Tag: financial

Dark Towers: Deutsche Bank, Donald Trump, and an Epic Trail of Destruction by David Enrich

Seth Anderson0 comment

Same Sentiment

The Washington Post Book review:

A revelatory book about the rise and fall of the world’s biggest bank might hold some interest to financiers, business school professors and readers of the Economist. But what about one that also has all the elements of a page-turning mystery novel: suspicious suicides, Russian money laundering, securities and tax fraud, price fixing, $100 million bonuses, whistleblowers who are ignored and fired, and a heroin junkie peddling stolen documents to journalists and FBI agents? Add to that a big client with a sketchy financial history who suddenly becomes president of the United States, and you’ve got the makings of a blockbuster.

…

A new Russian subsidiary laundered tens of billions of rubles into dollars for Russian oligarchs and cronies of President Vladimir Putin. Its London traders helped organize a conspiracy to fix interest rates. Its New York investment bankers were at the front of the pack peddling collateralized debt obligations (CDOs) and mortgage-backed securities they knew would go bad. Its bankers conspired with corporate clients to evade economic sanctions against Iran and Syria, and helped giant hedge funds avoid taxes in the United States. Its enormous stash of risky derivatives was carried on its books at prices well above their market value. And its top executives repeatedly lied about all these things to investors, regulators and even their own directors.

The consequences of all this risk-taking, mismanagement and fraud are now clear. Between 2015 and 2017, the bank was forced to record losses of more than $10 billion, and it only barely returned to profitability in 2018. Since 2007, its stock price has fallen 95 percent. And as Enrich reports, the bank’s financial position was so precarious that even longtime corporate customers abandoned it. The International Monetary Fund recently singled out Deutsche Bank as the institution posing the biggest risk to the global banking system.

…

Trump Stamp

And when Trump was on the verge of defaulting on loans used to buy his failing hotels and casinos in Atlantic City, Deutsche Bank came to the rescue by peddling $484 million in junk bonds to investors — bonds on which Trump defaulted within a year.

Normally, such a default would have been enough to scare away even the most risk-tolerant lenders. But within months, Deutsche Bank’s real estate division was again providing Trump with a $640 million loan needed to build a new Chicago hotel, while its team in Moscow was steering Russian investors to Trump projects in Hawaii and Mexico. The relationship hit a low point in 2009 when Trump announced he had no intention of repaying his loan on the Chicago hotel, claiming that the unfolding financial crisis was an act of God that freed him of his obligation.

When Deutsche Bank sued to get its money back, Trump countersued, preposterously accusing the bank of predatory lending practices. The matter was finally settled with a two-year extension on the loan — and a vow by the bank’s real estate lenders never to do business with Trump again. But two years later, Trump somehow sweet-talked his way into Deutsche’s private banking division, which over the next several years provided him with $350 million in personal loans to cover projects in Chicago, Miami and Washington.

(click here to continue reading Book review of Dark Towers: Deutsche Bank, Donald Trump, and an Epic Trail of Destruction by David Enrich – The Washington Post.)

Sounds interesting. It always seemed odd to me that a bank would continue to lend vast sums of money to such an obvious deadbeat like Trump. Was it all money laundering? Something else? I guess I’ll have to read the book and find out.

Make America Great Again - Deport Trump

Jacket blurb

“Enrich tells the story of how one of the world’s mightiest banks careened off the rails, threatening everything from our financial system to our democracy. Darkly fascinating. A tale that will keep you up at night.” — John Carreyrou, #1 bestselling author of Bad Blood

From New York Times finance editor David Enrich, a searing exposé of the most scandalous bank in the world, revealing its shadowy ties to Donald Trump, Putin’s Russia, and Nazi Germany

On a rainy Sunday in 2014, a senior executive at Deutsche Bank was found hanging in his London apartment. Bill Broeksmit had helped build the 150-year-old financial institution into a global colossus, and his sudden death was a mystery, made more so by the bank’s efforts to deter investigation. Broeksmit, it turned out, was a man who knew too much.

