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The Lehman Fallout

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March 16, 2010

Everyone is speculating about what will happen next.  The shock waves resulting from the release of the report by bankruptcy examiner Anton Valukas, pinpointing the causes of the collapse of Lehman Brothers, have left the blogosphere’s commentators with plenty to discuss.  Unfortunately, the mainstream media isn’t giving this story very much traction.  On March 15, the Columbia Journalism Review published an essay by Ryan Chittum, decrying the lack of mainstream media attention given to the Lehman scandal.  Here is some of what he said:

Look, I know that Lehman collapsed a year and a half ago, but this is a major story — one that finally gets awfully close to putting the crimes in the crisis.  I’ll go ahead and say it:  If you’ve wanted to know about the Valukas report and its implications, you’ve been better served by reading Zero Hedge and Naked Capitalism than you have The Wall Street Journal or New York Times.  This on the biggest financial news story of the week — and one of the biggest of the year.  These papers have hundreds of journalists at their disposal.  The blogs have one non-professional writer and a handful of sometime non-pro-journalist contributors.

I’m hardly the only one who has noticed this.  James Kwak of Baseline Scenario wrote this earlier today:

Overall, I’m surprised by how little interest the report has gotten in the media, given its depth and the surprising nature of some of its findings.

At the Zero Hedge website, Tyler Durden reacted to the Columbia Journalism Review piece this way:

Only a few days have passed since its release, and already the Mainstream Media has forgotten all about the Lehman Examiner Report, with barely an occasional mention.  As the CJR points out, this unquestionably massive story of corruption and vice, is being covered up by powered interests controlling all the major news outlets, because just like in the Galleon case, the stench goes not only to the top, (in this case the NewYork Fed and the SEC), but very likely to various corporations that have vested interests in the conglomerates controlling America’s key media organizations.

One probable reason why the Lehman story is being buried is because its timing dovetails so well with the unveiling of Senator “Countrywide Chris” Dodd’s financial reform plan.  The fact that Dodd’s plan includes the inane idea of expanding the powers of the Federal Reserve was not to be ignored by John Carney of The Business Insider website:

Why do we think these are such bad ideas?  At the most basic level, it’s hard to see how the expansion of the scope of the Federal Reserve’s authority to cover any large financial institution makes sense.  The Federal Reserve was not able to prevent disaster at the firms it was already charged with overseeing.  What reason is there to think it will do a better job at regulating a wider universe of firms?

More concretely, the Federal Reserve had regulators in place inside of Lehman Brothers following the collapse of Bear Stearns.  These in-house regulators did not realize that Lehman’s management was rebuking market demands for reduced risk and covering up its rebuke with accounting sleight-of-hand.  When Lehman actually came looking for a bailout, officials were reportedly surprised at how bad things were at the firm.  A similar situation unfolded at Merrill Lynch.  The regulators proved inadequate to the task.

Just think:  It was only one week ago when we were reading those fawning, sycophantic stories in The New Yorker and The Atlantic about what a great guy “Turbo” Tim Geithner is.  This week brought us a great essay by Professor Randall Wray, which raised the question of whether Geithner helped Lehman hide its accounting tricks.  Beyond that, Professor Wray emphasized how this scandal underscores the need for Federal Reserve transparency, which has been so ardently resisted by Ben Bernanke.  (Remember the lawsuit by the late Mark Pittman of Bloomberg News?)  Among the great points made by Professor Wray were these:

Not only did the NY Fed fail to blow the whistle on flagrant accounting tricks, it also helped to hide Lehman’s illiquid assets on the Fed’s balance sheet to make its position look better.  Note that the NY Fed had increased its supervision to the point that it was going over Lehman’s books daily; further, it continued to take trash off the books of Lehman right up to the bitter end, helping to perpetuate the fraud that was designed to maintain the pretense that Lehman was not massively insolvent. (see here)

Geithner told Congress that he has never been a regulator. (see here)  That is a quite honest assessment of his job performance, although it is completely inaccurate as a description of his duties as President of the NY Fed.

*   *   *

More generally, this revelation drives home three related points.  First, the scandal is on-going and it is huge. President Obama must hold Geithner accountable.  He must determine what did Geithner know, and when did he know it.  All internal documents and emails related to the AIG bailout and the attempt to keep Lehman afloat need to be released.  Further, Obama must ask what has Geithner done to favor his clients on Wall Street?  It now looks like even the Fed BOG, not just the NY Fed, is involved in the cover-up.  It is in the interest of the Obama administration to come clean.  It is hard to believe that it does not already have sufficient cause to fire Geithner.  In terms of dollar costs to the government, this is surely the biggest scandal in US history.  In terms of sheer sleaze does it rank with Watergate?  I suppose that depends on whether you believe that political hit lists and spying that had no real impact on the outcome of an election is as bad as a wholesale handing-over of government and the economy to Wall Street.

