“If These Allegations Are Correct, It Appears To Have Been A Direct Transfer Of Wealth From The United States Treasury To Goldman Sachs Shareholders”: Josh Rosner
by ilene - January 28th, 2011 12:41 am
Courtesy of The Daily Bail
Our favorite quotes so far from today’s FCIC report and reaction from analysts…
- "Less than a 3 percent drop in asset values could wipe out a firm." – FCIC Report
- "The AIG counterparty bailout, which was spun as necessary to protect the public, seems to have protected the institution at the expense of the public." – Josh Rosner
- "The total was for proprietary trades," the report asserts. "Unlike the $14 billion received from AIG on trades in which Goldman owed the money to its own counterparties, this $2.9 billion was retained by Goldman."
- "At the time, the idea was the sucker could go down because there wasn’t enough liquidity in the system, money wasn’t moving, and you could see a domino effect," said Ann Rutledge, a principal at R&R Consulting in New York, which specializes in structured finance. In reality, she contends, those fears were overblown: There was ample money in the financial system. Rather, individual institutions did not have enough cash on hand to survive their losses, she asserts. But the fear of a broader liquidity crisis was used as justification for what now appears to have been a backdoor means of bailing out Goldman, said Rutledge.
- The details in the commission’s report leave Goldman "naked," she added. "It doesn’t have the fig leaf of a systemic risk argument. Normally what happens when you have a sophisticated institution that’s doing stupid credit stuff is you let them eat it, but that didn’t happen in the bailout."
- "If these allegations are correct, it appears to have been a direct transfer of wealth from the Treasury to Goldman’s shareholders." – Josh Rosner
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DiggBuried One Mile Deep In Economic News: Rand Paul Proposes Elimination of HUD; Churches “Walk Away”; China Hard Landing; Repeal of Davis-Bacon
by ilene - January 27th, 2011 3:01 pm
Courtesy of MIsh
Many stories of significance have come my way on housing issues, state debt issues, federal debt issues, pension issues, and other economic items of note. I feel as if I am buried a mile deep news. Here are a few stories that caught my eye.
Senator Rand Paul Proposes Elimination of HUD
I am pleased to report a tremendous deficit cutting idea by senator Rand Paul: Eliminate Energy, HUD and most of Education department
In his first major legislative proposal, U.S. Sen. Rand Paul has proposed cutting government spending by $500 billion in a year, including eliminating the Departments of Energy and Housing and Urban Development and most of the Department of Education.
That is the single best piece of fiscal legislation proposed in years.
Nevada Governor Brian Sandoval Addresses Underfunded Public Pension Plans
While Illinois has jumped off the deep end with tax hikes, Nevada’s Governor says Tax increases last thing Nevada businesses need
Tax increases are the last thing Nevada businesses need now, Gov. Brian Sandoval told a receptive audience Wednesday during a speech to the Las Vegas Chamber of Commerce. "My understanding is that PERS is an $8 (billion) or $9 billion unfunded liability that Nevada can’t afford," he said. Sandoval said benefits reforms must starts with the new employees hired by the state.
I commend Governor Brian Sandoval’s ideas and his starting point. States need to scrap defined benefit pension plans for new hires immediately.
100,000 People in Oakland Expected to Apply for 650 Subsidized Housing Openings
The San Francisco Chronicle reports Oakland opens waiting list for Section 8 vouchers
Oakland’s housing authority opened up its waiting list Tuesday for Section 8 housing vouchers, drawing thousands for a coveted spot in line.
The only way to sign up was over a computer, so across the city, hundreds jammed into city libraries to fill out the forms in the hope that they might eventually get a chance to live in subsidized housing.
In the first three hours, 6,000 people filled out applications. Over the five-day application period, the housing authority expects 100,000 people to apply for only 10,000 spots on the waiting list.
The housing authority uses a lottery to determine who gets on the list. And even then it’s no more than a foot in the door. It has taken nearly five years to clear the waiting list that was
…
Surprise, It Was Greenspan and Bernanke’s Fault
by ilene - January 27th, 2011 2:38 pm
Courtesy of Jr. Deputy Accountant
The Financial Crisis Inquiry Commission is about to tell us, in 576 pages, what many of us already know:
The majority report finds fault with two Fed chairmen: Alan Greenspan, who led the central bank as the housing bubble expanded, and his successor, Ben S. Bernanke, who did not foresee the crisis but played a crucial role in the response. It criticizes Mr. Greenspan for advocating deregulation and cites a “pivotal failure to stem the flow of toxic mortgages” under his leadership as a “prime example” of negligence.
Anyone else running out tomorrow to get a copy?
Like the 9/11 Commission, we could have saved a whole lot of money and time by simply verifying alternative media claims instead of starting from scratch as if no one knew anything all along.
Oh well.
What Most People Don’t Realize About The Fed’s Superpowers
by ilene - January 27th, 2011 2:33 pm
Bob Prechter’s Conquer The Crash reveals whether the Fed really can rescue the US economy
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By Elliott Wave International
Since its creation in 1913, the primary intended role of the U.S. Federal Reserve Bank has been that of protector. In theory, the central bank was bestowed with the power to shape monetary policy in a way that would keep both booms and busts in check. The two main tools at its disposal — interest rates and money creation — would provide a "ceiling of normalcy" above expansions AND a "net of safety" below contractions.
