesson to their investors and creditors to monitor lending practices better in the future. Depositors are largely protected by FDIC insurance.

But there's another worrisome angle left unmentioned in the Times editorial. Because PE shops are simply trying to maximize efficiencies in the short-term in order maximize their return on exit, they aren't concerned about the long-term safety-and-soundness of banks. If the company blows up after the sale, the PE shop doesn't really care. This could spell bad news for consumers. If a PE shop buys a bank and sets out to maximize revenue/cut costs, it will likely start milking the consumer cow much more vigorously. And this means PE shops might be tempted to push all sorts of abusive, but very profitable lending practices. This is quite concerning, and if federal bank regulators do loosen the investment requirements for PE, it should be with very explicit commitments to maintaining best practices vis-a-vis consumers. Of course, once the camel's nose is under the tent, these commitments could start to look a lot like the ones on human rights that China made the International Olympic Committee.

http://www.creditslips.org/creditslips/2008/08/the-banks-priva.html

[yourout]

1. No...just unadulterated greed in concert with Reagon initiated de-regulation.

Read this.

<http://www.infoplease.com/ce6/bus/A0856839.html>


Deregulation, Bank Failures, and New Technology
Several deregulatory moves made by the federal government in the 1980s diminished the distinctions among various financial institutions in the United States. Two major changes were the Depository Institutions Deregulation and Monetary Control Act (1980) and the Depository Institutions Act (1982), which allowed savings and loan associations to engage in often-risky commercial loans and real estate investments, and to receive checking deposits. By 1984, banks had federal support in buying discount brokerage firms, and commercial banks were beginning to acquire failed savings banks; in 1985 interstate banking was declared constitutional.

Such deregulation was blamed for the unprecedented number of bank failures among savings and loan associations, with over 500 such institutions closing between 1980 and 1988. The Federal Savings and Loan Insurance Corporation (FSLIC), until it became insolvent in 1989, insured deposits in all federally chartered—and in many state-chartered—savings and loan associations. Its outstanding insurance obligations in connection with savings and loan failures, over $100 billion, were transferred (1989) to the FDIC.

Further deregulation occurred in 1999, when Congress overhauled the entire U.S. financial system. Among other actions, the legislation repealed the Glass-Steagall Act, thus allowing banks to enter the insurance and securities businesses. Supporters predicted that the measure would permit U.S. banks to diversify and compete more effectively on an international scale. Opponents warned that this deregulation could lead to failures of many financial institutions, as had occurred with the savings and loans.

In the last decades of the 20th cent., computer technology transformed the banking industry. The wide distribution of automated teller machines (ATMs) by the mid-1980s gave customers 24-hour access to cash and account information....

[marmar]

2. Shock and Awe.....It's Not Just for Baghdad anymore.

:scared:

[Joanne98]

3. Exactly!

[Joanne98]

4. BTW There's a silver blogger who thinks one company drove the price of oil up 20$

By massive short covering. Carlyle was involved with this company too.

Coincidence or Confirmation?

By: Theodore Butler


-- Posted 28 July, 2008 Comments: 11

Big news recently is the world record loss in crude oil trading, taken by SemGroup, of Tulsa, Oklahoma, a large but mostly unknown oil pipeline, storage and trading company founded in 2000. To my knowledge, the reported $3.2 billion loss is the second largest commodity debacle ever, only behind the $6 billion loss recorded by Amaranth Advisers two years ago in natural gas.

What is remarkable is how little has been written about SemGroup’s loss. I realize that we have become numb to reports of multi-billion dollar losses, thanks to the mortgage and credit disaster. But it is still amazing to me that more attention has not been placed upon this oil trading loss, because it explains so much about the recent volatility in the price of oil. If there’s one concern ahead of the mortgage and credit crisis, it has to be the price of crude.

Given the recent fervor by elected officials to pin the blame for the unprecedented price moves in crude on speculators, I’m surprised that more observers are not making the connection between SemGroup’s actions and the big price move in crude oil. I thought the CFTC would be all over this major market event, but they instead announced, with great fanfare, charges concerning truly insignificant oil market violations. These events occurred more than a year ago and the dollar amount was a million dollars. The SemGroup’s loss was 3200 times more significant, yet neither the CFTC nor the NYMEX, where $2.4 billion of the loss reportedly occurred (the rest was OTC) have said a word about the 2nd largest commodity loss in history.

