Does Anyone feel like Bailing

Originally Posted by classicman

I think that IS the discussion. (see thread title) :p

That is why I have been asking others how they would reform the banking/financial services sector. :p

If not with greater federal regulation, then how?

I have never suggested that regulations will eliminate all the crooks and greedy manipulators in the industry. I do think new regulations will minimize these practices and punish those who abuse the system more than they can be punished now.

But if you disagree, I am open to other suggestions. How would you prevent future questionable housing loans? or prevent future Madoff type rip-offs? or shaky financial instruments like derivatives?

[classicman]

CHARLIE ROSE
What will economic growth look like in 2010?

PAUL VOLCKER
Economists are terrible at forecasting, but it's going to be a slog. The most recent figures are a little bit better than we would have expected, but that doesn't mean they're very strong.

And jobs?
Jobs are going to be slow to recover.

A permanent loss of jobs?
No, we shouldn't have a permanent loss of jobs, but we have a considerable adjustment process to go through here. We've got to restore investment, we've got to restore our manufacturing industry, not the old-fashioned manufacturing industry, but we have to do a better job at the new industries that are coming along—the so-called green economy. Other countries are ahead of us in production that's related to change.

How did that happen?
What happened is our best and brightest got attracted to Wall Street. You've read about those big bonuses. These are generalizations, but I do think that the pull of Wall Street on bright young people, ambitious young people, has been tremendous.

Will it change?
I think we're in the process of change now. Wall Street hasn't got quite the glamor that it had a few years ago.

Yes, but I hear bonuses are coming back.
Well, I hope you'll get more competition on Wall Street and get some reforms, and profitability won't seem quite so great. At one point, Wall Street had almost 40% of all the profits in the country. And, you know, its contribution to the welfare of the country does not approach 40%. Something's out of line here.

Let's talk about the financial system. You have said it failed the test of the marketplace.
Yes. It collapsed on us. And I think that's the test of a financial system—is it facilitating reasonable stability and growth? No, it's had a breakdown at great risk to the economy. It became dysfunctional, and it is still largely dependent upon government assistance.

How should we create a well-oiled financial system?
The kind of reform I've been advocating is acceptance of the fact that the core of the system remains commercial banking. If that breaks down then you have an enormous crisis. And commercial banks have expanded into areas I don't think are so central. I would cut back their so-called capital market activities—hedge funds, equity funds, commodities trading, trading in derivatives. They're all legitimate functions, but they're not so central. And I don't want to protect all those functions. I don't want to protect everybody because when people act like they're protected, you get in trouble. So let's leave the capital markets to their own devices without any expectation of government protection and keep the existing safety net for the commercial banking system.

In my judgment we don't need to regulate the capital markets so heavily. You have some extreme cases where individual institutions are so big and so vulnerable, yes, you might want some regulation of capital and leverage, but that would be the exception. But if they fail, let 'em fail. We will have some kind of a new resolution process. Some agency will go in there and say, "You're going to fail, but we're going to provide a more orderly exit."

More here

[TheMercenary]

In my judgment we don't need to regulate the capital markets so heavily. You have some extreme cases where individual institutions are so big and so vulnerable, yes, you might want some regulation of capital and leverage, but that would be the exception. But if they fail, let 'em fail. We will have some kind of a new resolution process. Some agency will go in there and say, "You're going to fail, but we're going to provide a more orderly exit."

God Damm right.

The kind of reform I've been advocating is acceptance of the fact that the core of the system remains commercial banking. If that breaks down then you have an enormous crisis. And commercial banks have expanded into areas I don't think are so central.

I agree.

This is what happened as the result of the '99 legislation that effectively repealed most of the Glass–Steagall Act and blurred the lines far too much between commercial banking and investment banking.

What he also said in the same interview:

what I propose is somewhat in the spirit of Glass-Steagall in making a distinction between capital-market activities and trading activities and banking activities. But it is not specifically going back to Glass-Steagall.

Depending on the details, that sounds reasonable.

