Lonesome Tree in Sandhills

Thursday, October 23, 2008

BAILOUT: Using New Math

BAILOUT: Using New Math

More like using Old Kentucky Math


~ An informed electorate is necessary for a strong nation. ~

Monday, October 20, 2008

Nationalizing US Banks

"Cash is King!" - The Rich Get Richer...
That old adage has never been truer than now. Fearful hysteria overrode fundamentals this past 2-3 months - especially last 2 weeks - driving prices to the bargain basement. Governments world-wide pledged $3.3 TRILLION to remedy the worst financial crisis in decades.

Making History: If you blinked twice last week, you likely missed this history in the making. 9 largest US banks were NATIONALIZED on Oct. 14 when Henry Paulsen, US Treasurer, did a fast U-turn & handed their CEO's a 1-page agreement that required each bank to sell the US government preferred stock plus warrants to buy common for a $25 billion capital infusion whether they needed it or not. Objecting & grumbling, the CEO's did as they were told after Paulsen gave them an ultimatum: take the deal or we'll raise the ante on your banks (translation: raise capital requirements).

The Treasury - on behalf of taxpaying citizens - received preferred shares paying 5% dividends (increasing to 9% w/in 5 yr.); plus warrants to buy common equal to 15% of the initial investment, which would not be voting shares. The rising dividends & warrants are intended to give banks an incentive to buy back the shares. Supposedly, Paulsen basically demanded from the banks what Warren Buffett demanded from Goldman Sachs - only the banks got a slightly better deal.

Henry Paulsen took a page out of Warren Buffett's "HARD BARGAIN" play book... or maybe it was bridge - Warren's favorit game. (Heh! Heh!)

Pay attention now & don't blink when I tell you Warren Buffett is Obama's chief economic advisor & will likely be sitting at his Cabinet table should Obama win this election. Make you feel better about SOCIALISTIC moves the Bush Administration put on those US banks? Good ~ now that you KNOW the sky isn't falling, can we get on with figuring out whether our pensions & 401k's will head back into better territory??

Now global credit is starting to kick in and, while volatile, stocks & bonds should solidify the bottom of the markets this coming week. If you've been sitting on cash, now is the time to start buying back in - but on a $-cost weekly basis until Thanksgiving. Don't overlook investment-grade bonds (w/i-rate spreads are at historical highs) - of companies that are sitting on $640 billion of cash. Stocks will rise along w/these corp bonds. We'll be seeing a wobbly u-turn in the markets to match 1988, but 5 years from now you'll be glad you were in the market!

World stocks are bouncing up as confidence in credit begins to grow.  This Monday morning S&P 500 futures rose 17.10 points and were above fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures climbed 147 points, and Nasdaq 100 futures added 22 points.  Also short-term lending rates are beginning to narrow. Indications that markets are getting back to normal.

Warren Buffett gave his thumbs up on Friday in a NY Times Op-Ed. Stating with his usual Midwestern wisdom ("So, if you wait for the robins, spring will be over.")& utmost confidence, Warren said he's moving from 100% US government bonds to 100% American stocks in his personal account:
"A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now."
Today the world's biggest investors - managers of the largest asset management companies sitting on cash - followed Buffett & gave their collective thumbs up, too. Cautiously, of course...

Hoo-wee!! Time for a GROUP HUG!! ~ MomsHugs

~ An informed electorate is necessary for a strong nation. ~

Sunday, October 12, 2008

New Bonfire of Vanities

Talk about political red meat for NonsenseNews Chatter! The stock market flame-out has brought out a political blame-game bonfire almost as hot as the stock market crash itself.  Remember the movie, "Bonfire of Vanities"? 

The worst of them blames the bleeding-heart Democrats who helped people buy homes they could ill-afford if times got tough.  Guess its too much trouble to dig into the documentation of those bleeding-heart Republicans who helped people buy risky loans they could ill-afford if times got tough.

Well, its NOT for the faint of heart, unless you have a lot of time & courage to drill down into the evidence - apparently gushing talk-show hosts don't have either time nor courage!!!

