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Harsh Reality

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Several years ago, at one of the seven Laurie Anderson performances I have attended, Ms. Anderson (now Mrs. Lou Reed – although I seriously doubt whether she uses that moniker) described her first meeting with Philip Glass.  Immediately after meeting Glass, she anxiously asked him:  “Are things getting better or are things getting worse?”

These days, that same question is on everyone’s mind.  It appears as though the mainstream news media are hell-bent on convincing us that everything is just fine.  Nevertheless, many of us remember hearing the same thing from Ben Bernanke and Hank Paulson during the summer of 2008.  As a result, we ponder the onslaught of rosy prognostications about the future of our economy with a good degree of skepticism.  Regardless of whether there might be some sort of conspiracy to convince the public to go out and spend money because everything is all right  . . . consider these remarks by Steve Randy Waldman from a discussion about market monetarist theory:

Self-fulfilling expectations lie at the heart of the market monetarist theory.  A depression occurs when people come to believe that income will be scarce relative to prior expectations and debts.  They nervously scale back expenditures and hoard cash, fulfilling their expectations of income scarcity.  However, if everybody could suddenly be made to believe that income would be plentiful, everyone would spend freely and fulfill the expectations of plenty.  The world is a much more pleasant place under the second set of expectations than the first.  And to switch between the two scenarios, all that is required is persuasion.  The market-monetarist central bank is nothing more than a great persuader:  when “shocks happen”, it persuades us all to maintain our optimism about the path of nominal income.  As long as we all keep the faith, our faith will be rewarded.  This is not a religion, but a Nash equilibrium.

The persuasion described by Steve Waldman has been drowning out objective analysis lately.  Obviously, the sovereign debt crisis in Europe has created quite a bit of anxiety in the United States.  The mainstream media focus is apparently targeting that consensual anxiety with heavy doses of “feel good” material.  One must search around a bit before finding any commentary which runs against that current.  I found some and I would like to share it with you.  The first item appeared in Bloomberg BusinessWeek on November 22:

Pacific Investment Management Co.’s Chief Executive Officer Mohamed A. El-Erian said U.S. economic conditions are “terrifying” as the nation struggles to recover from recession.

The odds of the U.S. returning to recession are as much as 50 percent, El-Erian said during an interview on Bloomberg Television’s “In the Loop” with Betty Liu.  U.S. economic growth was worse than expected and congressional policy makers are gridlocked over what to do about the economy and the deficit, which risk exacerbating an already weak recovery, he said.

“We have less economic momentum than we thought we had and we have no policy momentum,” said El-Erian, who also serves as co-chief investment officer with Pimco founder Bill Gross at the world’s largest manager of bond funds.

“What’s most terrifying,” he said, “we are having this discussion about the risk of recession at a time when unemployment is already too high, at a time when a quarter of homeowners are underwater on their mortgages, at a time then the fiscal deficit is at 9 percent and at a time when interest rates are at zero.”

Let’s not forget that all of this is happening at a time when we are plagued by the most dysfunctional, stupid and corrupt Congress in our nation’s history.  President Obama is currently preoccupied with his re-election campaign.  His own leadership failures are conveniently re-packaged as products of that feckless Congress.  As a result, Americans have plenty of justification for being worried about the future.

One of my favorite commentators, Paul Farrell of MarketWatch, recently shared some information with us, which he acquired by attending an InvestmentNews Round Table, as well as from reading Gary Shilling’s expensive newsletter:

Get it? Main Street America, you should “expect very slow growth” in 2012.  That was the response when asked what “scenarios are you painting for your clients?”  The panelist at a recent InvestmentNews Round Table then added:  “It’s going to be ugly and violent.”  Why?  Because the politicians “are driving things” and they are “capricious, which leads to volatility.”  And clients are “not really happy,” but “they lived through ‘08 and ’09,” so 2012 will be “just a little bump in the road.”

*   *   *

So don’t kid yourself folks, recent economic and market “ugliness and violence” not only won’t end soon, it’ll get meaner and meaner for years after 2012 elections … no matter who wins.  Only a fool would believe that a new bull market will take off in 2013.  Ain’t going to happen.  That’s a Wall Street fantasy.  Fall for that, and you’re delusional.

In fact, you better plan on a very long secular bear the next decade through 2020.  With the European banks, credit and currency on the edge of a global financial meltdown, there’s a high probability that a black swan virus, a contagion will sweep the world, making all investing “uglier” and more “violent” for Americans in 2013, indeed for the rest of the decade.

*   *   *

Shilling sees “a secular bear market really started in 2000 and may persist for a decade as a result of slower GDP growth,” yes, persist till 2020 “with 2% to 3% deflation.”  He warns:  “Nominal GDP might not gain at all,” like recent flat-lining.  Which coincides with the expectations of America’s professional financial advisers.

Are you still feeling optimistic?  Consider the closing thoughts from a piece by Karl Denninger entitled, “The Game Is About Done”:

30+ years of lawless behavior has now devolved down to blatant, in-your-face theft.  They don’t even bother trying to hide it any more, and Eric “Place” Holder is too busy supervising the running of guns into Mexico so the drug cartels can shoot both Mexican and American citizens.

What am I, or anyone else, supposed to do in this sort of “market” environment?  Invest in…. what?  Land titles are worthless as they’ve been corrupted by robosigning, margin deposits have been stolen, Madoff’s clients had confirmations of trades that never happend and proved to worthless pieces of paper instead of valuable securities and while Madoff went to prison nobody else has and the money is still gone!

Without enforcement of the law — swift and certain — there is no deterrent against this behavior.

There has been no enforcement and there is no indication that this will change.

It will take just one — or maybe two — more events like MF Global and Greek CDS “determinations” before the entire market — all of it — goes “no bid” as participants simply stuff their hands in their pockets and say “screw this.”

It’s coming folks, and I guarantee you this:  Whatever your “nightmare” scenario is for such an event, it’s not bearish enough.

Keep all of this in mind as you plan for the future.  I would not expect that you might hear any of this on CNBC.


No Justice For The Wicked

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Although the drumbeat continues, I remain skeptical as to whether any of the criminals responsible for causing the financial crisis will ever be brought to justice.  In the weeks before President Obama’s Inauguration, the foremost question on my mind was whether the new administration would take the necessary steps to change the culture of corruption on Wall Street:

As we approach the eve of the Obama Administration’s first day, across America the new President’s supporters have visions of “change we can believe in” dancing in their heads.  For some, this change means the long overdue realization of health care reform.  For those active in the Democratic campaigns of 2006, “change” means an end to the Iraq war.  Many Americans are hoping that the new administration will crack down on the unregulated activities on Wall Street that helped bring about the current economic crisis.

On December 15, Stephen Labaton wrote an article for the New York Times, examining the recent failures of the Securities and Exchange Commission as well as the environment at the SEC that facilitates such breakdowns.