In my judgment we don't need to regulate the capital markets so heavily. You have some extreme cases where individual institutions are so big and so vulnerable, yes, you might want some regulation of capital and leverage,

I dont see where he is saying no regulation...but not heavy regulation.,....with the exception of possbily heavier (?) regs regarding the out of control leveraging that took place.

And derivatives? No regulation, IMO, is asking for more problems.

added:

Another recent statement by Volcker:

Paul A. Volcker, the former chairman of the Federal Reserve and an adviser to President Obama, told a room packed with banking executives on Tuesday to “wake up” to the need for more drastic regulatory changes....

....Mr. Volcker criticized suggestions, made by executives at an earlier panel discussion, to strengthen financial markets primarily by giving more power to company boards to control risk. The chances that management boards would “understand the products you come up with” are slim, he said.

http://dealbook.blogs.nytimes.com/20...al-regulation/

[tw]

Regulation does not necessarily mean restrictions. Major banks could not fail because nobody knew reality until it was too late. Using deceit and camouflage, the big financial institutions tied themselves heavily into all other major institutions. One secret tool that did this was derivatives. AIG wrote insurance policies that even insurance regulators did not know existed.

With transparency, that could not happen. Complete lack of transparency is why the powers that be are now saying the demise (bankruptcy) of Lehman Bros was a mistake. Nobody knew how Lehman's was interconnected because the spread sheets were intentionally opaque. Designed to deceive.

We now make it legal to hide the true financial solvency. Laws (regulations) that require transparency do not exist. And regulators who could blow the whistle – well the Congress wanted to double the SEC budget just after 2000 – and the George Jr administration would not permit it. (So Madoff hosted another expensive party.)

With transparency, financial markets would not seize. Counterparties would see problems approaching long before markets collapsed. Why did the US economy virtually seize for a few weeks? Nobody knew who was solvent. Nobody could trust anyone's accounting. Laws still permit Enron accounting. The lessons from LTCM were completely ignored.

Financial industry problems are directly traceable to a corrupt concept. The purpose of the business is profit. Had its purpose been the product - serving customers - then Enron accounting would not be situation normal.

Transparency. Banks will fight this because they cannot make massive profits using money games. Instead they must do what Smith Barney advocated. "They make money the old-fashioned way. They earn it."

Transparency. That means derivatives must trade on regulated markets. With market oversight. Everyone knows how large the counterparty's risks are. That means nobody can hide risk and losses in Enron accounting – ie SIVs. That means everyone would have known AIG’s irresponsible contracts in mid 2000s. Instead, AIG management worried, did nothing, and hoped the problem would disappear. By early 2007, AIG management feared they were already bankrupts. Nobody knew. No requirements for transparency meant AIG management could continue to deceive.

Our economic meltdown is directly traceable to opaque institutions - Enron accounting techniques - because making money from games is more important than serving the American economy.

Regulation - properly applied - means transparency. That means accounting must be honest. Heavy regulation means transparency so that, for example, everyone knew AT&T was going bankrupt. Instead, even AT&T's board of Directors (ie Sandy Weil) did not know AT&T was on the verge of bankruptcy until two months AT&T could not meet even their three month debt obligations.

Even GM's Board of Directors who were not GM officers were only permitted 45 minutes to study the spread sheets. Corruption is GM accounting was also routine.

Corrupt accounting remains situation normal. Transparency means open markets. Bankers who must meet international accounting standards.

TW...that is the best description of the problem and need for solutions that I have seen!

[TheMercenary]

Exclusive: Jobs 'Saved or Created' in Congressional Districts That Don't Exist
Human Error Blamed for Crediting New Stimulus Jobs to Nonexistent Places
By JONATHAN KARL (ABC)

Nov. 16, 2009—
Here's a stimulus success story: In Arizona's 15th congressional district, 30 jobs have been saved or created with just $761,420 in federal stimulus spending. At least that's what the Web site set up by the Obama administration to track the $787 billion stimulus says.

