Who Will Insure the Insurers?

Posted on by

My latest piece, published at Dissident Voice.

“Who Will Insure the Insurers?

Many members of Congress recognized, correctly, that the main thrust of the Paulson plan was to give more power to..well.. Paulson. But since the Paulson plan was defeated on Monday, some have been talking as though tweaking the Paulson plan on a couple of things would be enough to get it through next time. One tweak, they say, would be to have the government insure the bad loans on the books of financial institutions. This is somehow supposed to be an improvement on the plan that would make it acceptable to Republicans (along with the removal of mark-to-market accounting).

Insurance is actually already a part of the bill that was just defeated (Section 102). Section 102 would guarantee bad loans (sorry, troubled assets) by creating risk-based premiums to cover anticipated claims.

So, rather than buying bad loans, or failed banks (also bad ideas, in my opinion) which at least has the remote chance that the government would get the price increase if the loans (or banks) ever recovered their value, the government is proposing to guarantee the bad loans. That means if these troubled assets got less troubled…even positively robust...the banks that made the loans – not the government – would get the price increase. But if they don’t get better, who picks up the tab? Looks like the government.

An insurance fund offers the prospect of all kinds of interesting shenanigans. Banks could claim to make losses, while actually taking in profits. They could keep doing that for another whole cycle. The possibilities are endless for savvy professionals with degrees in math and sophisticated risk- models.

Why would I suspect these respectable institutions of doing any such thing? Because that’s just what they’ve been doing for a long time – as the ongoing FBI investigations into over two dozen of the firms involved in the bail- outs is showing……”

A Day Of Infamy (Update: Bankster Bill – HR 1424- Included)

Posted on by

Congress passed a modified version of the Paulson plan today 263-171. The only thing worth reading in this awful piece of legislation hustled through by an unholy convergence of short-sighted interests was this:

“Paulson last week urged Congress to immediately give him almost unchecked legislative authority to take action. Lawmakers responded by demanding increased oversight, more aid to prevent foreclosures and limits on executive compensation at companies that benefit from the program.”

Here’s H.R. 1424, in which the first part is the Emergency Economic Stabilization Act.

Here’s Dennis Kucinich, a principled man of the left, on exactly how much this bill did for the average American.  

Better Than Bail-Outs

Posted on by

The market needs deflation, as the natural end of excess, says Barry Brownstein. If we try to avert it by intervention, we will end with something much worse – hyperinflation.

“If, on the other hand, the reactionary forces prevail, more money will be thrown after bad; foreigners will withdraw from our capital markets; and eventually, a hyperinflation will begin. In that terrible scenario, it is likely that the United States will split apart; and many cities will descend into anarchy. You can see why I prefer the deflationary depression.”

And the Republican hold-outs in the House came up with a few ideas of their own:

*Suspend capital gains for two years (boosting global competitiveness and upping stock prices)

*Denationalize and privatize Fannie and Freddie
*Waive mark-to-market”

*Strengthen the dollar”

That’s from a post by Deroy Murdock at Human Events.

Comment:

We’ll get one of those – mark-to-market will go. And maybe some tax cuts. But don’t hold your breath for a strong dollar or privatizing F&F. My bet’s on hyperinflation…

Propaganda State: Can a Market Panic be Manipulated?

Posted on by

“In a report published in March by the Bank for International Settlements, economists Jacob Gyntelberg and Philip Wooldridge raised concerns that banks might report incorrect rate information. The report said that banks might have an incentive to provide false rates to profit from derivatives transactions. The report said that although the practice of throwing out the lowest and highest groups of quotes is likely to curb manipulation, Libor rates can still “be manipulated if contributor banks collude or if a sufficient number change their behaviour.”

Thanks to Naked Capitalism.

Comment:

Libor stands for the London Interbank Offering Rate. It is the interest rate at which banks agree to lend to each other over various time periods, including overnight, three months and 12 months.

The post at Naked Capitalism is concerned about Libor being unreliable because of banks understating the rates they are paying (to conceal their desperation). The rate is an estimate set at the HQ of the British Bankers’ Association at 11 a.m. every morning in London on the basis of offers from 16 member bankers. The possibility exists that it could be manipulated.