In Dark Towers, award-winning journalist David Enrich reveals the truth about Deutsche Bank and its epic path of devastation. Tracing the bank’s history back to its propping up of a default-prone American developer in the 1880s, helping the Nazis build Auschwitz, and wooing Eastern Bloc authoritarians, he shows how in the 1990s, via a succession of hard-charging executives, Deutsche made a fateful decision to pursue Wall Street riches, often at the expense of ethics and the law.

Soon, the bank was manipulating markets, violating international sanctions to aid terrorist regimes, scamming investors, defrauding regulators, and laundering money for Russian oligarchs. Ever desperate for an American foothold, Deutsche also started doing business with a self-promoting real estate magnate nearly every other bank in the world deemed too dangerous to touch: Donald Trump. Over the next twenty years, Deutsche executives loaned billions to Trump, the Kushner family, and an array of scandal-tarred clients, including convicted sex offender Jeffrey Epstein.

Dark Towers is the never-before-told saga of how Deutsche Bank became the global face of financial recklessness and criminality—the corporate equivalent of a weapon of mass destruction. It is also the story of a man who was consumed by fear of what he’d seen at the bank—and his son’s obsessive search for the secrets he kept.

(click here to continue reading Amazon.com: Dark Towers: Deutsche Bank, Donald Trump, and an Epic Trail of Destruction (9780062878816): David Enrich: Books.)

Contemporaneous Memos

The Uberization of Money

Seth Anderson0 comment

Of course it buys happiness
Of course it buys happiness…

I hadn’t considered this angle, but it seems as if this will be an interesting development in the near-future. As an aside, I had to go to my bank recently to get a check reissued, and needed to get my form letter notarized by a banker. The banker had to stamp the document, and then scribble a handwritten record of it in some ancient log book. I joked with the guy that this procedure probably hadn’t changed in 200 years, he smirked agreement. Amusingly, there was an advertisement on the banker’s desk touting their smartphone payment options. Yet the notarization process was slow, and analog.  Ripe for change, just like financial transactions. Have you ever looked at a mortgage document for instance? Pages and pages of crap that nobody reads, or comprehends. Anyway…

Over the next decade, the familiar 20th-century modes of banking and investing will give way to something very different. We are on the verge of the Uberization of finance, which will bring multiple new opportunities but also a range of new risks.

The ubiquitous ride-sharing company uses a simple device—the smartphone—to connect people who want rides with people who want to drive them. Uber is a high-tech middleman that is making the intermediaries of the past obsolete. The financial world is one of the most mediated industries on the planet, and that is precisely what is about to change. Uberization also means using vast amounts of data to make those connections feasible.…

Technology is one source of this shift, but so is legislation. The JOBS Act of 2012 contained a seemingly innocuous provision making it easier for startups to raise money from investors previously deemed too poor to dabble in such ventures. At the end of October, the Securities and Exchange Commission finally approved the rules, which will go into full effect early next year. As a result, any company or person with an idea can solicit and raise up to $1 million without most of the onerous regulatory and reporting requirements of the past.

So what lies ahead? Retail banking is the one area of the financial world that has undergone tremendous change over the past decade. Bank tellers are now scarce, and many consumers use smartphones for payments and deposits. It also has become much easier to trade shares online.

But core services such as lending money, raising capital and investing for clients still depend on a firm to act as a conduit—and as a choke point. With many promising startups already launched and with venture capital funding new ones every day, here’s a glimpse of what we can expect in the years ahead.

…

Loans to large companies are up over the past decade, but lending to small business has contracted, from more than $700 billion in 2008 to less than $600 billion today, according to the Small Business Administration. As for the Silicon Valley ecosystem of venture capital, it certainly doles out funds to dreamers, but it excludes many types of businesses, especially brick-and-mortar ones.

All of this explains why new funding ventures have received such a boost from the JOBS Act. Kickstarter is the most familiar, with Indiegogo close behind. These crowdfunding platforms let almost anyone announce an idea and solicit money for it, usually in chunks of $1,000 or less. No established venture-capital firm or large bank would dole out such small amounts. Their overhead alone, for due diligence and compliance, would mean steep losses on investments that size.