Comments on Proposed Rule: Alternative Net Capital Requirements for Broker-Dealers That Are Part of Consolidated Supervised Entities  [Release No. 34-48690; File No. S7-21-03]

This financial house of cards would not have been as likely to collapse had the SEC followed the advice of Leonard Bole, software consultant to the U. of Chicago.  Bole's comments were the sole dissenting opinion in opposition to letting the investment banks use their own computer models to measure variable risk.  [Comments of Leonard D. Bole, L.D.B. Consulting, Inc., January 22, 2004 (File name: s72103-9.pdf)]

Friend of Fox - Cox

Who is Christopher Cox - SEC Chairman & Friend of Fox - you ask?  Read on & wonder how could the stock market have crashed on his watch... within 20 years of the 1987 crash.

Chairman Cox has had an illustrious career... until now.  His 2005 bio indicates he is truly a very smart guy - earned a joint MBA-JD from Harvard (like Obama, he was also an Editor of Harvard Law Review)  He clerked for a federal judge before joining a prestigious international law firm in LA, specializing in venture capital & corporate finance as head of its Orange Co. corporate department. He left to serve Pres. Reagan as Assoc. White House Counsel in 1986 - a year before the stock market crashed big time in 1987.  Reagan assigned Cox as White House liaison to Greenspan's "Brady Commission" charged with investigating the causes of the October 1987 stock market crash.

He returned to California, was elected to Congress, where he served 17 years in the House - 10 of those years with a Republican majority.  As a few excerpts from his bio futher illustrates, Rep. Cox truly looked out for his corporate constituents....

"Among the significant laws he authored were the Private Securities Litigation Reform Act, which protects investors from fraudulent lawsuits, and the Internet Tax Freedom Act, which protects Internet users from multiple and discriminatory taxation. His legislative efforts to eliminate the double tax on shareholder dividends — the subject of a thesis he authored at Harvard University in 1977 — led to the enactment in May 2003 of legislation that cut the double tax by more than half.

"In addition, he served in a leadership capacity as a senior Member of every committee with jurisdiction over investor protection and U.S. capital markets, including the House Energy and Commerce Committee (as Vice Chairman of the Oversight and Investigations Subcommittee); the Financial Services Committee; the Government Reform Committee (as Vice Chairman of the full Committee); the Joint Economic Committee; and the Budget Committee."

"During his tenure at the SEC, Chairman Cox has made vigorous enforcement of the securities laws the agency's top priority, bringing ground breaking cases against a variety of market abuses including hedge fund insider trading, stock options backdating, fraud aimed at senior citizens, municipal securities fraud, and securities scams on the Internet. He has assumed leadership of the international effort to more closely integrate U.S. and overseas regulation in an era of global capital markets and international securities exchanges."

Fox Guarding Henhouse - Explained

After our nation's "henhouse" was cleaned out in 1929, trust in banks was destroyed by 1934 when the SEC was formed to restore confidence to battered investors. Pres. Roosevelt appointed Joseph P. Kennedy its first Chairman; and when asked why Kennedy, a stock speculator, FDR said simply – “Set a thief to catch a thief.”

How well has that worked? History repeats itself – in 11 stock market crashes since WWII. Now trust in government is gone bust & trust in banks is once again hanging by a thread. Whatever happened? Farmers Bush-Cheney & Company (Farmer Bush & Team) ignored history in the name of eradicating that ultimate evil - regulation. Our nation’s 5 largest investment banks complained of burdensome regulation… poor babies whined!

The Fox – the nation’s largest banks - had already formed “holding companies” to shield themselves from oversight of subsidiary “regulated” banks. In 1999 under Sen. Phil Gramm's leadership, the Gramm-Leach-Biley Act allowed financial holding companies to offer banking, securities, and insurance products under one corporate roof. The law didn’t permit the SEC to examine holding companies’ books nor require sufficient equity to meet the SEC’s capital requirements. The SEC needed new legislation to close that gap – especially after global hedge fund, Long-Term Capital Management (LTCM) collapsed in 1998, and the following stock market mini-crash in 2000.

The gap in SEC enforcement was left gaping by the Senate Committee on Banking (Financial Institutions, Securities & Investments Subcommittees) and the House Financial Services Committee - which have jurisdiction over the SEC & Securities Investor Protection Corporation. These Committees are responsible for oversight of government-issued securities, financial exchanges and markets, financial derivatives, accounting standards, and insurance. Who was in charge of the henhouse?