To this day, the financial mainstream holds great faith in the Fed’s ability to fulfill its save-the-day duties — as these recent news items make plain:
- "Why Raising Fed Funds Rate Is Positive For Equities." (Seeking Alpha)
- "Fed’s Moves Lift All Asset Classes." (Associated Press)
- "US Stocks Erasing Losses: The aggressive moves of the Fed have been an important driver for the stabilization of stock prices." (Bloomberg)
But of all the variables the Fed creators took into account, there’s one glaring factor they neglected to consider: Namely, it cannot force consumers to spend, creditors to lend, or businesses to borrow. The events of 2007-2009 "credit crunch" and the subsequent "Great Recession" made that obvious. Remember how the government was upset at banks for sitting on the bailout funds instead of lending them out to consumers? And consumers weren’t exactly lining up on the street to get a loan, either.
The Fed’s inability to change social mood is the central theme in Chapter 13 of EWI President Bob Prechter’s NY Times business bestseller book Conquer the Crash. There, Bob describes the Fed’s strategy of lowering the federal funds rate to stimulate spending to be as effective as "pushing on a string." Writes Bob:
"The primary basis for today’s belief in perpetual prosperity and inflation with an occasional recession is what I call the ‘Potent Directors Fallacy.’ It is nearly impossible to find a treatise on macroeconomics today that does not assert or assume that the Federal Reserve Board has learned to control both our money and our economy. Many believe that it also possesses the immense power to manipulate the stock market. The very idea that it can do these things is false."
And so begins one of the most groundbreaking studies into the very real INABILITY of the Fed to fell the great bears of economic declines, or…
One Reaction to the Obama State of the Union Address That Made Sense
by ilene - January 27th, 2011 1:57 am
Courtesy of Jesse’s Americain Cafe
It amazes me that the discussion on change centers on ‘improving competitiveness’ when the crisis was caused by a massive financial fraud and political and regulatory failure that goes largely unresolved and unrepaired, sucking the life out of the real economy and spreading corruption of thought and action. Slogans and code words are the substance of the public policy discussion in the US and Europe, and I think with the intent to deceive, a propaganda campaign. The mainstream media in the States is owned by a handful of powerful corporations. But fewer and fewer turn to the mainstream media anymore.
"In addition, any economist will tell you that when the free market fails a black market emerges. The blogs are the black market of information."
David B. Collum, Cornell University
As for competitiveness, the current global trade regime is underpinned with and founded on a fraud, a set of managed currencies pinned to the US dollar and under the control of a banking cartel. There is no real free trade, only an illusion of such, promoted by the rapacity of multinational corporations and their partners in authoritarian governments.
The only real competition I can see is the race to destroy the middle class and reduce the public around the world to the least common denominator of slavery, serfdom, and servitude, with the dollar and the jackboot as their weapons.
From Mark Thoma:
"Eliminating regulation: The idea is that removing unnecessary regulation will improve our ability to innovate, and this will help the economy create new, good jobs. However, it wasn’t lack of innovation or lack of competitiveness that got us into this mess, it was an out of control financial sector.
The President talked about eliminating unnecessary regulation, but far too little was said about the need to implement new regulations where they are needed. In addition, by focusing so much on helping business, the president risks sending the message that what is good for business is necessarily good for the nation. (Risk? As the risk of sounding snarky, that is the reason for the season. It was the corporate FIRE sector that caused the financial crisis in the first place. – Jesse)
Businesses need the right environment to thrive, but we must not lose sight of the fact that it’s the skills of the people that work at businesses that matters most. Our ultimate goal is the best possible life for
…
Rand Paul Reintroduces Audit The Fed Bill, DeMint And Vitter Co-Sponsors
by ilene - January 26th, 2011 6:49 pm
Courtesy of Tyler Durden
If there is one thing that the one-time GAO audit of the Fed disclosed, is how woefully insufficient the extremely superficial data discovery was. Another thing uncovered was just how needed this disclosure was: it provided extended material into how the Fed subsidizes banks (both domestic and international) on an ongoing basis, not to mention substantial number crunching for the blogosphere. Either way, if Bernanke was hoping that the Frank-Dodd bill would take care of the Fed opacity, pardon, transparency issue in perpetuity, he may be disappointed: Ron’s son, Rand, has just announced he is introducing legislation to, well, Audit The Fed, precisely along the lines of what his father did previously and generated massive support from everyone in Congress. Once again Ben Bernanke is about to become a major thorn on the side of the political puppetry.
WASHINGTON, D.C. – Today, Senator Rand Paul introduced legislation allowing for a full audit of the Federal Reserve. This legislation is a Senate version of similar legislation long-championed by and introduced this session in the House of Representatives by his father, Congressman Ron Paul of Texas. Co-sponsoring the “Federal Reserve Transparency Act of 2011” (S. 202), are Senators Jim DeMint of South Carolina and David Vitter of Louisiana.