At that time, I also focused on the point made in a commentary by Michael Lewis and David Einhorn, which appeared in the January 3 New York Times:

It’s not hard to see why the S.E.C. behaves as it does.  If you work for the enforcement division of the S.E.C. you probably know in the back of your mind, and in the front too, that if you maintain good relations with Wall Street you might soon be paid huge sums of money to be employed by it.

I concluded that piece with a rhetorical question:

Let’s hope our new President, the Congress and others pay serious attention to what Lewis and Einhorn have said.  Cleaning up Wall Street is going to be a dirty job.  Will those responsible for accomplishing this task be up to doing it?

By March 23, 2009, it had become obvious that our new President was more concerned about the “welfare” (pun intended) of the Wall Street banks than the well-being of the American economy.  I began my posting of that date with this statement:

We the people, who voted for Barack Obama, are about to get ripped off by our favorite Hope dealer.

On August 27 of that year, I wrote another piece expressing my disappointment with how things had (not) progressed.  My October 1, 2009 posting focused on the fact that H. David Kotz, Inspector General of the Securities and Exchange Commission, issued two reports, recommending 58 changes to improve the way the agency investigates and enforces violations of securities laws, as a result of the SEC’s failure to investigate the Bernie Madoff Ponzi scheme.  The reports exposed a shocking degree of ineptitude at the SEC.

After the release of the report by bankruptcy examiner Anton Valukas, pinpointing the causes of the collapse of Lehman Brothers, I lamented the fact that the mainstream media hadn’t shown much concern about the matter, despite the terrible fraud exposed in the report.  Nevertheless, by the next day, I was able to highlight some great commentaries on the Valukas Report and I felt optimistic enough to conclude the piece with this thought:

We can only hope that a continued investigation into the Lehman scandal will result in a very bright light directed on those privileged plutocrats who consider themselves above the law.

If only  . . .

By the eve of the mid-term elections, I had an answer to the question I had posed on January 5, 2009 as to whether our new President and Congress would be up to the task of cleaning up Wall Street:

One common theme voiced by many critics of the Obama administration has been its lack of interest in prosecuting those responsible for causing the financial crisis.  Don’t hold your breath waiting for Attorney General Eric Hold-harmless to initiate any criminal proceedings against such noteworthy individuals as Countrywide’s Angelo Mozilo or Dick Fuld of Lehman Brothers.  On October 23, Frank Rich of The New York Times mentioned both of those individuals while lamenting the administration’s failure to prosecute the “financial crimes that devastated the nation”:

The Obama administration seems not to have a prosecutorial gene.   It’s shy about calling a fraud a fraud when it occurs in high finance.
*   *   *
Since Obama has neither aggressively pursued the crash’s con men nor compellingly explained how they gamed the system, he sometimes looks as if he’s fronting for the industry even if he’s not.

The special treatment afforded to the perpetrators of the frauds that helped create the financial crisis wasn’t the only gift to Wall Street from the Democratically-controlled White House, Senate and Congress.  The financial “reform” bill was so badly compromised (by the Administration and Senate Democrats, themselves) as it worked its way through the legislative process, that it is now commonly regarded as nothing more than a hoax.

By the close of 2010, I noted that an expanding number of commentators shared my outrage over the likelihood that we would never see any prosecutions result from the crimes that brought about the financial crisis:

A recent article written by former New York Mayor Ed Koch began with the grim observation that no criminal charges have been brought against any of the malefactors responsible for causing the financial crisis:

Looking back on 2010 and the Great Recession, I continue to be enraged by the lack of accountability for those who wrecked our economy and brought the U.S. to its knees.  The shocking truth is that those who did the damage are still in charge.  Many who ran Wall Street before and during the debacle are either still there making millions, if not billions, of dollars, or are in charge of our country’s economic policies which led to the debacle.

Most recently, Matt Taibbi has written another great article for Rolling Stone entitled, “Why Isn’t Wall Street in Jail?”.  It’s nice to know that the drumbeat for justice continues.  Taibbi’s essay provided a great history of the crisis, with a particular emphasis on how whistleblowers were ignored, just as Harry Markopolos was ignored when (in May of 2000) he tried to alert the SEC to the fact that Bernie Madoff’s hedge fund was a multi-billion-dollar Ponzi scheme.  Here is a great passage from Matt Taibbi’s essay:

In the past few years, the administration has allocated massive amounts of federal resources to catching wrongdoers — of a certain type.  Last year, the government deported 393,000 people, at a cost of $5 billion.  Since 2007, felony immigration prosecutions along the Mexican border have surged 77 percent; nonfelony prosecutions by 259 percent.  In Ohio last month, a single mother was caught lying about where she lived to put her kids into a better school district; the judge in the case tried to sentence her to 10 days in jail for fraud, declaring that letting her go free would “demean the seriousness” of the offenses.

So there you have it.  Illegal immigrants:  393,000.  Lying moms:  one.  Bankers:  zero.  The math makes sense only because the politics are so obvious.  You want to win elections, you bang on the jailable class. You build prisons and fill them with people for selling dime bags and stealing CD players.  But for stealing a billion dollars?  For fraud that puts a million people into foreclosure?  Pass.  It’s not a crime.  Prison is too harsh.  Get them to say they’re sorry, and move on.  Oh, wait — let’s not even make them say they’re sorry.  That’s too mean; let’s just give them a piece of paper with a government stamp on it, officially clearing them of the need to apologize, and make them pay a fine instead.  But don’t make them pay it out of their own pockets, and don’t ask them to give back the money they stole. In fact, let them profit from their collective crimes, to the tune of a record $135 billion in pay and benefits last year.  What’s next?  Taxpayer-funded massages for every Wall Street executive guilty of fraud?

Wouldn’t it be nice if public opinion meant more to the Obama administration than campaign contributions from Wall Street banksters?




Bad Timing By The Dimon Dog At Davos

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Last week’s World Economic Forum in Davos, Switzerland turned out to be a bad time for The Dimon Dog to stage a “righteous indignation” fit.  One would expect an investment banker to have a better sense of timing than what was demonstrated by the CEO of JPMorgan Chase.  Vito Racanelli provided this report for Barron’s:

The Davos panel, called “The Next Shock, Are We Better Prepared?” proceeded at a typically low emotional decibel level until Dimon was asked about what he thought of Americans who had directed their anger against the banks for the bailout.

Dimon visibly turned more animated, replying that “it’s not fair to lump all banks together.”  The TARP program was forced on some banks, and not all of them needed it, he said.  A number of banks helped stabilize things, noting that his bank bought the failed Bear Stearns.  The idea that all banks would have failed without government intervention isn’t right, he said defensively

Dimon clearly felt aggrieved by the question and the negative banker headlines, and went on for a while.

“I don’t lump all media together… .  There’s good and there’s bad.  There’s irresponsible and ignorant and there’s really smart media.  Well, not all bankers are the same.  I just think this constant refrain [of] ‘bankers, bankers, bankers,’ – it’s just a really unproductive and unfair way of treating people…  People should just stop doing that.”