So, how do you lose $3.2 billion dollars in crude oil trading and how did that affect the price? The answer is with an obscene number of contracts on the wrong side of a rising market on the short side. That’s smack-dab where SemGroup was positioned, with more (and perhaps much more) than 100,000 short futures and options contracts.

The exact number of contracts that SemGroup actually held short has not been revealed. However, by dividing the total loss listed in bankruptcy filings and published reports, by a reasonable loss per barrel, it’s not hard to deduce the total number of short contracts held. To appreciate what a 100,000 contract position represents, it is the equivalent to 100 million barrels of oil, or more than every barrel produced and consumed in the entire world for a day.

In terms of dollar amounts, it appears that SemGroup held short positions on more than $15 billion worth of crude oil and perhaps much more. In practical terms, it would take a position of that size going against you in order to generate a loss of $3 billion. You should be asking yourself, how did the NYMEX and the CFTC allow SemGroup, or anyone, to amass such a large position that it, obviously, couldn’t stand behind? What do these regulators do all day?

I’m certain that when the details emerge, we will read of a story that has recurred in previous market debacles, namely, an initial market miscalculation compounded by repeated attempts to get whole by doubling up. As those increased bets don’t pan out, and margin calls can’t be met, the game is over in an instant and the loss is recorded.

In this case, it’s easy to see, based upon the timeline, how SemGroup’s trading debacle influenced oil prices, first up, then down. As the end came near for SemGroup’s large, increasing short position, that position was forcibly bought back (probably by SemGroup’s lead broker, said to be Barclays). This accounted, by my calculations, for the last $15 to $20 increase in the price of oil, up to the $147 price high. When the forced buyback of the short position was concluded, a buying void was suddenly created and prices then fell $20+ to date. So, not only did SemGroup manage to lose over $3 billion and go bankrupt in the process, it also dramatically influenced the price of oil and fuel for the rest of the world.


Continued>>
http://news.silverseek.com/TedButler/1217265595.php

[Turbineguy]

5. No.

They are not competent enough.

[Joanne98]

6. kick

[Joanne98]

7. The housing bill was a rip off.

Joanne98 (1000+ posts) Mon Aug-04-08 04:32 PM
Original message
The Housing Bill part 1-4 by Catherine Austin Fitts
http://www.solari.com/blog /

Housing Bill, Part I
Catherine and News & Commentary,August 3, 2008 at 5:08 pm
I have had several requests to comment on the Housing and Economic Recovery Act of 2008.

This afternoon I read hundreds of pages of bill language. Essentially, my take on the bill is that Fannie Mae and Freddie Mac have issued more debt than can be paid back, so the solution is to have the US government essentially assume responsibility for their debt until such time as the fact that the US government can not service its own debt is addressed.

This increases the national debt overnight from $9.5 trillion to $14.8 trillion overnight (that is a $5.3 trillion increase as opposed to the $800 billion increase provided for in the debt limit increase accompanying the bill). Not surprisingly, a lot of pork needs to be added to pay a lot of people to go along.

A more appropriate bill title would be the “Housing and Economic Takeover Act of 2008.” Rather than declaring the New World Order, we are apparently going to legislate it sector by sector.

Here is the bill language:

Housing and Economic Recovery Act of 2008

Here is a rosy summary from the Senate Finance Committee:

Senate Finance Summary - Housing and Economic Recovery Act of 2008

The best overview so far is from Larry Lindsey. Lindsey was one of the more excellent governors of the Federal Reserve. Lindsay had to resign from the Bush Administration in 2002 as Director of the National Economic Council when he had to the good sense to warn that the Iraq War would be expensive.

Hank Paulson’s Fannie Gamble

As Lindsay points out, the number of porky add-ons in this bill are stupefying. Bloomberg provides a review of one:

Fed Loans to Banks Made Easier By Fannie Mae Rescue

Read Parts II & III of this commentary

Housing Bill, Part II
Catherine and News & Commentary,August 3, 2008 at 5:08 pm
One of the instructive features of the housing bill is the nature of creditor politics that is a subtext on housing and mortgage politics these days. One investment newsletter this weekend reported that there are $947 billion dollars of Fannie and Freddie paper listed as being held in foreign exchange reserves worldwide, of which $100 billion was held by Russia.