[ $761,420 / 30 jobs created = $25,380.67 per job ]
There's one problem, though: There is no 15th congressional district in Arizona; the state has only eight districts.
And ABC News has found many more entries for projects like this in places that are incorrectly identified.
Late Monday, officials with the Recovery Board created to track the stimulus spending, said the mistakes in crediting nonexistent congressional districts were caused by human error.
"We report what the recipients submit to us," said Ed Pound, Communications Director for the Board.
Pound told ABC News the board receives declarations from the recipients - state governments, federal agencies and universities - of stimulus money about what program is being funded.
"Some recipients clearly don't know what congressional district they live in, so they appear to be just throwing in any number. We expected all along that recipients would make mistakes on their congressional districts, on jobs numbers, on award amounts, and so on. Human beings make mistakes," Pound said.
The issue has raised hackles on Capitol Hill.
Rep. David Obey, D-Wisc, who chairs the powerful House appropriations Committee, issued a paper statement demanding that the recovery.gov Web site be updated.
"The inaccuracies on recovery.gov that have come to light are outrageous and the Administration owes itself, the Congress, and every American a commitment to work night and day to correct the ludicrous mistakes."
ABC News was able to locate several examples on the government's Web site outlining hundreds of millions of dollars spent and jobs created in Congressional districts that have been misidentified.
For example, recovery.gov says $34 million in stimulus money has been spent in Arizona's 86th congressional district in a project for the Navajo Housing authority, which is actually located in the 1st congressional district.
Click Here to Track the $787 Billion Stimulus Plan
The reporting problems are not limited to Arizona, ABC News found.
In Oklahoma, recovery.gov lists more than $19 million in spending -- and 15 jobs created -- in yet more congressional districts that don't exist.

[ $19 million / 15 jobs created = $1,266,666.67 per job ]
In Iowa, it shows $10.6 million spent and 39 jobs created -- in nonexistent districts.

[ $10.6 million / 39 jobs created = $271,794.87 per job ]
In Connecticut's 42nd district (which also does not exist), the Web site claims 25 jobs created with zero stimulus dollars.

[ hmmm...how did they do that? or, how come the others couldn't do that too?...]

The list of spending and job creation in fictional congressional districts extends to U.S. territories as well.
$68.3 million spent and 72.2 million spent in the 1st congressional district of the U.S. Virgin Islands.

$8.4 million spent and 40.3 jobs created in the 99th congressional district of the U.S. Virgin Islands.

[ $8.4 million / 40.3 = $208,436.72 per job ]

$1.5 million spent and .3 jobs created in the 69th district and $35 million for 142 jobs in the 99th district of the Northern Mariana Islands.
[ $1.5 million / .3 jobs created = $5,000,000.00; $35 million / 142 jobs created = $246,478.87 per job ]
$47.7 million spent and 291 jobs created in Puerto Rico's 99th congressional district.

[ $47.7 million / 291 jobs created = $163,917.53 per job ]

Stimulus Fund Mystery
Interesting facts and figures, but none of these districts exist.
The recovery.gov Web site was established as part of the stimulus bill "to foster greater accountability and transparency" in the use of the money spent through the stimulus program. The site is a well-funded enterprise; the General Services Administration updated it earlier this year with an $18 million grant.
ABC News' Zach Wolf contributed to this report.

[classicman]

tw - You're entire premise is based upon the assumption that regulators and politicians were ignorant of what was going on. If that is true, its a rather good description.

However, the whole bailout could have been a huge cover-up so that those in positions of power and influence, who knew all along what was going on and were basically on the take, were protected. Did anyone else notice that paper shredder sales went up dramatically during that time?

Originally Posted by tw

Our economic meltdown is directly traceable to . . . opaque institutions

Wait what??? What happened to "top management"?

[classicman]

It looks like there will be 1.2 million hired as census workers - that'll cover some of the job losses.

Originally Posted by TheMercenary

Exclusive: Jobs 'Saved or Created' in Congressional Districts That Don't Exist .

Originally Posted by classicman

It looks like there will be 1.2 million hired as census workers - that'll cover some of the job losses.

And these are related to bank/financial services bail-outs? sub-prime lending? derivatives?

