Henry Paulson on The Huffington Post

Janet Tavakoli: Treasury Cover-Up of Goldman's Role in AIG Crisis?

2009-12-22T07:20:13Z

In November 2009, I wrote in the Huffington Post that Goldman Sachs Group nearly bankrupted AIG. In December, the Wall Street Journal explained to the general public that Goldman fueled AIG's gambling and played a much bigger role in the mortgage bets that nearly felled American Insurance Group (AIG) than the Treasury, the Fed, or Goldman itself publicly disclosed.

The TARP Inspector General's November 17 report missed the most damaging facts. Intentionally or otherwise, it was evasive action or just plain whitewash. The report failed to clarify Goldman's role in AIG's near collapse, and that of all the settlement deals, the U.S. taxpayers' was by far the worst.

Goldman originated or bought protection from AIG on about $33 billion of the problematic $80 billion of U.S. mortgage assets that AIG "insured" with credit derivatives, about twice as much as the next two largest banks involved.

Goldman acted as middle-man on $14 billion of that amount, after it took the risk of mortgage assets originated by other banks and insured all of it with AIG. Goldman may wish to claim it "was only following orders," but since Goldman also originated many of the mortgage assets ultimately protected by AIG, it should have been well aware of the risk posted to itself and to AIG. The risk was then Goldman's. If AIG failed, Goldman Sachs would have had to make good on those trades. Goldman stuffed so much risk into A.I.G. that Goldman nearly killed its own "hedge."

In November 2008, the New York Fed paid 100 cents on the dollar for the $14 billion of mortgage assets related to Goldman's trades. Goldman estimated the assets had lost $9.6 billion, or around two-thirds of their market value. Overall, the government's bailout out of AIG allowed Goldman to avoid losses on its trades covering $22 billion in assets.

The U.S. taxpayer deserved a much better deal. In late July 2008, SCA, another bond insurer, settled similar contracts for only around thirteen cents on the dollar. In August 2008, Calyon, a French bank also involved in AIG's transactions, settled disputed financial guarantees with FGIC, a bond insurer facing bankruptcy, for only ten cents on the dollar. Ambac, another bond insurer in need of capital, recently canceled similar trades for ten cents on the dollar.

Defenders argue that circumstances surrounding AIG were different from the other bond insurers. They are correct; the circumstances were worse. The Fed should have made sure any payments that originated from AIG, before or after the bailout, were only temporary loans to be repaid as soon as possible.

This link provides a snapshot from January 2008 of two of Goldman's value-destroying securitizations that were protected by AIG. (You will have to enlarge the image after clicking, and the document is a bit awkward.) The first is Abacus 2005-2; Goldman originated and bought protection on these mortgage assets. The second is Davis Square Funding IV. Goldman originated this deal, and French bank Societe General bought protection from AIG against it.

Inside Goldman's mortgage assets were value-destroying assets created by other Wall Street firms. Everyone bought each others' junk so prices stayed artificially high, and the risk could be dumped on someone else. Of course, this doomed strategy eventually fell apart. At the time of the AIG bailout, losses were quickly eating away at the insides of these products cooked up in Wall Street's financial meth labs.

Among the many shards of glass masquerading as gems, you will find Tourmaline CDO 2005-1. It was managed by Blackrock, the manager of the AIG assets that the Fed purchased with public money. Perhaps the Fed's theory in handing out no bid contracts to Blackrock has something to do with the diligence displayed by a fox watching a hen house.

The Fed gave the U.S. taxpayer a raw deal. At the time Goldman got its give-away, Henry Paulson was treasury secretary -- he was also Goldman's CEO when it put on its trades with AIG -- and former Goldman chairman Stephen Friedman was then chairman of the New York Federal Reserve Bank. Goldman CEO Lloyd Blankfein was the only Wall Street executive at one of Paulson's bailout meetings. Goldman was inside the tent advising on the most self-serving way to save itself and gain unfettered access to public funds.