The immediate response expressed by a number of commentators was to focus on Dimon’s efforts to obstruct financial reform.  Although Dimon had frequently paid lip service to the idea that no single institution should pose a risk to the entire financial system in the event of its own collapse, he did all he could to make sure that the Dodd-Frank “financial reform” bill did nothing to overturn the “too big to fail” doctrine.  Beyond that, the post-crisis elimination of the Financial Accounting Standards Board requirement that a bank’s assets should be “marked to market” values, was the only crutch that kept JPMorgan Chase from falling into the same scrap heap of insolvent banks as the other Federal Reserve welfare queens.

Simon Johnson (former chief economist at the International Monetary Fund) obviously had some fun writing a retort – published in the Economix blog at The New York Times to The Dimon Dog’s diatribe.  Johnson began by addressing the threat voiced by Dimon and Diamond (Robert E. Diamond of Barclay’s Bank):

The newly standard line from big global banks has two components  .  .  .

First, if you regulate us, we’ll move to other countries.  And second, the public policy priority should not be banks but rather the spending cuts needed to get budget deficits under control in the United States, Britain and other industrialized countries.

This rhetoric is misleading at best.  At worst it represents a blatant attempt to shake down the public purse.

*   *   *

As we discussed at length during the Senate hearing, it is therefore not possible to discuss bringing the budget deficit under control in the foreseeable future without measuring and confronting the risks still posed by our financial system.

Neil Barofsky, the special inspector general for the Troubled Assets Relief Program, put it well in his latest quarterly report, which appeared last week: perhaps TARP’s most significant legacy is “the moral hazard and potentially disastrous consequences associated with the continued existence of financial institutions that are ‘too big to fail.’ ”

*   *   *

In this context, the idea that megabanks would move to other countries is simply ludicrous.  These behemoths need a public balance sheet to back them up, or they will not be able to borrow anywhere near their current amounts.

Whatever you think of places like Grand Cayman, the Bahamas or San Marino as offshore financial centers, there is no way that a JPMorgan Chase or a Barclays could consider moving there.  Poorly run casinos with completely messed-up incentives, these megabanks need a deep-pocketed and somewhat dumb sovereign to back them.

After Dimon’s temper tantrum, a pile-on by commentators immediately ensued.  Elinor Comlay and Matthew Goldstein of Reuters wrote an extensive report, documenting Dimon’s lobbying record and debunking a good number of public relations myths concerning Dimon’s stewardship of JPMorgan Chase:

Still, with hindsight it’s clear that Dimon’s approach to risk didn’t help him entirely avoid the financial crisis.  Even as the first rumblings of the crisis were sounding in the distance, he aggressively sought to boost Chase’s share of the U.S. mortgage business.

At the end of 2007, after JPMorgan had taken a $1.3 billion write-down on leveraged loans, Dimon told analysts the bank was planning to add as much as $20 billion in mortgages from riskier borrowers.  “We think we’d get very good spreads and … it will be a drop in the bucket for our capital ratios.”

By mid-2008, JPMorgan Chase had $95.1 billion exposure to home equity loans, almost $15 billion in subprime mortgages and a $76 billion credit card book.  Banks were not required to mark those loans at market prices, but if the loans were accounted for that way, losses could have been as painful for JPMorgan as credit derivatives were for AIG, according to former investment bank executives.

What was particularly bad about The Dimon Dog’s timing of his Davos diatribe concerned the fact that since December 2, 2010 a $6.4 billion lawsuit has been pending against JPMorgan Chase, brought by Irving H. Picard, the bankruptcy trustee responsible for recovering the losses sustained by Bernie Madoff’s Ponzi scam victims.  Did Dimon believe that the complaint would remain under seal forever?  On February 3, the complaint was unsealed by agreement of the parties, with the additional stipulation that the identities of several bank employees would remain confidential.  The New York Times provided us with some hints about how these employees were expected to testify:

On June 15, 2007, an evidently high-level risk management officer for Chase’s investment bank sent a lunchtime e-mail to colleagues to report that another bank executive “just told me that there is a well-known cloud over the head of Madoff and that his returns are speculated to be part of a Ponzi scheme.”

Even before that, a top private banking executive had been consistently steering clients away from investments linked to Mr. Madoff because his “Oz-like signals” were “too difficult to ignore.”  And the first Chase risk analyst to look at a Madoff feeder fund, in February 2006, reported to his superiors that its returns did not make sense because it did far better than the securities that were supposedly in its portfolio.

At The Daily Beast, Allan Dodds Frank began his report on the suit with questions that had to be fresh on everyone’s mind in the wake of the scrutiny The Dimon Dog had invited at Davos:

How much did JPMorgan CEO and Chairman Jamie Dimon know about his bank’s valued customer Bernie Madoff, and when did he know it?

These two crucial questions have been lingering below the surface for more than two years, even as the JPMorgan Chase leader cemented his reputation as the nation’s most important, most upright, and most highly regarded banker.

Not everyone at Davos was so impressed with The Dimon Dog.  Count me among those who were especially inspired by the upbraiding Dimon received from French President Nicolas Sarkozy:

“Don’t be accusatory of us,” Sarkozy snapped at Dimon at the World Economic Forum in Davos, Switzerland.

“The world has paid with tens of millions of unemployed, who were in no way to blame and who paid for everything.”

*   *   *
“We saw that for the last 10 years, major institutions in which we thought we could trust had done things which had nothing to do with simple common sense,” the Frenchman said.  “That’s what happened.”

Sarkozy also took direct aim at the bloated bonuses many bankers got despite the damage they did.

“When things don’t work, you can never find anyone responsible,” Sarkozy said.  “Those who got bumper bonuses for seven years should have made losses in 2008 when things collapsed.”

Why don’t we have a President like that?



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The SEC Is Out To Lunch

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August 27, 2009

Back on January 5, I wrote a piece entitled:  “Clean-Up Time On Wall Street” in which I pondered whether our new President-elect and his administration would really “crack down on the unregulated activities on Wall Street that helped bring about the current economic crisis”.  I quoted from a December 15 article by Stephen Labaton of The New York Times, examining the failures of the Securities and Exchange Commission as well as the environment at the SEC that facilitated such breakdowns.  Some of the highlights from the Times piece included these points:

.  .  .  H. David Kotz, the commission’s new inspector general, has documented several major botched investigations.  He has told lawmakers of one case in which the commission’s enforcement chief improperly tipped off a private lawyer about an insider-trading inquiry.

*  *  *

There are other difficulties plaguing the agency. A recent report to Congress by Mr. Kotz is a catalog of major and minor problems, including an investigation into accusations that several S.E.C. employees have engaged in illegal insider trading and falsified financial disclosure forms.