But the new crowdfunding sites remove those layers, and for now they have few of the regulatory burdens or scrutiny. It is the Wild West of fundraising. The most recent success was Oculus Rift, a maker of virtual reality headsets that raised $2.4 million on Kickstarter and then was bought by Facebook a little more than a year later for $2 billion.

The big hitch? A Kickstarter contribution is a donation. When people fund projects on the site, it is out of passion for the product, not any hope for a financial return.

The next wave of crowdfunding, through sites such as SeedInvest and Fundable, will offer equity ownership to those who throw money into the ring. This new model could upend the insular world of venture capital and business loans while at the same time providing new opportunities for small investors. As for a would-be innovator, if you can post an idea online, raise a million dollars for it and (most important) choose how much equity you want to part with at what valuation, why go through the gauntlet of a commercial loan application or make the rounds at the VC firms on Sand Hill Road?

The result is likely to be billions of dollars of new funding, which would spur lots of good ideas—and lots of bad ones, too. The prospect of unconventional new funding sources has already prompted comparisons to 1999, when millions of individual investors joined the IPO craze only to see their shares of Pets.com become worthless. Such risks are very real, but either way, much more money will be in motion.

(click here to continue reading The Uberization of Money – WSJ.)

After Hour Deposits
After Hour Deposits

I better start polishing up our business plans so we can tap into some of this pending sweet, sweet funding…

Paul Krugman – Marco Rubio Has Learned Nothing

eggplant0 comment
Nixon shakes hands with the ancestor of the Tea Party

Nixon shakes hands with the ancestor of the Tea Party

Earlier today…

Faced with overwhelming, catastrophic evidence that their faith in unregulated financial markets was wrong, they have responded by rewriting history to defend their prejudices. This strikes me as a bigger deal than whether Rubio slurped his water; he and his party are now committed to the belief that their pre-crisis doctrine was perfect, that there are no lessons from the worst financial crisis in three generations except that we should have even less regulation. And given another shot at power, they’ll test that thesis by giving the bankers a chance to do it all over again.

Via:
Marco Rubio Has Learned Nothing – NYTimes.com
[automated]

Corporations Cringe at Revealing CEO-Worker Pay Gap

Seth Anderson0 comment

Mini Bank In Fine Style
Mini Bank In Fine Style

Apparently, most corporations would rather stockholders not be aware of executive compensation agreements.

Section 953(b) of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act requires publicly traded companies to disclose the ratio of CEO pay as a proportion of the median-paid employee at the firm. And yet, the Securities & Exchange Commission has yet to even propose a regulation for public comment, which would get the ball rolling on enforcing the act.

…

Companies that have opposed the regulation say that it would somehow be difficult to figure out the median pay of their staff. But the lawmakers point out that even the SEC’s former chief accountant says this should not be too complex a calculation for a business to make.

 

(click here to continue reading The Consumerist » Lawmakers Push For Companies To Disclose Ratio Of CEO Pay To That Of Employees.)

 AIG and you

 Oh, boo hoo. Math is hard1

The Wall Street Journal reports:

At issue is a rule that could force them to disclose the gap between what they pay their CEO and their median pay for employees, a potentially embarrassing figure that many companies would like to keep private.

 …”The ratio is not going to be a meaningful way to help investors but will be used as a political tool to attack companies,” says David Hirschmann, president of the U.S. Chamber of Commerce’s Center for Capital Markets, which opposes the measure.

Consulting-firm Accenture says that figuring out the median among its 246,000 employees across 120 countries and various payroll systems would be expensive and slow. “The amount of work to calculate the ratio would be really quite incredible,” says Jill Smart, chief human resources officer for Accenture. The U.S Chamber of Commerce, American Insurance Association and National Retail Federation have expressed similar concerns to the SEC on behalf of members.

But companies whose boards already constrain the ratio between the CEO’s salary and that of the average worker say the task isn’t so complex.