By 2001, Fox knew Farmer Bush & Team had locked the “shotguns” away rather than “keep it behind the door” as earlier SEC Chairmen did. Still believing Fox is best at catching a thief in the henhouse, Farmer Bush & Team - armed with a Republican majority in Congress - sat on the porch smoking… what? Pot???

In 2005, the year after the SEC tossed out capital requirements, Farmer Bush & Team Congressman Christopher Cox in charge of guarding the henhouse. Rep. Cox (R-CA) spent years leading efforts to block investor lawsuits & investigation of complaints, and to keep rules favoring executive stock options. Yep… Rep. Cox was a true Friend of Fox (FOFox).

As new SEC Chairman, FOFox Cox dismantled the risk oversight office assigned by former Chairman Donaldson, and then fully embraced Bush & Team’s new Treasurer, Henry Paulson. Paulson, Uber-Fox at Goldman Sachs, master-minded gutting of capital requirements in 2004. Not too surprising that FOFox Cox also embraced Uber-Fox’s ultimate plan to lock up ALL shotguns in Farmer Bush Team’s Cabinet, too. Farmers Bush-Cheney & Company quickly shushed complaints.

Fox & Friends were free to gorge on chicken to the point of becoming very sick. With bellies full of the offending evidence, Fox & Friends went to Uber-Fox who took it up with Farmer Bush & Team to… what? Put them out of their misery? Nope… Uber-Fox begged them to buy more chickens while Fox & Friends upchucked all over the farm & then some. GM-Fox will be next after gorging on SUV profits. With Paulsen’s blueprint, will there be ANY chickens left to reproduce a brood???

What would George Orwell say today? He’d probably repeat what he wrote in Animal Farm – “Some animals are created more equal than others.”

Thursday, October 9, 2008

Where, Oh, Where Is Energy Innovation?

Tom Friedman interview on his latest book: "Hot, Flat & Crowded"
Looking for energy innovation in 100,000 garages out there!


Wednesday, October 8, 2008

TOOTHTELLING: Economic Facts

Check Facts Here:  VoteSmart- FactCheck- OpenSecrets

TOOTH TELLING:  News flash about deregulation of the banks... can't pin that one on Clinton.  Bank deregulation was one of the first big pieces of legislation the Republican leadership pushed through beginning in Jan. of 1995 - when the GOP took over the majority in both House & Senate - that bill wasn't Bill's!  Both House & Senate outflanked Clinton (Oxford Rhodes Scholar in economics) - in office only 2 years & a pragmatic centrist politician (and flagrant philanderer!).  The rest of the story is here

Now for a bit more economic history. The US financial system has been operating for almost 30 years on Reagan's "trickle-down" economic plan (mid-1980's), and NAFTA was another of his plans carried out later by GOP leadership in the mid-1990's - with Clinton's blessing.  Our economic system weathered the following:
  • collapse of the country's immense savings & loan industry, 
  • Chicago's Continental Bank in 1984 (largest until now), 
  • fallout of the Asian financial implosion in 1997, and
  • bailout of hedge-fund Long-Term Capital Management in 1998. 
Now if that doesn't give you some confort in these trying times, then stop watching NonsenseNews, take long walks, and then ck out US exports & big box profits from the last 3 mo.  Our country has gone global folks... get used to it!

McCain downplays his proposed tax on employee healthcare benefits while touting his $5000 tax credit ($2500 singles).  Now his tax on benefits that grow at 10-20% per year will soon swamp a tax credit growing at only 3-5% per year.  Well, you do the math & get a clue.

Notice how NonsenseNews bleats on & on about silly distractions while failing to discover & inform the public about the fallout on Wall Street?  Where were their investigative reporters while Swedish officials were briefing our Treasury & Federal Reserve chiefs on the outcome of Sweden's bank bailout from its similar implosion 10 years ago?  Had they informed the public, people would've had some warning to move out of stock funds before getting burned so badly.

Are you tired of hearing McCain can go any minute?  Another news flash!  Either candidate could have a short life span from natural or unnatural causes.  Carefully evaluating the VP candidates is very important because the VP is needed to help govern - whether advising the Cabinet or casting the lone deciding vote to break a Senatorial tie.  Ck those dudes out - Bridges - More Bridges

Don't know about you, but I am also SO tired of hearing about change, reform, maverick, or getting government on the side of the people (as opposed to off our backs or out of our bedrooms).... Need I go on?  You're tired of it, too???  We need to keep in mind that regardless what either party/candidate says now, their promises will go by the wayside once in office what with that bloated budget, bailout & a war soon to surge into Afghanistan.