In the fall of 2008, Goldman Sachs became a bank holding company before switching to a less regulated financial holding company in August 2009*. This prevented a run on Goldman Sachs and gave it permanent access to Fed funds, taxpayer money. Goldman pays rates near zero for short-term borrowing while it earns profits on the higher rates paid on the capital it is required to deposit with the Fed. Goldman also issued nearly $21 billion in debt guaranteed by the FDIC. Most valuable of all, however, is the perception that Goldman is so well-connected, that the government will never let it fail.

Goldman paid mega bonuses in past years subsidized by selling hot air. Now it proposes to again pay billions in bonuses based on earnings made possible by taxpayer dollars.

Now that the crisis is over, we should ask Goldman Sachs -- and all of AIG's other trading partners involved in these trades -- to buy back these mortgage assets at full price. Alternatively, we can impose a special tax. Instead of calling it a windfall profits tax, we might label it a "hot air" profits tax.

A Goldman spokesman denies it could have known these mortgage assets were a problem, but Goldman also acknowledged I had warned about them -- and the grave risks they posed -- at the time they were created. It said my opinion was in the "minority." As it happens, Goldman's opinion was proved tragically wrong, and mine was proved correct. It is not in the public interest to rely on Goldman's opinion about the greater risk it now poses to the global markets, and the Treasury should exact a much greater financial cushion.

The global financial crisis and the special circumstances surrounding AIG's bailout were extraordinary. It is unconscionable to reward value destroying activity that damaged not only AIG, but enabled massive damage to the U.S. economy. It is in the public interest to claw back public money. Goldman should buy back these mortgage assets at full price, or we should impose a reparations tax. Furthermore, Goldman should pay off its FDIC guaranteed debt, and once again become an investment bank with no access to Fed borrowing, before it pays taxpayer-subsidized bonuses to its employees.

The following is a December 21, 2009 FoxBusiness video:

*Corrected earlier typo showing date as 2008

Andrew Ross Sorkin: Morgan Stanley, Goldman Sachs Were On The Verge Of Collapse Last Fall (VIDEO)

2009-12-21T11:30:24Z

Don't buy the assertions that banks like Goldman Sachs would have survived the financial crisis without a taxpayer bailout.

According to Too Big To Fail author and New York Times scribe Andrew Ross Sorkin, who sat down with Newsmax TV recently, the world was dangerously close to the "financial abyss" last fall. So close, in fact, that both Morgan Stanley and Goldman Sachs were very close to going belly up, Sorkin argues.

After Lehman Brothers collapsed, Sorkin says, there was a widespread fear on Wall Street that Morgan Stanley would be the next to go under. Goldman Sachs CEO Lloyd Blankfein was reportedly so spooked that he called up Morgan Stanley chief John Mack and urged him to "hang on, because I'm thirty seconds behind you."

Sorkin says that Hank Paulson, who was Treasury Secretary at the time, and then-New York Fed President Timothy Geithner -- nicknamed "e-harmony" for his matchmaking efforts -- spent the weekend brainstorming potential mergers for the vulnerable banks. One possibility called for the absorption of Goldman Sachs by Citigroup; another for the marriage of Morgan Stanley to JPMorgan.

At the time, Sorkin added, policymakers feared that if major financial institutions continued to domino into bankruptcy, even non-financial corporations like General Electric could be vulnerable.

WATCH Sorkin's interview:

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Citigroup To Repay $20 Billion In TARP Bailout Money

2009-12-14T07:09:35Z

NEW YORK — Citigroup Inc. and Wells Fargo & Co. said Monday they would repay their government bailout loans, freeing them from close regulatory scrutiny and marking the latest step toward recovery for the U.S. financial system.

Citigroup, whose future looked uncertain as recently as the beginning of this year, will repay $20 billion, while Wells Fargo will repay the $25 billion it received. Both banks announced significant capital raises in order to repay the money, and the government will also sell the one-third stake it holds in Citigroup.

William K. Black: Geithner as Martyr to an Ungrateful Nation: Bo Cutter's Tragicomic Portrayal of Tim as a "Man for all Seasons" (Part 2)

2009-12-04T12:29:40Z

This is the second installment in my comments on Bo Cutter's essay defending Treasury Secretary Geithner.