“It doesn’t take months and months and millions of dollars to calculate this. It’s a relatively straightforward process that takes a few days,” says Mark Ehrnstein, a vice president at Whole Foods Market which instituted an executive salary cap a decade ago.

Whole Foods keeps a database that tracks each worker’s salary and bonus to ensure that no employee makes more than 19 times the average. That means the typical full-time worker earned about $38,000 last year, and no one earned more than $721,000. But the cap doesn’t factor in stock options or pension benefits, which would be required under the proposed rule, and it considers average, rather than median, salaries. A small number of other firms, including financial-services firm MBIA Inc.  and Bank of South Carolina Corp., provide executive pay figures and average or median employee pay in their proxy filings.

“It’s embarrassing that they pay their CEO 500 times what they pay their typical worker, especially if the company’s performance has been mediocre,” says New Jersey Sen. Robert Menendez, the provision’s author.

Total direct compensation for 248 CEOs at public companies rose 2.8% last year, to a median of $10.3 million, according to an analysis by The Wall Street Journal and Hay Group. A separate AFL-CIO analysis of CEO pay across a broad sample of S&P 500 firms showed the average CEO earned 380 times more than the typical U.S. worker. In 1980, that multiple was 42.

 

(click here to continue reading Firms Cringe at Revealing CEO-Worker Pay Gap – WSJ.com.)

In other words, most public corporations would rather not be transparent about what their CEOs would make because it makes the Board of Directors look like corrupt oligarchs. Cry me a river. And I find it hard to believe that reporting this information would be a burden. Take the payroll, dump it into a spreadsheet, and calculate the median! What’s tricky about that? The hardest part would be getting payroll information for a large multi-national corporation, but I doubt it would all that difficult to do.

 Beer Money at the MCA

 Batlett Naylor wrote, back in March:

In the face of intense industry lobbying, the SEC has yet to propose a rule for public comment. A simple disclosure figure should be well within the SEC’s ability. Corporate America’s antagonism may be revealing but should not be compelling.

The financial industry argues that identifying median pay will be difficult. Such claims either constitute an embarrassing confession about widespread mismanagement of a central financial issue, or a disingenuous smokescreen. The idea that firms have no idea what they pay their staff is ludicrous.

CEO pay has swollen from 42 times that of average factory workers in 1980 to 319 times in 2010. Studies show morale and productivity problems in the face of disproportionate CEO pay.

The congressional letter states that: “Income inequality is a growing concern among many Americans. … Incomes at the very top have skyrocketed in recent years while workers’ wages and incomes have stagnated. … And while comprehensive data will not be available until this provision takes effect, there is no question that CEO pay is soaring compared to that of average workers.”

A Public Citizen report last year found that industry lobbyists contesting this rule have spent more than $4.5 million trying to avoid disclosure. In addition, the U.S. Chamber of Commerce has sent two letters to the SEC opposing this measure.

(click here to continue reading Will the SEC stand up to the financial industry’s disingenuous smokescreen? « CitizenVox.)

Footnotes:
  1. not really [↩]

The Facebook IPO scandal

Seth Anderson2 Comments

To A We
To A We

And speaking of Facebook’s deplorable business model, there turns out to be some Wall Street shenanigans going on as the IPO began. Lest you forget, Wall Street plays by its own rules, and if you want to play too, you are the mark, the rube. The amount of hype for the Facebook stock was, and remains overwhelming. That alone should make one suspicious. I know I was1

The Los Angeles Times reports:

As Facebook shares continued their slide, regulators launched inquiries into whether privileged Wall Street insiders were alerted to the company’s weakening financial projections, leading them to shun the stock or dump shares just as buying was opened to the public.

Morgan Stanley, which led the Wall Street effort to bring the social network public, came under fire following reports that the bank had told some favored clients that the bank was cutting its revenue estimates for Facebook. The lowered expectations came after the tech giant expressed caution in a public filing about its advertising sales on mobile devices.

The legal issue raised could be “securities fraud — plain and simple,” said Ernest Badway, a securities lawyer in New York and New Jersey and a former enforcement attorney at the U.S. Securities and Exchange Commission. “You can’t be putting out two sets of numbers.”