I then questioned the wisdom of Barack Obama’s appointment of Mary Schapiro as the new Chair of the Securities and Exchange Commission, quoting from an article by Randall Smith and Kara Scannell of The Wall Street Journal concerning Schapiro’s track record as chair of the Financial Industry Regulatory Authority (FINRA):

Robert Banks, a director of the Public Investors Arbitration Bar Association, an industry group for plaintiff lawyers . . .  said that under Ms. Schapiro, “Finra has not put much of a dent in fraud,” and the entire system needs an overhaul.  “The government needs to treat regulation seriously, and for the past eight years we have not had real securities regulation in this country,” Mr. Banks said.

*   *   *

In 2001 she appointed Mark Madoff, son of disgraced financier Bernard Madoff, to the board of the National Adjudicatory Council, the national committee that reviews initial decisions rendered in Finra disciplinary and membership proceedings.

I also quoted from a two-part op-ed piece for the January 3  New York Times, written by Michael Lewis, author of Liar’s Poker, and David Einhorn.  Here’s what they had to say about the SEC:

Created to protect investors from financial predators, the commission has somehow evolved into a mechanism for protecting financial predators with political clout from investors.  (The task it has performed most diligently during this crisis has been to question, intimidate and impose rules on short-sellers — the only market players who have a financial incentive to expose fraud and abuse.)

Keeping all of this in mind, let’s have a look at the current lawsuit brought by the SEC against Bank of America, pending before Judge Jed S. Rakoff of The United States District Court for the Southern District of New York.  The matter was succinctly described by Louise Story of The New York Times:

The case centers on $3.6 billion bonuses that were paid out by Merrill Lynch late last year, just before that firm was merged with Bank of America.  Neither company disclosed the bonuses to shareholders, and the S.E.C. has charged that the companies’ proxy statement about the merger were misleading in their description of the bonuses.

To make a long story short, Bank of America agreed to settle the case for a mere $33 million, despite its insistence that it properly disclosed to its shareholders, the bonuses it authorized for Merrill Lynch & Co employees.  The mis-handling of this case by the SEC was best described by Rolfe Winkler of Reuters.  The moral outrage over this entire matter was best expressed by Karl Denninger of The Market Ticker.  Denninger’s bottom line was this:

It is time for the damn gloves to come off.  Our economy cannot recover until the scam street games are stopped, the fraudsters are removed from the executive suites (and if necessary from Washington) and the underlying frauds – particularly including the games played with the so-called “value” of assets on the balance sheets of various firms are all flushed out.

On a similarly disappointing note, there is the not-so-small matter of:  “Where did all the TARP money go?”  You may have read about Elizabeth Warren and you may have seen her on television, discussing her role as chair of the Congressional Oversight Panel, tasked with scrutinizing the TARP bank bailouts.  Neil Barofsky was appointed Special Investigator General of TARP (SIGTARP).  Why did all of this become necessary?  Let’s take another look back to last January.  At that time, a number of Democratic Senators, including:  Russ Feingold (Wisconsin), Jeanne Shaheen (New Hampshire), Evan Bayh (Indiana) and Maria Cantwell (Washington) voted to oppose the immediate distribution of the second $350 billion in TARP funds.  The vote actually concerned a “resolution of disapproval” to block distribution of the TARP money, so that those voting in favor of the resolution were actually voting against releasing the funds.  Barack Obama had threatened to veto this resolution if it passed. The resolution was defeated with 52 votes (contrasted with 42 votes in favor of it).  At that time, Obama was engaged in a game of “trust me”, assuring those in doubt that the second $350 billion would not be squandered in the same undocumented manner as the first $350 billion.  As Jeremy Pelofsky reported for Reuters on January 15:

To win approval, Obama and his team made extensive promises to Democrats and Republicans that the funds would be used to better address the deepening mortgage foreclosure crisis and that tighter accounting standards would be enforced.

“My pledge is to change the way this plan is implemented and keep faith with the American taxpayer by placing strict conditions on CEO pay and providing more loans to small businesses,” Obama said in a statement, adding there would be more transparency and “more sensible regulations.”

Although it was a nice-sounding pledge, the new President never lived up to it.  Worse yet, we now have to rely on Congress, to insist on getting to the bottom of where all the money went.  Although Elizabeth Warren was able to pressure “Turbo” Tim Geithner into providing some measure of disclosure, there are still lots of questions that remain unanswered.  I’m sure many people, including Turbo Tim, are uncomfortable with the fact that Neil Barofsky is doing “too good” of a job as SIGTARP.  This is probably why Congress has now thrown a “human monkey wrench” into the works, with its addition of former SEC commissioner Paul Atkins to the Congressional Oversight Panel.  Expressing his disgust over this development, David Reilly wrote a piece for Bloomberg News, entitled: “Wall Street Fox Beds Down in Taxpayer Henhouse”.  He discussed the cynical appointment of Atkins with this explanation:

Atkins was named last week to be one of two Republicans on the five-member TARP panel headed by Harvard Law School professor Elizabeth Warren.  He replaces former Senator John Sununu, who stepped down in July.

*   *   *

And while a power-broker within the commission, Atkins was also seen as the sharp tip of the deregulatory spear during George W. Bush’s presidency.

Atkins didn’t waver from his hands-off position, even as the credit crunch intensified.  Speaking less than two months before the collapse of Lehman Brothers Holdings Inc., Atkins in one of his last speeches at the SEC warned against calls for a “new regulatory order.”

He added, “We must not immediately jump to the conclusion that failures of firms in the marketplace or the unavailability of credit in the marketplace is caused by market failure, or indeed regulatory failure.”

When I spoke with him yesterday, Atkins hadn’t changed his tune.  “If the takeaway by some people is that deregulation is the thing that led to problems in the marketplace, that’s completely wrong,” he said.  “The problems happened in the most heavily regulated areas of the financial-services industry.”

Regulated by whom?

Just Keep Walking

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April 23, 2009

Peggy Noonan had an esteemed career as speechwriter to former Presidents Ronald Reagan and George H.W. Bush.  She now writes a weekly column for The Wall Street Journal and she frequently appears as a panelist on many television news programs.  She has been on the blogroll of this website since its inception.

On Sunday, April 19, she appeared as a panelist on ABC’s This Week with George Stephanopoulos.  During that program’s Roundtable discussion, the subject eventually turned to President Obama’s decision not to prosecute the CIA operatives involved in the torture of detainees in the “War on Terror” as well as the decision to release the so-called “torture memos”.  Those memos were prepared by the Office of Legal Counsel during the Bush administration.  They described the permissible use of such techniques as waterboarding, sleep deprivation, confinement in a box with insects and other sadistic acts, intended to get detainees to provide valuable information.  Roundtable panelist Sam Donaldson expressed his opinion that the operatives who administered these interrogation techniques were not “just following orders”; they believed they were following the law because they were relying on the legal opinions expressed in those memos.  However, as Donaldson explained, if the people who devised those methods and wrote the legal memos condoning their use were “just trying to find cover” and just trying to find a way to get around American law and the Constitution, they should be held accountable in a court of law.  Donaldson added that if the President wanted to pardon those people, he should do so, although it would be important for those individuals to be held accountable before a court.

