Thursday, July 10, 2008

A Financial System On Steroids

Bushpaulson There's a desperation evident in the financial halls of Washington politics, in place of the pleasantries and genteel quiet of the Greenspan years. Treasury Secretary Henry Paulson has all but come unglued in his desperation to cobble together rescue packages that will keep the day of reckoning from being reckoned with.

Bernankecox For their parts, SEC chairman Christopher Cox and Fed chairman Bernanke drum their fingers, sweat and try to oil the troubled waters of Wall Street. Unfortunately, oil is off the map at $140, plus or minus.
These three are trying to bail the boat of the last bubble they permitted while the next fraud bubbles up through a rotten hull.

Reagan's rising tide that lifts all boats has turned to a tsunami.
(Neil Irwin, Washington Post, July 8, 2008)

Two top regulators reached a formal agreement to coordinate their oversight of Wall Street yesterday, as the government attempts to build a new system to guard against a meltdown of the financial system.

Leaders of the Federal Reserve and the Securities and Exchange Commission signed a memorandum of understanding that explicitly allows for the two agencies to share information about the inner workings of investment banks. The move formalizes what has been a reality since the rescue of Bear Stearns in March and marks an end to an era in which the two agencies held information close to their vests.

"It requires consultation between the SEC and the Fed in areas that the SEC had thought previously were its exclusive business. But the world has changed," said David Becker, a partner at law firm Cleary, Gottlieb, Steen & Hamilton and former general counsel at the SEC. "This mostly ratifies facts on the ground."
Worrisome stuff from the guardians of the public trust, who seem to be more interested in saving the private bacon. One wonders what public interest is served by bailing out Bear Stearns to the profit of J.P.Morgan Chase. The barest of facts are as follows;

  • Bear Stearns was up to its ass in alligators from a feeding frenzy in the sub-prime mortgage market.

  • Nothing--absolutely nothing--drove that investment strategy but greed, the avarice of quick bucks gleaned from 'liar-loans,' the freaky collateral of choice.

  • The whole fraudulent scheme came apart at its seams when investors worldwide became aware that AAA rated securities were actually junk.

  • Matthew Tannin and Ralph R. Cioffi, both former Bear Stearns managers of hedge funds have been arrested and face criminal charges.

  • In order to avert a 'panic' (which is what investors call it when they lose a lot of dough), Paulson dealt off the wounded bear by scrubbing its balance-sheet at taxpayer expense and trying to give away its assets to his buddies at a penny on the dollar.

  • The company that was valued at $173 per share in January was sold for two bucks a share two months later (investor outcry brought the number to ten bucks, but forgetting the substantial value of the firm, their headquarters alone is worth five times the price). Nice inside deal.

Bearstearnshdqjpg That's what David Becker means when he says that this latest con "mostly ratifies the facts on the ground." The facts are not on the ground. The facts are hidden from view in a shell-game with two primary goals; 1) to keep the fraudulent from bearing the cost of their fraud and, 2) to keep the market afloat until after January 20, 2009.

Alfredeneuman That happens to be the date George Bush slinks off to Crawford, Texas and leaves this wreckage to a new president and a new Congress, both of whom promise to be Democrat and both of whom will be blamed for much that is yet to come. This is the "what, me worry?' president, an Alfred E. Neuman administration. If only they had stayed the course, kept my tax cuts, bombed Iran (which may still happen) or privatized what is left of government services--all this would not have happened.

There are those, perhaps, who feel I've beaten this horse too hard over the years and yet, averse as I am to animal cruelty, I am more regularly outraged by a investment community that seems to think profit is a given and loss (when and if it comes) is a public responsibility. 'T'aint so, Magee. The Harvard MBAs have not yet overpowered the laws of economics, although they are untiring in their desire to do so.
The Fed chairman is open to taking on formal responsibility for the stability of the financial system, which the Bush administration advocates, but to do so the central bank wants the ability to gather information and order changes in a wide range of financial companies.

Any major overhaul will require changes to the law -- a sprawling and complicated task that is unlikely to happen this year. Yesterday's agreement shows how the agencies involved are trying to find ways to prevent a recurrence of the financial crisis in March using the tools and legal authority they already have.
Whitecollarcriminal One way that doesn't seem to be on the federal agenda is sending the crooks to jail. One might begin with mortgage lenders who knowingly (and jokingly) extended 'liar-loans' with a wink and a nod, knowing the bad paper would be disguised as triple-A. Abundant room in the big-house as well for those executives of bond-rating companies who lied for money by misrepresenting the value of the derivatives that carried AAA ratings.

This garbage went 'round the world, bringing down banks and financial institutions in Europe and Asia. Some of them were co-conspirators. All of them were in it for the fast buck. There isn't a single case where due-dilligence was done on a stream of income producing derivative contracts that were handed off as quickly as possible to the next greedy outfit in the chain.

And then, of course, as is the case in  investment fraud, the music stopped and those without a chair cried foul and demanded government intervention to save their losses. A Republican president, like Herbert Hoover before him, failed to acknowledge the writing on the wall.

Highroller Hell, these high-rollers and their lobbyists have convinced Congress and the president--by the infusion of money--that there is no wall. Somehow, as the country collapses around ordinary citizens' heads, Bernanke, Paulson and Cox have contrived to move the goal-posts. Their mantra is that the investor holds a position above the rest of us, that the failure of an investment bank would portend the end of the world as they know it.

Which indeed it may.Payingbills

The guys at the top of this pile, who see layoffs, worthless options and reduced bonuses are not likely to lose that house in the Hamptons. What worries them is the end of the game without an end-game. The rest of us are heartsick at the state of American economcs, working longer, working two jobs to send the kids we knew would be able to go to college off to get their own student-jobs to help with tuition. Where did it all go, this prosperity our parents enjoyed? What happened to the family breadwinner on the way to a smaller loaf? What happened to the dad (or mom) who paid the bills and managed on a budget?

More to the point, do those who gambled us into the poorhouse deserve to be rescued by us? Because, in lieu of a cavalry, that's who these rearrangers of our financial furniture would have come to the rescue. When Bernanke sends that message, who is likely to approach investment with anything other than reckless exuberance?

Full speed ahead. Someone else will sweep up the wreckage.

Creditcardspending Interesting to note that time and again, the recipe for ending the downturn turns out not to be letting the losers lose, but encouraging the spenders to spend. Bush gives us a one-time tax rebate of our own money ($170 billion).
(MSNBC) Economic analysts generally believe the $168 billion package Bush signed will help prevent the current downturn from ballooning into a crisis. But if the rebates don't spur a consumer spending spree strong enough to cure what ails the economy, Congress is ready to throw more money at the problem. Bush said the measure was "large enough to have an impact."
Tantrum One has to wonder what education is required to become an 'economic analyst,' when they call the current state of the world economy a 'current downturn.' Trillions lost to fraud and it's a current downturn. The American investor-child is at the checkout, screaming for more candy and our well-oiled and well-bribed representatives in government shove them chocolate.

Anything--anything at all--to get to January 20, 2009 without another disaster on this president's watch.

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