SEC Chairwoman Mary Schapiro said the agency will examine “issues” into the bungled Facebook public offering. The Financial Industry Regulatory Authority, the Wall Street industry-funded watchdog, has also expressed concern, and Massachusetts securities regulators have issued subpoenas for Morgan Stanley.

“If true, the allegations are a matter of regulatory concern to FINRA and the SEC,” Rick Ketchum, the watchdog’s chairman and chief executive, said in an e-mailed statement.

One major institutional investor was informed of the lowered expectations during Facebook’s IPO “roadshow,” in which Morgan Stanley and other underwriters appeared before mutual funds and other big investors to make the case to buy shares in advance of the public offering.

“I am pretty sure the grandma who bought 10 shares of Facebook through her Schwab account didn’t get that memo,” said a person familiar with the matter who declined to be named to preserve his business relationship with Wall Street investment banks.

Facebook’s offering was one of the most hyped events on Wall Street, and became the biggest tech IPO in history. The company raised $16 billion by listing on the Nasdaq Stock Market in a move that valued the company at $104 billion, which is bigger than American corporate stalwarts such asMcDonald’s Corp. andAmazon.com Inc.

(click here to continue reading Facebook IPO flop drawing increased scrutiny – latimes.com.)

I found this phrase telling:

Some bankers were also troubled by the huge demand from individual investors, a relatively capricious group. While Facebook allocated most of its shares to big, institutional investors like mutual funds and hedge funds, it also gave a larger-than-usual block, close to 25 percent, to ordinary investors.

Around the same time, red flags emerged about the company’s growth prospects. On May 9, Facebook revealed in a regulatory filing some potential challenges to its growth. In particular, the company highlighted that users were increasingly using Facebook on mobile devices, but the company was not making much money on mobile ads.

(click here to continue reading Facebook I.P.O. Raises Regulatory Concerns – NYTimes.com.)

Banks don’t want the hoi polloi  to clutter up their hallways, mess up their nice tile floors.

Stay As You Are

Stay As You Are

Gawker’s Adrian Chen:

Facebook’s stock continues to suck harder than a Northwestern University freshman on a 5-foot bong in his profile pic. And the fallout from the most hyped IPO in history bursts not just the illusion that Facebook is actually worth $100 billion, but the idea that Facebook is different than any other corporation hell-bent on making as much money as possible for a handful of very wealthy people.
The lead-up to last Friday’s Facebook IPO was an orgy of web 2.0 populism. Started by a Harvard undergrad in his dorm room, Facebook was poised to become the largest tech IPO ever. And its value stemmed from our stuff—our status updates, pictures and pokes! This was the major driver of the outlandish hype surrounding Facebook’s IPO; the sense that the public would finally get a chance to share in the spectacular success of the company we helped build.

…(Incidentally, now that Facebook’s tanking, Morgan Stanley and the other banks that underwrote the deal have a good shot at making a profit by short selling millions of Facebook shares that had been created just for them under an arcane financial move known as the “Greenshoe option.” Nice deal, if you can get it.)

These maneuvers show once again that Facebook’s lofty ideals are at odds with how it functions in reality. For a company built on sharing and transparency, Facebook’s IPO was uniquely private and opaque. For a company which Mark Zuckerberg boasted in a letter to investors “was not originally created to be a company. It was built to accomplish a social mission,” Facebook sure as hell acted like a company in helping to enrich insiders at the expense of public investors.

So, Mark Zuckerberg screwed Facebook investors in the IPO like he’s screwed Facebook users on privacy. (Hours before the IPO, Facebook was hit with a $15 billion lawsuit over privacy violations.) This would be just a hilarious coincidence, except for the vast amounts of money he’s made doing both.

(click here to continue reading The Facebook IPO Was an Inside Joke.)