Bo views Geithner as a martyr subjected to unfounded, ungrateful attacks for his actions that prevented the Second Great Depression. Bo doesn't have much use for Americans that are upset with the senior managers of the finance industry. (This is a bit weird because Bo denounces these senior managers as universally incompetent, cowardly, and unethical.)

"[L]iberals hate [Geithner] because he did not take over or dismember the banks, and publicly execute their senior managements."

This passage tells us nothing about liberals, but much about Bo and his peers' fears of the public. The finance leaders know they are guilty of destroying much of the global economy -- while growing extraordinarily wealthy in the process. They know that their primary means of destruction was accounting "control fraud." They cannot understand why the public has not turned on the finance industry and demanded that the fraudulent financial leaders be prosecuted and their immense gains from fraud recovered. They also cannot understand why we allow the continued existence of systemically dangerous institutions (SDIs). Geithner, Paulson, and Bernanke have warned that the failure of any SDI could cause a global crisis. Under their logic, SDIs are ticking time bombs that will cause recurrent global crises. Geithner, like Paulson, is making the SDIs much larger and much more dangerous by using them to acquire other large, failed financial institutions. This policy is insane. Virtually no one (that isn't on their payroll) supports the continued existence of SDIs and no one publicly argues they should be made even larger -- but that is our policy. Bo is the authentic voice of giant finance: the idea of shrinking the giant banks to this community is so painful, so personal that it is equivalent to "dismemberment." (It also shows that the giant finance is predisposed to view itself and its allies as tragic martyrs.)

Bo is only getting started with Geithner's martyrdom and the ingratitude of the murderous mob to this modern martyr.

"And no one thinks he is tall enough. If you read the accounts of Secretary Geithner's hearings last week, you know this is all classic Washington behavior. If there is one thing at which the glibocracy in DC excels, it is coming out of the hills after the battle is over and shooting the wounded. This is Washington today, a system in total gridlock, in which counting coup is the central activity."

So, Geithner is picked on by nearly everyone, not given any respect because he is short, and now that he is wounded the D.C. denizens are out to shoot him. Despite our scorn, Geithner continues to step into the breach on our behalf. Bo was a senior federal official in crises and found his peers to be cowards: "the crowd of people willing to join you in taking responsibility gets smaller by the second."

This is why he is so impressed by Geithner:

Then, beginning with his assumption of the Treasury job in November -- long before he was confirmed, so he was clearly going to be beaten up on every action he took, but he went ahead and took them -- he was at the lead of every major decision made in the recovery effort. (During this presidential transition period, it would have been easy to keep away from the decisions by saying that power was still in the hands of President Bush. But the Bush administration by that point was completely spent. Someone had to step up and Tim Geithner did.)

Unlike Bo's cowardly heroes, Geithner is a hero -- repeatedly taking the lead in responding to the crises even when he knew that if he did so "he was clearly going to be beaten up on every action he took." Geithner was abused for using stress tests.

His use of stress tests, which was roundly laughed at by everyone, worked, helping enormously to make much more transparent and less scary the situations all of the major banks were in.

The purported stress tests [see here, here, and here] did make banking seem "less scary" because they were not real and were part of the Geithner/Summers/Bernanke coverup strategy. The SDIs demanded that the accounting rules on loss recognition be junked -- and the trio acceded to that travesty. Bo tells us why the SDIs demanded that they be able to hide their massive losses when he explains why he supports the Bush/Obama administration bailouts of AIG's counterparties: "most of the banks had either insufficient or no capital." To put it more bluntly, most of them were insolvent and the remainder had so little capital that they posed intense, global systemic risk. The Bush and Obama administration have followed a three-part strategy towards these insolvent and crippled SDIs: (1) cover up the losses through (legalized) accounting fraud, (2) launch an "everything is great" propaganda campaign (the faux stress tests were key to this tactic), and (3) provide a host of secret taxpayer subsidies to the SDIs. This strategy is the opposite of making banks "much more transparent." The strategy is not shaped by finance, but by politics. Both administrations have sought to keep the American people from knowing about these cover-ups and secret subsidies because they know that we would not tolerate either policy. The cover-ups and secret subsidies are not simply awful financial policies; they are also a betrayal of democracy. When Bernanke writes that the sky will fall if the Fed is subject to audit it is precisely because he knows that the Fed's policies cannot withstand scrutiny by anyone serving the interests of the citizens (as opposed to the interests of the SDIs). (John 3:20 "For every one that doeth evil hateth the light.")