Sandra Goes Beyond the Palin…

Posted on by

Comedienne Sandra Bernhadt has this to say about Sarah Palin:

“Now you got Uncle Women, like Sarah Palin, who jumps on the sh*t and points her fingers at other women. Turncoat bitch! Don’t you f*ckin’ reference Old Testament, b*tch! You stay with your new Goyish crappy shiksa funky bullsh*t! Don’t you touch my Old Testament, you b*tch! Because we have left it open for interpre-ta-tion! It is no longer taken literally! You whore in your f*ckin’ cheap New Vision cheap-ass plastic glasses and your [sneering voice] hair up. A Tina Fey-Megan Mullally broke down bullshit moment.” (rest of the comment censored)

Protecting minorities does not mean insulting and hurting majorities. I am not in favor of hate speech laws at all. But this is utterly misogynistic, anti-Christian (especially fundamentalist), racist and very unfunny. Imagine a moment a white Christian male fundamentalist had said this about some one of another religion….say Muslim, or Hindu, or Jewish. Imagine the furore. This is what PC eventually does. It doesn’t clean up public discourse. It switches the role of victim and tormentor to different groups.

Bankster Bail-Out: What Does Paulson Own and When Will He Own Up to It?

Posted on by

The New China Lobby

Financial blogger, Mish Shedlock, points out that Treasury Secretary Paulson’s plan actually extends to foreign investors. Yes, you read that right. Not to foreign banks headquartered in the US, but to foreign investors. Bad debt (sorry, troubled assets) can move from the foreign branch of a bank to its US branch. Bingo – what’s Mandarin for bingo? – you, the American tax-payer, are on the hook.

None of this should really be surprising. During his time at Goldman Sachs, Paulson made millions of dollars for his firm in China, with commensurate rewards for himself.

In 2006, Goldman Sachs bought into China’s largest bank, the Industrial and Commercial Bank of China, for $2.58, one of a number of such deals cut with Chinese state entities, as neoconservative hawks were quick to note. According to knowledgeable people, its profit of $3.9 billion was the biggest ever for the firm since its founding in 1869.

Goldman also bought a stake in Tokyo’s Sumitomo Mitsui Financial Group, the third largest financial group in Japan in 2003 ($1.26 billion), in return for which Sumitomo Mitsui loaned billions to Goldman Sachs for its investment-grade clients. Both that and the ICBC deal were financed with Goldman’s own money and with investments by its partners, institutions and wealthy clients.

What’s more, Goldman earned more fees than any other of its global competitors in China, being the only foreign securities firm allowed to both trade stocks for brokerage clients and arrange share sales for companies.

[Wonder why Paulson acts so high-handedly? Goldman is notorious for such conflicts].

Knowing that Goldman is the source of a bunch of the credit default swaps now clogging up global finances, we can safely surmise that its Asian clients are now suffering the same toxic shock afflicting its American and European clients. Some European banks just got a wake-up call this week how bad their own situation was, according to the Daily Telegraph.

A Wall Street legend for paranoia and secrecy, “The Firm” didn’t let on for a while how badly it too had been hit. That front fell apart this fall when its stock price swooned, along with those of other financial firms. Recently, the New York Times reported exactly how much Goldman stood to lose from contracts with insurance giant, AIG. If AIG had gone under, Goldman would have lost $20 billion.

The Times also reported, apparently as revelation, that Lloyd Blankfein, current CEO of Goldman, attended weekend meetings with AIG, Paulson, and others, before the AIG rescue was put through.


[Amazing. Powerful corrupt financiers cut backroom deals with each other and twist arms in powerful corrupt DC. Who would have thought? Of course, in the alternative press we were aware of Goldman’s less than Boy Scout past much before the Times lost its innocence, but better late than never….]

Now we can guess why it was necessary to convert Goldman so quickly into a commercial bank. With access to customer deposits, the bank would be able to replenish its capital in short order.

Does Paulson profit personally? Reportedly, he sold his own shares in Goldman before being sworn in as Treasury Secretary in June 2006. Still, the meetings between Blankfein, AIG, Treasury, and the Federal Reserve sound like the worst kind of cronyism, given AIG’s subsequent rescue.

And they’re not the only problem.

1) The amendment of reserve requirements (in Section 128, in both the original and amended versions of the Paulson plan) is another: “Section 203 of the Financial Services Regulatory Relief Act of 2006 (12 USC 461 note) is amended by striking ‘October 1, 2011’ and inserting ‘October 1, 2008.'”

As Pam Martens points out, this amendment would allow banks to hold zero reserves for transactions, a very enticing prospect for an investment bank in such dire need of capital it had to reinvent itself as a deposit-taking retail bank. And this would go through before the election, before the political scene was altered drastically.