Every Ace Got Played
Every Ace Got Played

Felix Salmon writes:

This whole episode stinks. It’s almost certainly not illegal. But if you look at the Finra rules about such things, it definitely violates the spirit of the law. For instance, the rules say that Morgan Stanley analysts weren’t allowed to show Facebook their research before it was published — but they don’t say that Facebook can’t quietly whisper in Morgan Stanley’s ear that its estimates might be a bit aggressive. Obviously, there’s no need for the analysts to give Facebook advance notice of their earnings downgrade if that earnings downgrade was a direct consequence of something Facebook told them.

Similarly, Morgan Stanley isn’t allowed to publish a research report or earnings estimates for Facebook within the 40 days following the IPO. But a few days before the IPO? I guess that’s OK — even if the way the estimates were “published” meant they were only available to good friends of the bank.

More generally, the rules ignore the key point here. Retail investors, and the market as a whole, knew when Facebook had its IPO that Morgan Stanley (and JP Morgan, and Goldman Sachs) had research teams with estimates for Facebook’s future earnings. They also knew that those estimates would be made public in 40 days’ time. And if they were sophisticated enough, they probably knew that select Morgan Stanley clients were given access to the analysts and their estimates.

What they didn’t know — what they couldn’t know, because nobody told them — was that those estimates had been cut, significantly, just days before the IPO.

(click here to continue reading The Facebook earnings-forecast scandal | Felix Salmon.)

Selling Her Spare Favors
Selling Her Spare Favors

John Cassidy of The New Yorker points out there have been trades of Facebook for years now, just not public trades. In other words, the big investors already cashed out…

The fact is, Facebook’s I.P.O. wasn’t really an “initial” stock offering. In December, 2010, Goldman Sachs raised $500 million for the company in a deal that, following objections from the Securities and Exchange Commission, was limited to overseas investors. In the I.P.O. world, these late-stage quasi-public offerings are called “D-rounds,” and they are becoming increasingly common. Zynga did one before its I.P.O., and so did Groupon. They provide a cashing-out opportunity for insiders who would rather not wait until the I.P.O. More to the point, they allow “hot” companies to bid up the price of their stocks well before the investing public gets a sniff.

Groupon’s D-round, which raised $950 million in January, 2011, valued the company at close to $5 billion. (It is now valued at $8 billion.) The Goldman offering for Facebook valued the company at $50 billion. (It is now valued at about $95 billion.) The valuations put on the companies in these deals were quickly reflected in the so-called “gray market,” where investors in the know could buy and sell the firms’ stocks well before they started trading on the open markets. Now that Facebook’s stock is trading publicly, many of the early players have already sold out, taking a handsome profit.

How will the public investors fare? So far, they aren’t doing well, but it is still early. I said the other day that Facebook isn’t necessarily a bubble stock, but it is undoubtedly a very expensive one. Buyers are bearing a lot of risk, and it is hard to see them ever reaping the sort of returns that investors in companies like Amazon and Google enjoyed. At twenty-five times trailing revenues and a hundred times trailing earnings, the $38 I.P.O. is already discounting an awful lot of expansion—and this at a time when Facebook’s growth rate has already slowed.

(click here to continue reading Inside Job: Facebook I.P.O. Shows the System Is Broken : The New Yorker.)

And over and over we read the phrase, “unsuccessful IPO”, and yet what does that mean? The bankers got theirs, the Facebook execs got theirs…

may have doomed any real chance the social-networking company had that its stock would jump on its first day of trading—a hallmark of successful IPOs. On Tuesday, the second full day of trading, Facebook shares fell $3.03, or 8.9%, to $31, after falling 11% on Monday. Investors are blaming the downdraft on the last-moment expansion of the offering.

Securities and Exchange Commission Chairman Mary Schapiro said Tuesday that her agency will examine “issues” surrounding the IPO in an effort to ensure confidence in public markets. An SEC spokesman declined to elaborate.

(click here to continue reading Inside Fumbled Facebook Offering – WSJ.com.)

Immigration Rally: May Day, 2006 - The Flag Guy
Immigration Rally: May Day, 2006 – The Flag Guy

Some paid for the money with coin that I wouldn’t be happy paying with, namely being banned from the US. Is the money really worth it? I’d say no, but I like living in America.