Bernanke may believe that when he acts in the interests of the SDIs he is acting in our interests. Charlie Wilson (GM President and President Eisenhower's nominee as Secretary of Defense): "I thought that what was good for our country was good for GM, and vice versa." But that's the point; the Fed and so many of its senior officials such as Bernanke and Geithner are dangerous because the institution identifies too completely with the SDIs. Like Bo, they also see us as murderous populists that cannot be trusted to make democratic decisions about SDIs. Calling Geithner's and Bernanke's cover-ups and secret subsidies "transparency" is Orwellian. The best one can say is that Paulson, Geithner, and Bernanke decided (undemocratically) that it had become necessary to destroy capitalism and democracy in order to save them.

Bo's final claim in support of his martyrdom motif is:

Tim Geithner acted. He acted at the moment action was required ... with the fullknowledge that he would face exactly what he is now facing.

Get off his back.

Luckily, I like Star Trek so I have experience puzzling through time paradoxes similar to the one Bo presents here. Geithner had "full knowledge ... that he would face exactly what he is now facing." What he's facing is calls for him to resign his position as Treasury Secretary. He became Treasury Secretary in 2009. Bo, however, emphasizes:

Starting from late 2007, as the crisis began to unfold, Geithner was at the spear point of every issue and, along with Bernanke, was a creative policy maker who clearly saw the immense dangers we faced and stretched all of the powers of the Federal Reserve Board to find solutions no one else could.

So, Geithner acted "from late 2007″ with "full knowledge" that his actions would be so unpopular that it would destroy his career and that he "would face exactly what he is now facing" (calls for him to resign as Treasury Secretary). Geithner's career went ballistic after "late 2007." In 2009, President Obama appointed him Treasury Secretary and has moved to reappoint Bernanke as Fed Chairman. Those are the two most prestigious financial positions in the world. Exactly which aspect of being promoted to his dream job made Geithner a martyr? Where can we sign up for similar martyrdom? Tevye's response to Perchik's claim that "money is the world's curse" applies to Bo's claim that Bernanke's promotion makes him a martyr.

May the Lord smite me with it. And may I never recover. [Fiddler on the Roof.]

All time paradoxes are, of course, paradoxical and Bo's doesn't disappoint. How exactly did Geithner know in "late 2007″ that (1) Obama would be elected President, (2) would appoint Geithner as his Treasury Secretary, and (3) that he would face calls in 2009 to resign as Treasury Secretary?

Why Praise Faux Martyrs When Ed Gray is Available?

If Bo wants to praise a real regulatory martyr -- one who got the finance and regulatory issues correct early enough to prevent an economic crisis, reregulated successfully in the face of virulent, powerful opposition, and who did so despite knowing that it would destroy his career at a point where he was in financial distress the obvious candidate is Ed Gray. As Paul Volcker wrote about Ed Gray in a post-publication blurb for my book, The Best Way to Rob a Bank is to Own One:

Bill Black has detailed an alarming story about financial and political corruption....the lessons are as fresh as the morning newspaper. One of those lessons really sticks out: one brave man with a conscience could stand up for us all.