Peggy Noonan then remarked:

Oh, I have reservations about all of this.  It’s hard for me to look at a great nation issuing these documents and sending them out to the world and thinking:  “Oh, much good will come of that?”  Sometimes in life you wanna’ just keep walkin’.

Sam Donaldson then interrupted with the question as to whether it was right “to let people walk who may have committed a crime”.  Noonan then replied:  “Some of life has to be mysterious”.

Noonan’s remarks drew immediate outrage from Senator Russ Feingold of Wisconsin.  As Sam Stein reported for The Huffington Post, Feingold was harshly critical of the rationalizations for avoiding prosecution of these people, as expressed by government officials as well as those in the news media.  Stein quoted the Senator’s expressed indignation:

“If you want to see just how outrageous this is, I refer you to the remarks made by Peggy Noonan this Sunday” …  “I frankly have never heard anything quite as disturbing as her remark that was something to the affect of:   ‘well sometimes you just have to move on’.”

Noonan’s opinion is emblematic of the mainstream media’s all-too-frequent response to scandalous events and it demonstrates why so many people have turned to the Internet to get the news.  If you overhear someone in a restaurant arranging a bribe with a politician:  Just keep walking.  If you discover information about illegal toxic dumping by one of your publication’s sponsors:  Just keep walking.  If Harry Markopolos approaches you and tries to explain how Bernie Madoff is running a Ponzi scheme:  Just keep walking.

Peggy Noonan’s statement wasn’t just a situation where she “misspoke”.  It was the expression of an arrogant attitude held by too many in the media who decide it is up to them to determine when the public deserves to know something and when it doesn’t.  After all:  “Some of life has to be mysterious”.

Shame on you, Peggy Noonan!  Shame on you!

Another Troubling Appointment By Obama

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February 5, 2009

It all started with Bill Richardson.  On January 4, New Mexico Governor Bill Richardson announced that he was withdrawing as nominee for the position of Commerce Secretary, due to an investigation into allegations of influence peddling.

Then there was a brief moment of concern over the fact that Treasury Secretary nominee, Timothy Geithner, was a little late with some self-employment tax payments.  Since his new position would put him in charge of the Internal Revenue Service, many people found this shocking.  Even more shocking was his admission that he prepared his income taxes using the TurboTax software program.  That entire controversy was overlooked because Geithner has been regarded as the only person in Washington who fully understands the TARP bailout bill (as Newsweek‘s Jonathan Alter once said).

On February 3, two more Obama appointees had to step aside.  The first was Nancy Killefer, who had been selected to become “Chief Performance Officer”, in which role she would have been tasked with cleaning up waste in government programs.  Her situation didn’t sound all that scandalous.  The Wall Street Journal explained that she “… had a $946.69 tax lien imposed on her home by the District of Columbia for unpaid taxes on household help, a debt she had satisfied long ago.”  Later that day, Tom Daschle had to withdraw his nomination to become Secretary of Health and Human Services.  It seemed that his failure to timely pay over $100,000 in taxes was just part of the problem.  As the previously-mentioned Wall Street Journal article pointed out, the Daschle nomination provided additional embarrassment for President Obama:

Beyond the tax issue, Mr. Daschle was increasingly being portrayed as a Washington insider who made a fortune by trading on his Beltway connections — an example of the kind of culture Mr. Obama had pledged to change.

Meanwhile, many Democrats were expressing dismay over the February 2 announcement that Republican Senator Judd Gregg had been tapped to become Commerce Secretary.  Back in 1995, as United States Senator representing New Hampshire, he voted in favor of a budget measure that would have abolished the Commerce Department.  To many, this seemed too much like the George W. Bush tactic of putting a saboteur in charge of an administrative agency.  Nevertheless, Senator Gregg was ready to address those concerns.  As Liz Sidoti reported for the Associated Press:

In a conference call with reporters, Gregg dismissed questions about the vote.

“I say those were my wild and crazy days,” he said.  “My record on supporting Commerce far exceeds any one vote that was cast early on in the context of an overall budget.”

Gregg said he’s strongly supported the agency, particularly its scientific initiatives, including at the agency’s largest department, the National Oceanic and Atmospheric Administration.

Finally, on Wednesday February 5, those who concurred with President Obama’s appointment of Mary Schapiro as Chair of the Securities and Exchange Commission (SEC) had good reason to feel anxious.  That day brought us the long-awaited testimony of independent financial fraud investigator, Harry Markopolos, before the House Financial Services Committee.  Back in May of 2000, Mr. Markopolos tried to alert the SEC to the fact that Bernie Madoff’s hedge fund was a multi-billion-dollar Ponzi scheme.  As Markopolos explained in his testimony, he repeatedly attempted to get the SEC to investigate this scam, only to be rebuffed on every occasion.  Although his testimony included some good advice directed to Ms. Schapiro about “cleaning up” the SEC, this portion of his testimony, as discussed by Marcy Gordon of the Associated Press, deserves some serious attention:

While the SEC is incompetent, the securities industry’s self-policing organization, the Financial Industry Regulatory Authority, is “very corrupt,” Markopolos charged.  That organization was headed until December by Schapiro, who has said Madoff carried out the scheme through his investment business and FINRA was empowered to inspect only the brokerage operation.

So Schapiro’s defense is that FINRA was empowered to inspect only brokerages and Madoff Investments was not a brokerage.  This doesn’t address Markopolos’ testimony that FINRA is “very corrupt”.  Mary Schapiro was the Chair and CEO of that “very corrupt” entity from 2006 until December of 2008.  Let’s not forget that during her tenure in that position she appointed Bernie Madoff’s son, Mark Madoff, to the board of the National Adjudicatory Council.  The Mark Madoff appointment was discussed back on December 18 by Randall Smith and Kara Scannell, in The Wall Street Journal.  At that time, they provided an informative analysis of the SEC nominee’s track record, which should have discouraged the new President from appointing her as he did on his second day in office:

She was credited with beefing up enforcement while at the National Association of Securities Dealers and guiding the creation of the Financial Industry Regulatory Authority, which she now leads.  But some in the industry questioned whether she would be strong enough to get the SEC back on track.

*   *   *

Robert Banks, a director of the Public Investors Arbitration Bar Association, an industry group for plaintiff lawyers  . . .  said that under Ms. Schapiro, “Finra has not put much of a dent in fraud,” and the entire system needs an overhaul.  “The government needs to treat regulation seriously, and for the past eight years we have not had real securities regulation in this country,” Mr. Banks said.

Since Ms. Schapiro took over Finra in 2006, the number of enforcement cases has dropped, in part because actions stemming from the tech-bubble collapse ebbed and the markets rebounded from 2002 to 2007.  The agency has been on the fringe of the major Wall Street blowups, and opted to focus on more bread-and-butter issues such as fraud aimed at senior citizens.