Facebook co-founder Eduardo Saverin’s decision to renounce his U.S. citizenship just in time to avoid a large tax payment essentially means he will not be able to re-enter the United States again, immigration experts tell TPM.

“There’s a specific provision of immigration law that says that a former citizen who officially renounces citizenship, and is determined to have renounced it for the purpose of avoiding taxation, is excludable,” said Crystal Williams, executive director of the American Immigration Lawyers Association. “So he would not be able to return to the United States if he’s found to have renounced for tax purposes.”

…

Two immigration lawyers said his explanation hardly passes the laugh test. Saverin’s move was timed to the initial public offering of shares of Facebook stock. The valuation of the Facebook IPO explodes Saverin’s stake in the social media company to some $3 billion, on which avoiding taxes could save him at least tens — if not hundreds — of millions of dollars. Nor does it help his case that he relocated to Singapore, which levies no taxes on those earnings.

Two senators mobilized Thursday to crack down on Saverin and other tax dodgers.

“He’s fucked,” said Adam Green, an immigration lawyer based in Los Angeles. “He must have gotten horrendous advice.”

(click here to continue reading Renouncing Citizenship Makes Facebook Co-Founder Inadmissable To US | TPMDC.)

Footnotes:
  1. I tweeted thus on May 17

    [↩]

Michael Moore’s Wall Street Film

Seth Anderson0 comment


“The Awful Truth – The Complete DVD Set (Seasons 1 & 2)” (Michael Moore, Linda Mendoza, Tom Gianas)

Even though I admit I haven’t bothered to view either of Michael Moore’s last two films1, I’m fully on board with his plans to make a Wall Street exposé. Mr. Moore’s heart2 is usually in the right place, once one ignores his love for self-aggrandizing.

I am in the middle of shooting my next movie and I am looking for a few brave people who work on Wall Street or in the financial industry to come forward and share with me what they know. Based on those who have already contacted me, I believe there are a number of you who know “the real deal” about the abuses that have been happening. You have information that the American people need to hear. I am humbly asking you for a moment of courage, to be a hero and help me expose the biggest swindle in American history.

All correspondence with me will be kept confidential. Your identity will be protected and you will decide to what extent you wish to participate in telling the greatest crime story ever told.

The important thing here is for you to step up as an American and do your duty of shedding some light on this financial collapse. A few good people have already come forward, which leads me to believe there are many more of you out there who know what’s going on. Here’s your chance to let your fellow citizens in on the truth.

[From MichaelMoore.com : Will You Help Me With My Next Film? …a request from Michael Moore]

There is obviously a lot of rage-inducing financial corruption happening in our nation’s financial sector, and who better to film it than Michael Moore?

Footnotes:
  1. Sicko and Slacker Uprising [↩]
  2. ie, his political leaning [↩]

Mr Beef a bit short

Seth Anderson0 comment

Mr Beef

There is hope that a fast food restaurant unique to Chicago will be able to stay open in the River North neighborhood– despite a foreclosure lawsuit.

Midwest Bank is suing the owners of Mr. Beef, 666 N. Orleans, to collect $650,000 the bank says it is owed.

The son of one of the owners tells ABC7 talks are underway to extend their loan. Several banks are offering to help.

[From Mr. Beef facing financial problems – 2/11/09 – Chicago News – abc7chicago.com]

Can’t say I’ve ever eaten at Mr. Beef, but it is a Chicago institution, favored by many who like slurping juicy hot beef sandwiches.

Greed Derivatives

Seth Anderson0 comment

Hunter and Devilstower over at Daily Kos make a strong case that the billions involved in the bailout are not for the mortgages, but rather the derivatives from the mortgages.

And that’s where we get that math problem. 1% of all mortgages — the amount now in default — comes out to $111 billion. Triple that, and you’ve got $333 billion. Let’s round that up to $350 billion. So even if we reach the point where three percent of all mortgages are in foreclosure, the total dollars to flat out buy all those mortgages would be half of what the Bush-Paulson-McCain plan calls for.