2) The bailout of the financial sector, especially Goldman Sachs, is now a matter of keen interest to a large number of wealthy and influential foreigners – both individuals and private and state-run banks. Paulson’s long-standing ties with these foreign entities, as well as with leading financial entities all over the world, in and of itself constitutes a powerful conflict-of-interest and opens up the question of foreign influence on one of the most powerful offices in our government.

[For instance, since June 2006, more than 100 ICBC executives have attended courses at Goldman’s New York training center, where tutors include Gerald Corrigan, former president of the Federal Reserve Bank of New York, who teaches a course on risk management (of all things). ICBC’s board includes Christopher Cole, Goldman’s chairman of investment banking. One of its directors is former Goldman President John Thornton].

When the American state has interests it declares at odds with those of the Chinese state in a number of areas, for example in Africa (where Goldman has a 20% stake in Africa’s largest bank, Standard Bank); when servicemen and women are fighting and dying, ostensibly to protect those interests; when we are threatening other countries with bombing in defense of those interests; shouldn’t the appearance of foreign entities influencing the Treasury Secretary and Federal Reserve policy be treated seriously and transparently?

3) If Goldman went down, ICBC would be severely hit. And so would ICBC’s clients and other investors in ICBC. But it looks like Mr. Paulson would take a big loss too. According to press reports, Mr. Paulson netted a stake reported to be $25 million in the ICBC deal, a stake he and Goldman, as well as investors in Goldman’s private equity funds, are prohibited from selling for three years. A hit to Goldman would hit ICBC (and who knows what else). And a hit to ICBC would hit Paulson’s pocket.

Did Mr. Paulson sell this ICBC stake before he took office or didn’t he? It would be in the national interest to require him to make a public disclosure before this bill is passed.

And then he should resign.

Three- Card Capitalists – The Financial Disappearing Act of 2008

Posted on by

Read my latest piece at Lew Rockwell.com.

Update:

This piece, at first linked on several sites, has suffered censorship, both in the search engines and on reddit (see this link:

http://www.reddit.com/r/politics/comments/74pgc/threecard_capitalists_the_financial_disappearing/?sort=old)

If you think it’s information worth spreading, please take the time and link and post widely, making sure nothing is altered. People need to know what is happening.

“Treasury Secretary Paulson’s Financial Disappearing Act of 2008 is a charade. Lawmakers who dug in and blocked this act of economic treason deserve applause.

The Orwellian name of the legislation itself should have frozen every American citizen in his tracks.
The economy is not about to implode and if it were, it’s doubtful if government would do it anything but harm.

The financial markets are in a crisis of confidence because the US government is debasing its currency and stiffing its creditors. Uncle Sam is a deadbeat and the world knows it. The world is worrying what to do about the useless paper it’s holding. That’s what the panic is about.

It’s a strange day when Barry Goldwater and the Chinese Communists are in agreement ….

And they are both right….”

Trying to get this out before the vote tonight, I missed spotting this  juicy bit: The Hankster was going to use tax money to bail out foreign investors, as well. No, you heard that right. Not banks HQ’d in the US. But foreign investors who can move their assets from the foreign branch to the US branch. Read more at Mish Shedlock.

Off-the Record: Treasury Caught In Private Conference Call with Analysts…

Posted on by

Here’s something to boggle the mind – Treasury giving financial analysts a private preview of the Paulson deal before the rest of us rubes. What did they do, give them a sell recommendation on the US? That’s what’s wrong in these circles. Everything is done off the record or off-book. Re off-book, check out this post on how Lehman stashed its bad assets off-book in entities it spun off, so they could look good for analysts….

Conference Call (Sept. 28) :

8:54: Okay, someone please please dial in because the hold music sounds so damn familiar but I can’t figure out what it is and it is killing me.

9:00: I’m still on hold

9:02: Yes, Stairway to Heaven! And still holding

9:04 Michael Peace (?) takes the mic “this is very positive…we’ve worked hard with congress…it’ll be good…Neil from the treasury will go over how the warrants works and exec comp”

9:05 Broad discretion for the treasury

9:06 Neil takes the mic
You might’ve heard the headline number: seeking 700 bn. for residential and commercial assets. (yes, we’re aware). “we sought broad authority and flexibility”

– They might use the authority for “other instruments”

– Let us be clear: “targeted at financial system NOT failing institutions, though there are some institutions in that system that are, you know, failing.”
9:08: Any institution that has a “meaningful presence in the US” should be allowed to participate. Congress said they wanted: oversight, tax payer protection. OUR highest priority: “making sure it works”…it needs to attract companies to participate…warrants, exec comp were highly negotiated…we think we have enough flexibility to have a system that works.