“We must take a critical look at the Fed’s monetary policy decisions, discount window operations, and a host of other things, with a real audit – and not just pay lip-service to the idea of an audit,” Sen. Paul said today. “At a time when we’re seeing great volatility in small Euro-zone economies like Greece, Portugal, and Ireland, it is more crucial than ever that we have real transparency at our own central bank.“
The bill will eliminate the current audit restrictions placed on the Government Accountability Office (GAO) and mandate a complete audit of the Federal Reserve to be completed by a firm deadline, finally delivering answers to the American people about how their money is being spent by Washington.
Ambac Accues JP Morgan of Fraud in Ongoing Mortgage Suit
by ilene - January 25th, 2011 4:07 pm
Courtesy of Yves Smith of Naked Capitalism
One of the big reasons there have been so few fraud charges leveled against what looks like clear and widespread banking industry is that under the law, “fraud” is pretty difficult to prove. Needless to say, that puts commentators in a bit of a bind, because they can be depicted as being hysterical if they use the “f” words, since behavior that is often fraud by any common sense standard may be hard or impossible to prove in court.
The hurdle in litigation and prosecution is proving intent. Basically, the party who is being accused has to not only have done something bad, he has to have been demonstrably aware that he was up to no good. Thus po-faced claims of “I had no idea this was improper, my accountants/lawyers knew about it and didn’t say anything” or “everyone in the industry was doing it, so I had not reason to think this was irregular” is a “get out of jail free” card. Similarly, even if lower level employees knew that their company was up to stuff that stank, if the decision-makers can plausibly claim ignorance, again they can probably get away with it.
So it is gratifying in a perverse way to see a case in which the perp not only looks to have engaged in chicanery, but the facts make it pretty hard for him to say he didn’t know he was pulling a fast one. And even more fun, it involves JP Morgan, which has somehow managed to create the impression that it was better than all the other TARP banks, when on the mortgage front, there is plenty evidence to suggest that all the major banks have been up to their eyeballs in bad practices.
The case involves the bond insurer Ambac and the mortgage company EMC, which was the Bear Stearns conduit for buying mortgages to securitize and now thus part of JP Morgan. In 2010, reports surfaced that EMC had been falsifying mortgage data to keep its pipeline moving as fast as Bear wanted and contain costs.
But a suit by bond insurer Ambac alleges far more serious misbehavior. The discovery process in outstanding putback litigation has unearthed a scheme to defraud investors and Ambac and led the bond insurer to add fraud charges to its complaint. The Atlantic, which broke the 2010 story, gives a…
Stock World Weekly
by ilene - January 23rd, 2011 3:20 pm
Here’s the newest: Stock World Weekly Newsletter. Comments welcome! – Ilene
Archives here.
State Bankruptcy Option Is Sought, Quietly – NYTimes.com
by ilene - January 21st, 2011 2:08 pm
A Path Is Sought for States to Escape Their Debt Burdens
By MARY WILLIAMS WALSH, NY Times
Policy makers are working behind the scenes to come up with a way to let states declare bankruptcy and get out from under crushing debts, including the pensions they have promised to retired public workers.
Unlike cities, the states are barred from seeking protection in federal bankruptcy court. Any effort to change that status would have to clear high constitutional hurdles because the states are considered sovereign.
But proponents say some states are so burdened that the only feasible way out may be bankruptcy, giving Illinois, for example, the opportunity to do what General Motors did with the federal government’s aid.
Beyond their short-term budget gaps, some states have deep structural problems, like insolvent pension funds, that are diverting money from essential public services like education and health care. Some members of Congress fear that it is just a matter of time before a state seeks a bailout, say bankruptcy lawyers who have been consulted by Congressional aides.
Continue here: State Bankruptcy Option Is Sought, Quietly – NYTimes.com.
Why this market rally will end in tears
by ilene - January 20th, 2011 9:30 pm
By David Rosenberg, The Globe and Mail
Most investors see only the recent returns; they do not see the nearly invisible risks. But the risks are there. I recall all too well the 2003-07 bear market rally – yes, that is what it was. It was no long-term bull run such as 1949-1966 or 1982-2000. It was a classic bear market rally, and it ended in tears because what drove the market upward was phony wealth generated by a non-productive asset called housing alongside widespread financial engineering, which triggered a wave of artificial paper profits.
Remember, returns only count if they aren’t ultimately reversed by excessive greed. Right now, I believe clients are well served by equity strategies that focus on stocks of high quality companies and by investments in both hard assets and income-producing securities. Also good are long-short strategies (vital in controlling risk in the portfolio) and a concentration on fixed-income products (outside of commodities, deflation in the developed world remains the primary trend – against such a backdrop, searching for yield makes perfect sense).
As far as equities are concerned, the current bear market rally is likely at the very late stage. Few people will know to get out at the peak and as we saw in late 2007 and into 2008, many investors will be trapped in a falling market. Bear market rallies are not the same as secular, or long-term, bull markets – the former are to be rented, the latter are to be owned.
Pic credit: Benjamin Miller at FreeStockPhotos.biz
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
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