Then we need to factor in that a purchased mortgage isn’t worth zero. After all, these documents come with property attached. Even with home prices falling and some of the homes lying around unsold, it’s safe to assume that some portion of these values could be recovered. In the S&L crisis, about 70% of asset value was recovered, but let’s say we don’t do that well. Let’s say we hit 50%. Then the real outlay for taxpayers would be around $175 billion.

Which, frankly, is a number that Wall Street should be able to handle without our help. After all, the top firms on Wall Steet payed out $120 billion in bonuses alone between 2000 and 2006. If they’ve got that kind of mad money, why do they need us to step in now? And why do they need twice as much as all the mortgages that are even likely to implode?

[From Daily Kos: What Is This Money Even For?]

No, not the mortgage, the derivatives:

And despite what we’ve been told, then, we can only presume that the problem is in fact not all the bad, scary subprime mortgages. And it’s not. Yes, a lot of people are finding themselves upside-down on their houses right now, but Paulson isn’t proposing we do squat to solve that — and even the “controversial” Democratic counterproposal, that we actually do at least a little something to help those people, after they’ve already gone bankrupt, is pathetically weak.

Instead, we’re getting a Wall Street bailout not of the mortgages, but of the absurd, speculative, economy-wrecking derivatives based on those mortgages, derivatives that investors and banks ravenously sold each other at unsupportable and quite-probably-crooked prices. Those derivatives, generally speaking, are “bets” on the state of the underlying mortgages. And they didn’t just bet wrong — they bet irrationally, based on presumptions of near-zero risks to those underlying mortgages. And worse, the big banks even — bafflingly — got special permission to overleverage themselves 40 to 1, all but assuring collapse if those derivatives went south. Which they did.

The whole bailout (bipartisan or not) still smells fishy to me.

Is that the best approach? I’m not convinced, and I’m more than a little angry at the Democrats for, once again, accepting what they are given and trying to tweak it rather than coming up with true counterproposals. Propping the housing market up from the bottom may be much cheaper than trying to prop up the entire derivatives market from the top, and would seemingly have the same stabilizing market effects. Taking equity in firms in exchange for taking their crappy, non-marketable products would, yes, seem the absolute least we could do — there must be an upside for the taxpayer in providing this trillion-dollar investment at the expense of ballooning our national debt and crippling public sector works for a decade or more. But that’s still weak tea, all things considered.

Not being talked about as much, though, is that we must allow overextended companies to fail. It is an essential part of our economy that economy-threatening recklessness on the part of speculators not be rewarded, and especially not be rewarded by the government. Any actions to stabilize the economy should indeed inject liquidity — but it’s not clear that injecting liquidity through the very companies most in trouble is sustainable or even rational.

Regulator Plans to Bar Big Severance

swanksalot0 comment

In my best Nelson Muntz voice: ha ha.

Benjamins

The regulator of Fannie Mae and Freddie Mac said Sunday that it won’t allow the companies to make “golden parachute” severance payments to the mortgage companies’ ousted chief executive officers.

In a statement, the Federal Housing Finance Agency said such payments wouldn’t be made to Daniel Mudd and Richard Syron, despite provisions in their contracts. Mr. Mudd served as chief executive of Fannie and Mr. Syron was chairman and CEO of Freddie until last weekend, when the regulator seized control of the companies, saying they were in danger of running out of capital.

News reports that the two executives stood to receive millions of dollars in severance payments under their contracts triggered public protests from numerous politicians and inspired political cartoons in newspapers.

The FHFA cited “applicable statute and regulation” for its decision. The regulator has taken management control of the two companies under a legal process known as “conservatorship,” which could last for years while Fannie and Freddie are restored to financial health. The U.S. Treasury has pledged to provide as much capital as the companies need to continue in their role as the main suppliers of funding for home mortgages.

[From Regulator Plans to Bar Big Severance – WSJ.com]

Really though, I have little sympathy for overly-paid executives who run companies into the ground, and then get massive payouts.

Don't Outlive Your Money