Paul Volcker was Ed Gray's only pillar of support for his reregulation of the S&L industry. When Gray became Federal Home Loan Bank Board Chairman in 1983 the S&L industry was coming out of the first (interest rate risk) phase of the debacle but descending into an even more severe second phase of accounting control fraud. The National Commission on Financial Institution Reform, Recovery and Enforcement's 1993 report on the causes of the debacle explained the characteristic failure pattern:

"The typical large failure was a stockholder-owned, state-chartered institution in Texas or California where regulation and supervision were most lax.... [It] had grown at an extremely rapid rate, achieving high concentrations of assets in risky ventures.... [E]very accounting trick available was used to make the institution look profitable, safe, and solvent. Evidence of fraud was invariably present as was the ability of the operators to "milk" the organization through high dividends and salaries, bonuses, perks and other means (NCFIRRE 1993: 3-4)."

In 1983, the S&L accounting control frauds grew at an average rate of 50%. The Texas state S&L Commissioner was sleeping with prostitutes provided by the second worst control fraud in the nation -- Vernon Savings (known as "Vermin" to its federal regulators). The California state commissioner, according to the documents, was secretly in business with the worst control fraud in the nation -- Charles Keating's Lincoln Savings. Texas and California approved over 300 new S&L charters. Most of them were troubled real estate developers with severe conflicts of interest. Many of them were control frauds. The rate of applications for new charters was expanding.

Gray's predecessor, Richard Pratt (a theoclassical finance professor) led the deregulation of the industry at a time of mass insolvency. He also largely desupervised the industry. He gimmicked the accounting rules to cover up losses and create fictional income. He cut the number of examiners. There were no criminal referrals or prosecutions of senior S&L officials. The industry was completely out of control. A regional bubble in commercial real estate was already growing in 1983.

Gray reregulated and re-supervised the industry. He ended most regulatory accounting abuses. He doubled the number of examiners and supervisors (over the vigorous objection of OPM and OMB). We began targeting the worst control frauds for closure while they were still reporting record profits and minimal losses. We adopted a rule restricting growth aimed at the Achilles' heel of every Ponzi scheme -- the need to grow massively. Gray brought in experienced regulators with a track record of vigor, courage, and professionalism and put them in place in the Dallas (Joe Selby) and San Francisco (Mike Patriarca) because they were the two worst regions. We deliberately burst the Southwest's commercial real estate bubble.

Gray put in place a system of criminal referrals and made supporting criminal prosecutions a top priority. The agency (and here great credit must also be given to OTS Director Ryan and the Department of Justice and FBI) effort was so successful that over 1000 "priority" felony convictions of senior S&Ls insiders were obtained -- the most successful effort in history against elite white-collar criminals.

We almost always resolved serious failures in a manner that wiped out entirely "risk capital" (shareholders and subordinated debt holders). Gray blocked Texas' and California's land rush style grants of hundreds of new charters by refusing to approve FSLIC insurance for any new S&Ls in those states. Gray did all this with the certain knowledge (which he often stated to us) that it would end his career. He was in his 50s and he was in financial distress, so he knew the sacrifice he would make would be severe.

Gray took on, simultaneously, the Reagan administration (particularly Don Regan and the OMB), a majority of the members of the House (who co-sponsored a resolution calling on us not to reregulate), House Speaker Jim Wright, five U.S. Senators (the "Keating Five"), the S&L trade association (which some political scientists rated the third most powerful in the U.S., his two fellow Bank Board members, much of the agency (including two of our economists that met secretly with Keating's lawyers), and most of the media (which sometimes referred to him as "Mr. Ed" -- from the TV program about the talking horse). Charles Keating sued him in his personal capacity for $400 million. The administration threatened to prosecute him for closing too many insolvent S&Ls (under the Anti-Deficiency Act). The administration tried to appoint two members chosen by Charles Keating (the most notorious S&L control fraud) to the agency (which would have given them majority control of the three-person Bank Board). (Pause for two minutes and consider how catastrophic it would have been if the administration had succeeded in giving control of the agency to that decade's most notorious control fraud.) He served as a "mole" for Keating and proposed to amend the direct investment rule (which Lincoln Savings had violated by more than $600 million) that would have had the effect of exempting it from enforcement. Lincoln's lawyers drafted the amendment (which, of course, never mentioned Lincoln). I blew the whistle on Keating's mole, which eventually led him to resign. After I blew the whistle (but before he resigned), the administration nominated him for a full term. The day after he resigned four U.S. Senators (the "Keating Five" minus Senator Riegle) met with Gray to pressure him not to take enforcement action against Lincoln's massive violation of the direct investment rule.