Out of the gate, Ms. Schapiro faces potential controversy.  In 2001 she appointed Mark Madoff, son of disgraced financier Bernard Madoff, to the board of the National Adjudicatory Council, the national committee that reviews initial decisions rendered in Finra disciplinary and membership proceedings.  Both sons of Mr. Madoff have denied any involvement in the massive Ponzi scheme their father has been accused of running.

I would be much more comfortable with a small-time tax cheat in charge of the SEC, than I am with Mary Schapiro in that position.  As his testimony demonstrates, Harry Markopolos is the person who should be running the SEC.

The “Bad Bank” Debate

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January 29, 2009

The $700 billion Troubled Assets Relief Program (TARP) doesn’t seem to have accomplished much in the way of relieving banks from the ownership of “troubled assets”.  In fact, nobody seems to know exactly what was done with the first $350 billion in TARP funds, and those who do know are not talking.  Meanwhile, the nation’s banks have continued to flounder.  As David Cho reported in The Washington Post on Wednesday, January 28:

The health of many banks is getting worse, not better, as the downturn makes it difficult for all kinds of consumers and businesses to pay back money they borrowed from these financial firms.  Conservative estimates put bank losses yet to be declared at $1 trillion.

The continuing need for banks to unload their toxic assets has brought attention to the idea of creating a “bad bank” to buy mortgage-backed securities and other toxic assets, thus freeing-up banks to get back into the lending business.  Bloomberg News and other sources reported on Wednesday that FDIC chair, Sheila Bair, is pushing for her agency to run such a “bad bank”.  Our new Treasury Secretary, Tim Geithner, has also discussed the idea of such a bank (often referred to as an “aggregator bank”) as reported on Wednesday by Reuters:

Geithner said last week the administration was reviewing the option of setting up a bad bank, but that it is “enormously complicated to get right.”

The idea of creating such a bank has drawn quite a bit of criticism.  Back on January 18, Paul Krugman (recipient of the Nobel Prize in Economics) characterized this approach, without first “nationalizing” the banks on a temporary basis, as “Wall Street Voodoo”:

A better approach would be to do what the government did with zombie savings and loans at the end of the 1980s:  it seized the defunct banks, cleaning out the shareholders.  Then it transferred their bad assets to a special institution, the Resolution Trust Corporation; paid off enough of the banks’ debts to make them solvent; and sold the fixed-up banks to new owners.

The current buzz suggests, however, that policy makers aren’t willing to take either of these approaches.  Instead, they’re reportedly gravitating toward a compromise approach:  moving toxic waste from private banks’ balance sheets to a publicly owned “bad bank” or “aggregator bank” that would resemble the Resolution Trust Corporation, but without seizing the banks first.

Krugman scrutinized Sheila Bair’s earlier explanation that the aggregator bank would buy the toxic assets at “fair value”, by questioning how we define what “fair value” really means.  He concluded that this entire endeavor (as it is currently being discussed) is a bad idea for all concerned:

Unfortunately, the price of this retreat into superstition may be high.  I hope I’m wrong, but I suspect that taxpayers are about to get another raw deal — and that we’re about to get another financial rescue plan that fails to do the job.

Krugman is not alone in his skepticism concerning this plan.  As Annelena Lobb and Rob Curran  reported in Wednesday’s Wall Street Journal, this idea is facing some criticism from those in the financial planning business:

“I don’t see how this increases liquidity,” says Paul Sutherland, chief investment officer at FIM Group in Traverse City, Mich.  “This idea that we should burn million-dollar bills from taxpayers to take bad assets isn’t the best path.”

Billionaire financier Geroge Soros told CNBC that he disagrees with the “bad bank” strategy, explaining that the proposal “will help relieve the situation, but it will not be sufficient to turn it around”.  He then took advantage of the opportunity to criticize the execution of the first stage of the TARP bailout:

As to Paulson’s handling of the first half of the $700 billion Wall Street bailout fund known as TARP, Soros said the money was used “capriciously and haphazardly.”  He said half of it has now been wasted, and the rest will need to be used to plug holes.

Former Secretary of Labor, Robert Reich, anticipates that a “big chunk” of the remaining TARP funds will be used to create this aggregator bank.  Accordingly, he has suggested application of the type of standards that were absent during the first TARP phase:

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.

However, Reich’s precondition:  “Until the taxpayer-financed Bad Bank has recouped the costs of these purchases through selling the toxic assets in the open market” is exactly what makes his approach unworkable.  The cost of purchasing the toxic assets from banks will never be recouped by selling them in the open market.  This point was emphasized by none other than “Doctor Doom” himself (Dr. Nouriel Roubini) during an interview with CNBC at the World Economic Forum in Davos, Switzerland.  Dr. Roubini pointed out:

At which price do you buy the assets?  If you buy them at a high price, you are having a huge fiscal cost.  If you buy them at the right market price, the banks are insolvent and you have to take them over.  So I think it’s a bad idea.  It’s another form of moral hazard and putting on the taxpayers, the cost of the bailout of the financial system.

What is Dr. Roubini’s solution?  Face up to the reality that the banks are insolvent and “do what Sweden did”:  take over the banks, clean them up by selling off the bad assets and sell them back to the private sector.

Nevertheless, you can’t always count on the federal government to do the right thing.  In this case, I doubt that they will.  As David Cho pointed out at the end of his Washington Post article:

The bailout program “is a public relations nightmare,” one government official said.  He added that Obama officials are sure to face criticism for whatever course they take.

Clean-Up Time On Wall Street

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January 5, 2009

As we approach the eve of the Obama Administration’s first day, across America the new President’s supporters have visions of “change we can believe in” dancing in their heads.  For some, this change means the long overdue realization of health care reform.  For those active in the Democratic campaigns of 2006, “change” means an end to the Iraq war.  Many Americans are hoping that the new administration will crack down on the unregulated activities on Wall Street that helped bring about the current economic crisis.

On December 15, Stephen Labaton wrote an article for the New York Times, examining the recent failures of the Securities and Exchange Commission as well as the environment at the SEC that facilitates such breakdowns.  Some of the highlights from the piece included these points:

.   .   .    H. David Kotz, the commission’s new inspector general, has documented several major botched investigations.  He has told lawmakers of one case in which the commission’s enforcement chief improperly tipped off a private lawyer about an insider-trading inquiry.
*   *   *
There are other difficulties plaguing the agency.  A recent report to Congress by Mr. Kotz is a catalog of major and minor problems, including an investigation into accusations that several S.E.C. employees have engaged in illegal insider trading and falsified financial disclosure forms.
*   *   *
Some experts said that appointees of the Bush administration had hollowed out the commission, much the way they did various corners of the Justice Department.  The result, they say, is hobbled enforcement and inspection programs.