That sounds low to me. However, since these are “reported” figures, we will work with them. Imagine the politics of a Fannie Mae or Freddie Mac bankruptcy when your largest investor also has nuclear bombs, submarines and satellites? Also, imagine the politics if they bought their Fannie Mae and Freddie Mac securities with IMF and other foreign engineered “bail out” loans that were arranged with a secret agreement that a portion of the proceeds be used to buy Fannie Mae and Freddie Mac debt?

I once had a senior Russian official encourage me to switch sides, so to speak. I told him that no one ever accomplished anything betraying their country. Working inside was the best way to address policies gone off kilter. It was not until we parted company that I realized that I had been speaking with a representative of Fannie Mae’s largest investor.

Read Parts I & III of this commentary >>>


Housing Bill, Part III
Catherine and News & Commentary,August 3, 2008 at 5:08 pm
When I was Assistant Secretary of Housing - Federal Housing Commissioner, then Secretary of HUD Jack Kemp asked me to his office for a private discussion. He explained that he was concerned that I was standoffish and did not socialize with the other political appointees, the “principal staff,” at the agency.

I was surprised and noted that I had invited the principal staff to my house for cocktails or brunch five times and with one exception none had ever reciprocated. I noted, in fact, that I had invited Jack all five times and he had never once come. He looked at me with shock and said,

“I would never come to your house. Your house is bigger than my house. I would find it castrating.”

I tell you this story because it is very hard for hardworking, busy people who are subject to the discipline of market forces to fathom what is going on in Washington these days.

It is not in most people’s experience to appreciate a complete break down of financial controls that does not impair the ability to continue to finance — indeed access to more money is near infinite (see “The Military Holds the Dollar Up“) — and this state of affairs is combined with decision making driven by personal profit and sexual potency.

This can only happen when such a state of affairs serves the interests of those who are far more powerful and quite clear thinking. You can attack and take over a country. Or you can simply let it borrow itself to death in a financial coup d’etat. Recent history proves that the second is infinitely more profitable for the victor.

Read Parts I & II of this commentary >>>


Housing Bill, Part IV
Catherine and News & Commentary,August 2, 2008 at 8:08 am
The housing bill brings up a number of important questions about the risks and rewards that result from government subsidy and bail outs.

One recent market commentator pointed out that Fannie Mae and Freddie Mac executives were allowed to keep the big bonuses they made engineering the housing bubble and bankrupting the companies.

One of the examples given was Jamie Gorelick, (1, 2) who joined Fannie Mae as Vice Chairman from 1997 to 2003 after engineering the move to private for-profit prisons as Deputy Attorney General in the Clinton Administration. Gorelick’s name received national attention as a member of the 9-11 Commission and close advisor to Hillary Clinton.

Gorelick got Fannie Mae compensation and bonus payments of $26 million which she gets to keep.

However, the bill stipulates that Americans at risk of foreclosure who get a mortgage workout must share future equity capital gains with the government.

Read Parts I, II & III of this commentary >>>

http://www.solari.com/blog /

If their was a republican within physical distance of me right now, I would be going to jail for murder. We've been ripped off!

Look at this...
This increases the national debt overnight from $9.5 trillion to $14.8 trillion overnight (that is a $5.3 trillion increase as opposed to the $800 billion increase provided for in the debt limit increase accompanying the bill). Not surprisingly, a lot of pork needs to be added to pay a lot of people to go along.

And this...
One of the examples given was Jamie Gorelick, (1, 2) who joined Fannie Mae as Vice Chairman from 1997 to 2003 after engineering the move to private for-profit prisons as Deputy Attorney General in the Clinton Administration. Gorelick’s name received national attention as a member of the 9-11 Commission and close advisor to Hillary Clinton.

I'm soo pissed off I could ^%$#

[Greyhound]

9. Thanks for posting this, too many have no clue what is really going on.

This is why Freddie and Fannie, as well as the banks, must be allowed to fail. The mortgages and other bad loans they knowingly made are the fuel for the artificial housing inflation that has been foisted on us for the sole benefit of the rulers.The government could, and IMO should, take the bailout money and apply it to lowering the principle owed on existing mortgages to the true market value (i.e. foreclosure sale price for comps).

Since the jackals took over in the 80s, we have seen this same group buy up, sell off, and ruin industry after industry after industry, and we are running out of places for them to loot. Manufacturing, S&L, import-export, technology, housing, now lending.

So what's next? Looks like commodities will be the next/last stop on the "Loot America" tour.

[Javaman]

8. Yes, with their stupidity. nt

[auburngrad82]

10. No, they just have no clue of how to manage an economy

Or a war. Or foreign relations.