Don Regan tried very hard to force Gray to resign. He refused, so Treasury Secretary Baker met secretly with Speaker Wright (who, at the behest of Texas control frauds, was holding our proposed bill to recapitalize the FSLIC insurance fund hostage in order to prevent us from securing the funds to close more of the control frauds). Baker and Wright reached a cynical deal: the administration would not reappoint Gray to a new term and would not oppose Wright's demands for "regulatory forbearance" (which included debasing -- again -- the accounting rules and adopting other measures drafted by attorneys for the control frauds designed to make it far harder to close insolvent S&Ls. Wright agreed that he would support a $15 billion FSLIC recapitalization bill (instead of the $5 billion bill that the industry and control frauds supported. Wright got the better of the deal because his allies spread the word that the Speaker didn't really support the $15 billion bill and the House voted for the $5 billion bill.

Gray remains unemployed and unemployable today. But he doesn't have to avoid mirrors.

Unlike Geithner, Paulson, and Bernanke, Gray acted before the epidemic of accounting control fraud produced a bubble so large that it produced a general economic crisis. Consider what would have happened had Gray not reregulated and resupervised the industry beginning in November 1983. The roughly 300 control frauds in 1984 would have grown at 50% annually and scores of new Texas and California frauds would have entered each year. The result would have been a commercial real estate bubble of epic proportions. Such a bubble would have taken down not only the S&L industry, but also the banking industry (which had massive commercial real estate exposure) and would have severely damaged the insurance industry (which provides much of the permanent/takeout financing for commercial real estate). We cannot yet demonstrate when a bubble will collapse, but we know that accounting control fraud epidemics are capable of extending the life of financial bubbles and hyper-inflating them for several years. The direct losses among S&Ls, absent Gray's reregulation, would have been over a trillion dollars within five years. The losses to banks and insurance companies would have exceeded the S&L losses. Losses of that magnitude would have caused a severe recession.

It also needs to be stressed that subprime and alt-a loans, qualifying loans based on teaser rates, bonuses to loan officers based on volume (not loan quality), inflated appraisals, and accounting control fraud are not new. They always end badly. Mike Patriarca lead the supervisory effort in 1990-92 that prevented a nonprime lending crisis by forbidding lending practices that we have long known end in disaster. He then left federal service and went into business.

You might think that the first two calls Geithner, Paulson, Summers, Rubin, and Bernanke would have made once they finally realized there was a crisis would have been to Ed Gray and Mike Patriarca to see how successful reregulation is accomplished and how one successfully prosecutes the accounting control frauds that drove the current crisis. But, if you think that you probably also think that the one regulator that stood openly in support of Gray's reregulation of the industry -- Paul Volcker -- would be President Obama's primary economic advisor. Instead, Summers, Geithner, and Bernanke have marginalized Volcker. The Bush and Clinton anti-regulatory Wrecking Crews remain in power in the Obama administration despite a dismal record. They are never held accountable. Bo wants them left in power. He wants us to stop criticizing their failures, to apologize to them for our ingratitude, and to honor them for the terrible career sacrifices they have (mythically) made to protect us from harm.

I disagree. I urge us to learn the lessons not simply of regulatory failures but regulatory and prosecutorial successes (the Gray and Ryan years). Mike Patriarca is in his prime. Put him in charge of a major regulatory agency immediately. Paul Volcker is a national treasure that petty, power-hungry failures (yes, I mean Summers) are wasting.

Oh, and Jim Baker, Jim Wright, and John McCain should show some class and apologize for the shoddy treatment they handed out. Let me be clear on this last point -- they shouldn't apologize for the shoddy treatment of Ed Gray the man -- they should apologize for the damage they caused our nation when they took their policy advice from major political contributors (that were leading control frauds) and impeded Gray's substantive reforms that were essential to protecting our citizens.