Read the rest (and weep) at Naked Capitalism.

Armageddon – Not! Says Harvard’s Jeffrey Miron

Posted on by

“Talk of Armageddon, however, is ridiculous scare-mongering. If financial institutions cannot make productive loans, a profit opportunity exists for someone else. This might not happen instantly, but it will happen.

Further, the current credit freeze is likely due to Wall Street’s hope of a bailout; bankers will not sell their lousy assets for 20 cents on the dollar if the government might pay 30, 50, or 80 cents…….If these assets are worth something, however, private parties should want to buy them, and they would do so if the owners would accept fair market value. Far more likely is that current owners have brushed under the rug how little their assets are worth.”

More here at CNN.

Marc Faber is more pessimistic – sounding the alarm for a long recession and advising, as he always does, to hold physical gold abroad. Easier said than done. How do you know the folks holding it for you aren’t stiffing you unless you’re physically able to go and check? Still – it’s the best advice around.

Comment

On the other hand, to Robert Kuttner of the American Prospect, Paulson’s diagnosis was right. It’s just that he’s not the right doctor with the right pill.

My take? I think the problem isn’t ultimately about economics or finance. It’s about ideology.

A big reason why AIG was down in the Caribbean tax havens cooking its books was to avoid taxes. Without high taxes and complex tax rules, you wouldn’t have those sorts of tax dodges. They wouldn’t be worth it for most companies. The more complex the rules, the less small businesses can survive. They can’t afford to hire $400 an hour lawyers to keep up with the latest dodges of their bigger and richer competitors. So bigger businesses take over…and grow bigger…since they also enjoy economies of scale as they grow. They start price-fixing. They bribe the government. The regulations change in their favor. They use their government contacts to help their cronies .

Finally, you get the monster with two faces we have today – the corporate-state. You get crony capitalism. The only real solution in this system is to bypass the state altogether or to actively limit it. For which you also have to actively limit the size of the corporations through anti-trust legislation.

In a corrupt society, socialism is attractive, because the ground rules don’t function any more and people can see that. You need more and more political machinery to make anything function at all. What Kuttner doesn’t see is that the new machinery inevitably becomes corrupted too….

Which is why Miron is fundamentally right. But what he wants to happen (bankruptcy without government bail outs) could happen only in a much more decentralized state (or a much smaller one) where people would feel their obligations to each other far more strongly. Today, there are just too many economic and political interests all at odds with each other. The pains of one are the gains of another. And when one has its hand in the state cookie jar, the others will want theirs in it too. Clashing interests are part of how our system works, but not when the state is as large as it is today and people are so far away are from the actual political horse-trading. In a state this big you have only one driving force, mass opinion, and one countervailing force,  propaganda. And when things cannot be pushed the way you want them to go,  then you get direct power play – the military. The state shows its fangs: it moves from fraud (propaganda) to force (war) – which is why both are central to criticism of the state.

Most voters will not be able to accept the fact that they are going to have to feel pain if we take the high road on this. They are going to want something “to be done.” And they are going to be very angry when they find that after a wild party, there’s usually a bar tab and lots of picking up. And they’re going to be even angrier when they find out that they have to do some of the picking up, even if they didn’t attend the party.

But the adjustment has begun. Seems Campbell’s Soup was the only stock that survived the slaughter yesterday. And read Will Grigg about how our triumvirate (Fed Chairman, Treasury Secy., and President) is preparing for trouble from the restive masses.

How Citigroup Ate Wachovia….

Posted on by

“The Trojan Horse in the bailout plan also solves the mystery of how loss-riddled, serially corrupt Citigroup, now run by the former head of a hedge fund, was allowed by the FDIC yesterday to buy $400 Billion in deposits from Wachovia, giving this crippled global tyrant 30 per cent of insured bank deposits in America.

For once, we can be proud of at least 228 members of our Congress. Yes, we do need swift, reasoned action to stave off a financial collapse. But a plan that allows one man to have unfettered access to $700 billion of taxpayer money, decide which firms survive, to potentially concentrate power in a few crony hands, while pushing off even a discussion of vital regulation until next year, is not a plan. It’s organized crime thinly disguised as legislation.. …”