It remains to be seen whether anyone in the mainstream media will be hitting this story so hard.  One possible reason for the lack of significant coverage may exist in this disturbing point at the conclusion of Wray’s piece:

Of greater importance is the recognition that all of the big banks are probably insolvent.  Another financial crisis is nearly certain to hit in coming months — probably before summer.  The belief that together Geithner and Bernanke have resolved the crisis and that they have put the economy on a path to recovery will be exposed as wishful thinking.

Oh, boy!  Not good!  Not good at all!  We’d better change the subject to March Madness, American Idol or Rielle Hunter!  Anything but this!



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The Secret Candidate

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September 8, 2008

They’re out there … all around you.  You just don’t know who they are yet.  Right now, all across America, they’re out shopping for those Kawasaki eyeglass frames … trying to re-style their hair into that half-beehive/half-mullet look.  They’re the Sarah Palin wanna-bes — forcing their sons to join hockey teams – each hoping to earn that coveted title for herself:  “Hockey Mom” — a ticket to success in today’s America.  There is no question that Sarah Palin will be the most popular Halloween costume subject for 2008.  Beyond that, there are many thousands of American women, currently adapting their lives to accommodate Sarah Palin as their new role model.

The rest of us just aren’t sure we know who Sarah Palin is yet.  The McCain campaign is obviously training her on the difficult subject of interviews with journalists.  As of this time, there are no Palin interviews scheduled, other than the rumored possibility of an interview with ABC’s Charlie Gibson.  As I write this, McCain campaign CEO, Rick Davis, is holding out for “ground rules”.  I suspect that if the campaign’s senior strategist, Steve Schmidt, were to have his way, any such interviews would be tightly scripted and choreographed, with all questions and answers written in advance by Schmidt.  Meanwhile, Joe Biden appeared on the September 6 edition of Meet The Press.  Biden had to answer at least one question with:

I don’t know what Governor Palin’s position on this issue is, because I haven’t heard it yet.  I have to assume that her position will be the same as Senator McCain’s.

When asked about the impending federal government takeover of mortgage giants Fannie Mae and Freddie Mac, Biden pointed out that he had just discussed the subject with Treasury Secretary Henry Paulson on the previous evening.  I could not help but wonder what the hell Sarah Palin would have said in answer to that question   …  “Freddie Mac cracked a lot of sexist jokes at an Obama rally.  Didn’t he die recently?”

Nevertheless, we are beginning to obtain information about Palin for ourselves by using our computers over the Internet.  The mainstream media have nothing for us, other than the superficial biography offered by the Republican National Committee.  What we have initially learned is that Sarah Palin spent six years working toward her Bachelor’s Degree, while attending five different schools in that effort.  Many consider this as evidence that she may be significantly dumber than our current President.  Although I refer to Governor Palin as “The Gumball”, I don’t consider her six-year college tour as a justifiable basis for criticizing her.  Many of us who attended college either made school transfers ourselves, or had friends who did so  — at the cost of lost course credits.  For someone to change colleges five different times, yet graduate in only six years, is quite an accomplishment!  Congratulations, Sarah!

Additional information about Palin has been provided by David Hullen in the September 4 edition of the Anchorage Daily News.  Hullen quoted an e-mail written by Anne Kilkenny of Wasilla, Alaska, where Palin was formerly mayor.  Ms. Kilkenny was described by Hullen as a “stay-at-home mom, letter-to-the-editor writer and longtime watcher of Valley politics.”  This article and e-mail are essential reading for anyone with more than a nanobyte of curiosity about who Sarah Palin really is.  Before I quote a passage from Ms. Kilkenny’s e-mail … let’s revisit The Gumball’s quip about Barack Obama, included in her acceptance speech, as written by Matt Scully:

I guess a small-town mayor is sort of like a community organizer, except that you have actual responsibilities.

Ms. Kilkenny of Wasilla informed us about the consequences for Sarah Palin’s failure to fulfill those responsibilities:

During her mayoral administration most of the actual work of running this small city was turned over to an administrator. She (Palin) had been pushed to hire this administrator by party power-brokers after she had gotten herself into some trouble over precipitous firings which had given rise to a recall campaign.

In other words, Palin’s duties as “mayor of a small town” had to be “outsourced” to someone else, because Palin was in over her head and on the verge of being recalled.  Was this administrator from Bangalore, India, by any chance?

As we learn more about The Gumball, we are repeatedly reminded of our current President.  Here’s another remark about Palin, from Ms. Kilkenny’s e-mail:

She’s not very tolerant of divergent opinions or open to outside ideas or compromise.  As Mayor, she fought ideas that weren’t generated by her or her staff. Ideas weren’t evaluated on their merits, but on the basis of who proposed them.

If you thought that John McCain was becoming a lot more like President Bush, Sarah Palin appears to have a head start.  No wonder she is being kept under wraps!

Many have criticized the mainstream media for “not doing their job” during the run-up to the Iraq war.  Those same news sources appear to be well on the way toward repeating that performance, as we enter the run-up to the Presidential election.