How?

Originally Posted by classicman

I think that IS the discussion. (see thread title) :p

[TheMercenary]

Originally Posted by classicman

It looks like there will be 1.2 million hired as census workers - that'll cover some of the job losses.

And just like the jobs "created" in the last month they reflect nothing more than seasonal hiring. Not long term job growth. More smoke and mirrors.

Originally Posted by TheMercenary

And just like the jobs "created" in the last month they reflect nothing more than seasonal hiring. Not long term job growth. More smoke and mirrors.

Census workers are hired n large numbers every ten years...regardless of the state of the economy.

And that is related to bank/financial services bail-outs? sub-prime lending? derivatives?

How?

Whats the with this latest deflection?

[tw]

Originally Posted by classicman

tw - You're entire premise is based upon the assumption that regulators and politicians were ignorant of what was going on. If that is true, it’s a rather good description.

Surprise and shock was literally the problem in case after case. Nobody knew LTCM was happening until they called within days of disaster. Anybody even running 30:1 is and should be declared bankrupt. But under Enron accounting, that can be conducted by simply moving the losses to off-balance-sheet vehicles. Enron accounting that was still normal ten years later.

Bear Stearns was a complete surprise to everyone in early 2008 – because the accounting never showed the firm already bankrupt. That is what MBA are trained to do – maximize profits. “He makes the spread sheets say what they have to say.”

None of the big bank presidents knew why the Fed called them in for a meeting with only hours notice. Only then discovered who was also in the meeting. So blindsided that most of them did not bring any assistants. And then were told they had only hours to save the American economy.

Nobody outside of AIG realized how large AIGs contracts were and how deeply embedded AIG was everywhere in the economy. Even AIG top management many years previous - see the many stories from 70 Pine - could not get a handle on how bad things were. Enron accounting virtually makes fraud legal. How do “off-balance-sheet vehicles” exist? Transparency must be subverted.

Enron would simply invent off-balance-sheet vehicles, put massive losses in them, then declare them as profitable entries on spread sheets. Of course, anyone who did not know that is complicit in the problem. At this point everyone over the age of 18 should know that story. Even Arthur Andersen called that acceptable accounting. Why?

In a world that has under $8trilion of actual things, how could these bankers invent $604trillion of financial assets? Easy. Lying in the accounting is acceptable because the purpose of a business is profits – not the product. No regulator can see how bad it is when even the accountant (Arthur Andersen) call that legal.

So what did we do to avert Enron accounting. Apparently nothing. Doing so would have violated a political agenda with included tax cuts to the rich.

From Marketwatch of 3 April 2008 describing Bear Stearns:

Off-balance-sheet vehicles of various forms proliferated, and increased concentrations of longer-dated assets were held in funding vehicles with substantial liquidity risk.

And nobody could know anything more. Accounting made it impossible to even know those risks existed – let alone measure them.


How do the AT&T’s Board of Directors not know AT&T was virtually bankrupt until months before they could not even pay its short term debt? Spread sheets said what they had to say so that nobody outside the company and so that no regulators knew how unproductive AT&T had been for over a decade. Sandy Weil, president of Citibank and an AT&T BoD, did not know AT&T was essentially bankrupt until a corporate officer whispered it to him – a leak that nobody was supposed to tell the BoDs.

Even Sandy Weil, the famous Citibank president who built Citibank into what it is today, even he could not see AT&T's demise. Because the spread sheets only said what they had to say. Honesty is not a trait found on Wall Street - because like the mafia - the purpose of a company is only its profits.

[tw]

Originally Posted by classicman

Wait what??? What happened to "top management"?

Who do you think told me "He makes the spread sheets say what they have to say"? The corporate president. He got the job because he was hired from a major accounting firm - Peat Marwick and Mitchell. He was only doing what he was trained to do. Obviously fraud is directly traceable to top management - which is why so much destruction (and the massive job losses that we can expect) are traceable to MBAs as top management - ie George Jr.

[classicman]

ok tw, for a minute there I thought you had been abducted by aliens or something.