On December 18, Barack Obama announced his intention to name Mary Schapiro as the Chair of the Securities and Exchange Commission.  Many news outlets, including National Public Radio, presented an enthusiastic look toward the tenure of Ms. Schapiro in this office:

Speaking at the news conference on Thursday, Schapiro said there must be “consistent and robust enforcement” of regulations to protect investors, saying it will be her top priority as SEC chief.

On the other hand, in the December 18 Wall Street Journal, Randall Smith and Kara Scannell provided us with a more informative analysis of the SEC nominee’s track record:

She was credited with beefing up enforcement while at the National Association of Securities Dealers and guiding the creation of the Financial Industry Regulatory Authority, which she now leads.  But some in the industry questioned whether she would be strong enough to get the SEC back on track.
*  *  *
Robert Banks, a director of the Public Investors Arbitration Bar Association, an industry group for plaintiff lawyers  . . .  said that under Ms. Schapiro, “Finra has not put much of a dent in fraud,” and the entire system needs an overhaul. ” The government needs to treat regulation seriously, and for the past eight years we have not had real securities regulation in this country,” Mr. Banks said.

Since Ms. Schapiro took over Finra in 2006, the number of enforcement cases has dropped, in part because actions stemming from the tech-bubble collapse ebbed and the markets rebounded from 2002 to 2007.  The agency has been on the fringe of the major Wall Street blowups, and opted to focus on more bread-and-butter issues such as fraud aimed at senior citizens.

Out of the gate, Ms. Schapiro faces potential controversy.  In 2001 she appointed Mark Madoff, son of disgraced financier Bernard Madoff, to the board of the National Adjudicatory Council, the national committee that reviews initial decisions rendered in Finra disciplinary and membership proceedings.  Both sons of Mr. Madoff have denied any involvement in the massive Ponzi scheme their father has been accused of running.

It appears as though we might see Ms. Schapiro face some grilling about the Madoff appointment, when she faces her confirmation hearing.  Beyond that, the points raised by Randall Smith and Kara Scannell underscore the question of whether Mary Schapiro will really be an agent of change on Wall Street or just another “insider” overseeing “business as usual”.  To assuage such concern, many commentators have emphasized that Ms. Schapiro has never worked for a brokerage firm or investment bank.  Her Wall Street experience has been limited to regulatory activity.  Despite this, one must keep in mind a point made by Michael Lewis and David Einhorn in the January 3 New York Times:

It’s not hard to see why the S.E.C. behaves as it does.  If you work for the enforcement division of the S.E.C. you probably know in the back of your mind, and in the front too, that if you maintain good relations with Wall Street you might soon be paid huge sums of money to be employed by it.

Michael Lewis is the author of Liar’s Poker, a non-fiction book about his own Wall Street experience as a bond salesman.  With David Einhorn, he wrote a two-part op-ed piece for the January 3 New York Times.  The above-quoted passage was from the first part, entitled:  “The End of the Financial World as We Know It”.  The second part is entitled:  “How to Repair a Broken Financial World”.  The first section looked at the Bernie Madoff Ponzi scheme, using it to underscore this often-ignored reality about the Securities and Exchange Commission and its inability to prevent or even cope with the current financial crisis:

Indeed, one of the great social benefits of the Madoff scandal may be to finally reveal the S.E.C. for what it has become.

Created to protect investors from financial predators, the commission has somehow evolved into a mechanism for protecting financial predators with political clout from investors.  (The task it has performed most diligently during this crisis has been to question, intimidate and impose rules on short-sellers — the only market players who have a financial incentive to expose fraud and abuse.)

In the second section of their commentary, Lewis and Einhorn suggest six changes to the financial system “to prevent some version of what has happened from happening all over again”.  Let’s hope our new President, the Congress and others pay serious attention to what Lewis and Einhorn have said.  Cleaning up Wall Street is going to be a dirty job.  Will those responsible for accomplishing this task be up to doing it?

Jackass Of The Year Award

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January 1, 2009

At year’s end, we see retrospectives of the most important events, numerous top ten lists and recognitions of achievement in one area or another.  2008 brought a record level of cynicism to the American people because of the economic catastrophe, the Bernie Madoff scandal and the cartoon-like escapades from the Presidential campaign.  Accordingly, it seems only appropriate to pay homage to the biggest Jackass of the Year.  Since I advertise this website as a “Blago-free zone”, the current Governor of Illinois is automatically disqualified from the competition.  So, let’s take a look at some of the runners-up and finally, the winner of the Jackass of the Year Award.

Our first contestant is John Ensign.  He is chairman of the National Republican Senatorial Committee, representing the State of Nevada in the United States Senate.  On November 2, 2008 he appeared on the CBS television program, Face The Nation with Bob Schieffer.  Election day was two days away and Ensign found it necessary to blame the likely Republican losses on the economic downturn.  He described the Republicans’ fate in these terms:

“And we were starting to do very, very well, but when the financial crisis hit, that financial crisis really is — has been a — almost a body blow to Republicans.  And unfortunately, it was allowed to be portrayed that this was a result of deregulation, when in fact it was a result of overregulation.”

That’s right.  Ensign Douchebag thought he could convince the public that the economic crisis was the result of over-regulation of the financial system, rather than the deregulation described by everyone else in the world.  That noble statement certainly rates runner-up status for the Jackass of the Year Award.

Our next contestant is Reverend Jeremiah Wright, former pastor of Chicago’s Trinity United Church of Christ and embarrassment to Barack Obama.  Thank God Reverend Wright’s fifteen minutes of fame are finally over.  Although his infamous sermon with the less-than-patriotic remarks about America was given in 2003, by April of 2008, Rev. Wright made a point of resurrecting the controversy concerning his disappointing association with Barack Obama.   At that time Wright hit the road, appearing on Bill Moyers Journal, speaking before the NAACP and giving a grand performance before the National Press Club.  He made a fool of himself all three times and (perhaps to his disappointment) his bad karma never rubbed off on Barack.  The pastor has also been a disgrace to the name of the Right Reverend Carl Wright (comedic sidekick of Chicago blues maven, Pervis Spann).  Although Jeremiah Wright rated recognition, the competition for the Jackass Award was tough this year.

We cannot overlook the valiant efforts of Joe “The Tool” Lieberman to win this honor.  Although the people of Connecticut elected Joe to represent their state in the Senate, The Tool spent most of 2008 looking like a stray dog, following candidate John McCain around the campaign trial.  You can find my prior rants about Senator Lieberman here, here, here and here.