Financing our government will be the war we fight over the next decade.  Hopefully voters will consider - very carefully - which candidate & VP, along with their team of Cabinet members, has the smarts & capability to deal with ALL of those problems AT ONCE!  The rest on NonsenseNews is best left behind....

An better informed electorate makes a better nation!  ~  MomsHugs

Monday, October 6, 2008

Loose Rules Sink Ship - Part II

And now ... for the rest of the story since 2004. Did Henry Paulsen see the financial markets imploding when he accepted appointment as Sec. of the Treasury in 2006? Doubt it. How much did Annette Nazareth know & when did she know it? When she resigned in 2007? Good questions & only she would know... unless of course someone sues & they all get hauled into some federal court with jurisdiction. Where would that be? Can our government be hauled into the Brussels International Court? ... More & more questions come to mind as I type. The New York Times reporters - bless their little hearts - have begun a series - "The Reckoning" - trying to answer some of my many questions. It will make the movie "Wall Street" look pithy & pale. Get front row seats & read all about it. Good night & good luck!!

Sunday, October 5, 2008


3-6-09 Update:  Former U.S. Securities and Exchange Commission member Annette Nazareth took herself out of the running to be Treasurer Geithner’s deputy after concern about public scrutiny over her SEC work and frustration at the length of the selection process.  Smart move!

SEC’s Loose Rules: WHO wanted looser capital requirement?
Answer: Follow the money back to 2004 - when the fix was in.

In 2004 the SEC Commissioners decided to loosen capitalization requirements -- after only 1 hr. & slight discussion. The 5 largest investment banks had urgently asked for an exemption to hold larger amounts of riskier assets... increasing leverage by taking on more debt - $30 to every $1 of equity - greatly increases profits, too... IF nothing caused the markets to fly off the shelf that is.  The banks wanted to swap older objective rules with their own subjective computer models to measure financial risk.
Henry Paulsen of Goldman Sachs headed the banks’ effort & Chairman Donaldson led the charge for him.  He succeeded & was named Secretary of the Treasury by Pres. Bush in 2006.  No wonder the President was letting him hang out there to take the heat.

One Commissioner - Harvey Goldschmid, law professor at Columbia (Democrat) – raised concerns (“We said these are the big guys that clearly will be involved here, but that means if anything goes wrong, its going to be an awfully big mess...” – a twitter can be heard).  They did have one letter from Leonard Bole, a software consultant from Indian, warning the computer models proposed would not work to determine risk. Bole stated the models could not correctly anticipate market turbulence. The Commissioners simply ignored it. 

Annette Nazareth, Director of SEC’s Market Regulation Division, also backed the banks. (1)  Her staff explained that their proposed computer models would track variable risk, replacing previous strict capitalization requirements. Annette assured the Commissioners it was okay (“we have very, very broad discretion & will be meeting with these firms on a monthly basis… so, hopefully, we’ll have a lot of early warnings & ability to restrict activity that we think is problematic”). 
Again, Goldschmid pointed out he was uncomfortable with the risk - “This is going to be much more complicated – compliance, inspection, understanding of risk – more than we’ve ever had to do.” Then he caved in reliance upon staff’s explanation.

They reassured the Commissioners the changes were not only for the better, but necessary. Staff explained they had hired mathematicians & auditors to review everything, “So we’re going to going to depend on the firms, obviously the front line. They’re going to have to develop their entire risk framework… we’ll be reading that first & they’ll have to explain that to us in a way that it makes sense… then we’ll do the examinations of the process in addition to approving their models & their risk control systems.” Ultimately they would have to rely on the firms to police themselves!

WHAT?!! Voluntary self-supervision??!  What a novel regulatory concept! 

(1) Annette Nazareth:   J.D. Columbia Law - Held various positions in major NYC/DC law firms & government.  She is married to Roger W. Ferguson, Jr., former vice chairman of the Board of Governors of the Federal Reserve and current CEO of TIAA-CREF Reference: SEC Meeting 4-28-04 - Final Item #3 on the agenda: Alternative Net Capital Requirements for Broker-Dealers that are Part of Supervised Facilities and Supervised Investment Bank Holding Companies (Division of Market Regulation).  Explanation | NYTimes Video