We must also give consideration to Christopher Cox, the chairman of the Securities and Exchange Commission.  John McCain was on to him.  It just wasn’t fair that poor, old Senator McCain took so much heat for pointing out that Cox had to go.  McCain made the mistake of stating that he, as President, would have authority to fire Cox.  Although he was wrong about that, he was right about the notion that Cox had been a problem for the SEC.  On December 16, Jessie Westerbrook of Bloomberg news reported that Cox was blaming his subordinates for the enforcement lapses that allowed the scam, perpetrated by Bernie Madoff, to continue for several years after the SEC should have stopped it.  Cox apparently believes in the doctrine that “the buck stops” several levels below himself on the SEC food chain.  The environment at the SEC, with Cox at the helm, was best summed up in a December 27 article from the Los Angeles Times by Amit Paley and David Hilzenrath.  Here’s what they had to say about the tenure of Chairman Cox and his performance during the economic crisis:

Though Cox speaks of staying calm in the face of financial turmoil, lawmakers across the political spectrum counter that this is actually another way of saying that his agency remained passive during the worst global financial crisis in decades.  And they claim that Cox’s stewardship before this year — focusing on deregulation as the agency’s staff shrank — laid the groundwork for the meltdown.

“The commission in recent years has handcuffed the inspection and enforcement division,” said Arthur Levitt, SEC chairman during the Clinton administration.  “The environment was not conducive to proactive enforcement activity.”

*    *    *

But former officials said enforcement suffered during his tenure.  A pilot program begun last year required enforcement staff to meet with the commissioners before beginning settlement talks in certain cases involving nonfinancial firms.  Some former officials said the change was just one example of new bureaucratic impediments that slowed enforcement work.  The commissioners also made clear that they thought staff members were being too aggressive in some cases, the officials said.

”I think there has been a sentiment communicated to rank-and-file staff, lawyers and accountants that you don’t go after the establishment,” said Ross Albert, a former special counsel in the enforcement division.
*    *    *
An analysis by law firm Morgan, Lewis & Bockius showed that the SEC’s actions against broker-dealers, who serve as intermediaries in financial trades, dropped about 33%, from about 89 cases in fiscal 2007 to 60 cases in fiscal 2008.

Heckuva’ job, Coxey!   Nevertheless, you have been overshadowed in this year’s competition.

The winner of the 2008 Jackass of the Year Award is a professor from Russia, named Igor Panarin.  He is a former member of the KGB, who is apparently so upset over the breakup of the Soviet Union, that for the past ten years, he has been predicting that the United States would also break up.  On December 29, Andrew Osborn reported in The Wall Street Journal that Panarin has been doing two interviews per day, discussing how “an economic and moral collapse will trigger a civil war and the eventual breakup of the U.S.”  The article explained:

Mr. Panarin posits, in brief, that mass immigration, economic decline, and moral degradation will trigger a civil war next fall and the collapse of the dollar.  Around the end of June 2010, or early July, he says, the U.S. will break into six pieces — with Alaska reverting to Russian control.

Worse yet, the other five parts of the country will supposedly become republics that will be part of or under the influence of Canada, the European Union, Mexico, China or Japan.  Osborn’s article included a picture of Panarin’s map, showing how the various segments of the country would be apportioned.  Panarin’s ideas have brought him quite a bit of publicity  . . . and TheCenterLane.com’s Jackass of the Year Award for 2008!  Congratulations, Jackass!

Dirty Rotten Scoundrels

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December 18, 2008

The Ponzi Scheme case involving Bernie Madoff is only the latest example of scumbaggery on Wall Street.  Madoff helped found the NASDAQ Exchange and established a reputation for himself as one of the captains of the financial world.  Now we know that he pilfered over 50 billion dollars from sophisticated investors, colleges, charitable institutions, banks and plain-old, rich people.  Worse yet, when he couldn’t get enough co-signers to back his ten-million dollar bail, he was placed under “house arrest” and confined to his $7,000,000 home.  When a car thief can’t make bail, he sits in jail until his case is tried.  Why is it that when someone is charged with stealing ten million times that much, he gets treated as though he was driving on an expired license?    By the way:  How does somebody hide fifty billion dollars?  Is he going to claim that he lost it or that he blew it all on lottery tickets?

The knaves who held themselves out as financial magicians have made pimps and drug dealers seem like Red Cross volunteers, by comparison.  Beyond that, the government institutions and officials charged with protecting the integrity of our financial system have been out to lunch for several years.  Worse yet, these hacks continue to facilitate the theft of trillions of dollars of taxpayer money and, for this reason, I believe they all belong in prison.  On second thought, they should be placed before a firing squad along with the swindlers whom they enabled.  After the Enron treachery was exposed to the light of day, one would have thought that the Securities and Exchange Commission might have started doing its job.  It didn’t.  People have to start forcing our elected officials to find out why.  I think I know the answer.  I believe it’s because many of the people entrusted to regulate the financial system are crooks themselves.

On December 16, Brent Budowsky posted an important article on The Hill website concerning the bailout bungle.  Mr. Budowsky is a gentleman who earned an LL.M. degree (that’s something you work on after graduating from law school) in International Financial Law from the London School of Economics.  He was a former aide to Senator Lloyd Bentsen and Representative Bill Alexander.  Mr. Budowsky pointed out that:

Government agencies have poured close to $8 trillion into banking bailouts.  The Treasury secretary has promoted massive government support of troubled, failed and corrupted institutions.

This program is a 100 percent top-down exercise involving the largest amount of money in history.

Virtually none of this money directly helps average Americans. Virtually none of it trickles down to the people who suffer the most and pay for the program.

*   *   *

The Securities and Exchange Commission is discredited.  The Federal Reserve has failed in its duty as banking regulator. Congress has failed in its duty of oversight.  The most wise and citizen-friendly regulator, Sheila Bair of the Federal Deposit Insurance Corporation, is treated with contempt by the Treasury secretary.

*   *   *

Today the Federal Reserve Board refuses to disclose information regarding some $2 trillion provided to financial institutions.  Bloomberg business news has filed a historic freedom-of-information case seeking disclosure.  Congress and the president-elect should support it.

Bailout money is not a private account that belongs to Fed Chairman Ben Bernanke, Fed governors, the Treasury secretary or the banks.  It is the people’s money.  It should be used to benefit the people.  It should be monitored through the checks and balances of the democratic process.

Secrecy is the enemy of equity, integrity and common sense. Secrecy is the friend of negligence, misjudgment and corruption.  There are probably selected instances where the Fed should not disclose, but show me $2 trillion of secretly spent money and I will show you trouble.

Do you care to hazard a guess as to what the next Wall Street scandal might be?  I have a pet theory concerning the almost-daily spate of “late-day rallies” in the equities markets.  I’ve discussed it with some knowledgeable investors.  I suspect that some of the bailout money squandered by Treasury Secretary Paulson has found its way into the hands of some miscreants who are using this money to manipulate the stock markets.  I have a hunch that their plan is to run up stock prices at the end of the day before those numbers have a chance to settle back down to the level where the market would normally have them.  The inflated “closing price” for the day is then perceived as the market value of the stock.  This plan would be an effort to con investors into believing that the market has pulled out of its slump.  Eventually the victims would find themselves hosed once again at the next “market correction”.  I don’t believe that SEC Chairman Christopher Cox would likely uncover such a scam, given his track record.  Perhaps we can thank him when “vigilante justice” comes to Wall Street.