John Paulson Grossed $44 Million In 5 Weeks On Sale Of Gold Detour Corp.: Report

2009-12-03T15:52:48Z

Hedge fund billionaire John Paulson may have made about C$46.4 million ($44 million) in less than five weeks from his stake in Detour Gold Corp., his latest reported investment in a gold company.

William K. Black: Fraud and Failure: Bo Cutter's Indictment of the Finance Industry (Part 1)

2009-12-03T15:48:15Z

Bo Cutter has presented the best possible defense of Treasury Secretary Geithner.

It is a remarkable defense because it is premised on a scathing indictment of Wall Street, theoclassical economics, modern finance, and the sycophants that the financial community installed as anti-regulators. Indeed, Bo's account is sometimes particularly credible because it is a confession. Bo was a managing partner of Warburg Pincus, a major global private equity firm, and led President Obama's Office of Management and Budget (OMB) transition team. His defense of Geithner provides so rich a vein of ore that I will mine it in three installments: (1) Bo's indictment of the finance industry, Greenspan, Geithner, Paulson and Bernanke, (2) the martyrdom of Geithner, and (3) Geithner as Bo's Last Action Hero.

Bo's explanation of Geithner's unique virtues begins the indictment.

It comes down to this: the combination of brains, guts, calmness, and a willingness to act are virtually non-existent in Washington in any era, but particularly in this one. When you find the combination in a significant cabinet level job, you should value it.

[T]his crisis was long in coming and it was a totally integrated failure of intellectual traditions, global macro-economic imbalances, government policy making, regulatory supervision, financial sector greed, incomprehensible boards of directors, absences without leave, and breath-taking management short-sightedness. No one and no institution put together an understanding of the set of factors that triggered this particular debacle. Tim [Geithner] is included in this "no one", but so is everyone else.

I think the last two years have revealed the single largest failure of senior management in the financial sector, and of the board system in American history. I think I am correct in saying that there was not a single independent director in America who stood up on this issue. I do not understand why every board of every institution that failed was not asked to resign immediately.

Bo's indictment is compelling, but his logic proves a deeper failure. There is no reason to restrict his indictment to "the last two years." The senior managers' and directors' failure did not begin with the recession. They failed throughout the expansion of the bubble, the backdating of stock options, after-hours trading, the collapse of the auction rate securities market, the "epidemic" of mortgage fraud by lenders, the massive scandals of the Enron and Worldcom era, and the savings and loan debacle. The financial sector has been in recurrent, intensifying scandals for decades.

Bo's arguments require us to focus on at least the last four years (even if he continues to ignore the FBI's 1984 warning that the mortgage fraud "epidemic" would cause a crisis).

In fact, by 2006 and early 2007 everyone thought we were headed to a cliff, but no one knew when or what the triggering mechanism would be. The capital market experts I was listening to all thought the banks were going crazy, and that the terms of major loans being offered by the banks were nuttiness of epic proportions.

By early 2006 -- roughly four years ago -- "everyone" agreed "we were headed to a cliff" and that the banks' "major loans" were "nuttiness of epic proportions." An industry whose claimed expertise is the sophisticated evaluation of risk and value universally failed to come remotely close to valuing either. As Bo emphasizes, these were massive errors. These managers got immensely wealthy because -- not despite -- their willingness to make hundreds of thousands of loans that were certain to crash and burn as soon as the bubble ceased to inflate (which it did in 2006). Bo knows them, and Bo says that every independent (sic) director betrayed their fiduciary duties to shareholders. Every senior officer at the major banks failed. Bo portrays them as incompetents, cowards, and moral failures.

Bo's indictment of his finance peers is even more severe than his portrayal. White-collar criminologists have shown that the lending pattern he describes ("nuttiness of epic proportions" when "everyone" agrees "we were headed to a cliff") demonstrates that the lenders are frauds that have produced an epidemic of accounting "control fraud" (where the persons controlling a seemingly legitimate organization use it as a "weapon"). The FBI began publicly warning of an "epidemic" of mortgage fraud in September 2004, with 80% of the losses occurring when lender personnel were involved in the fraud. The number of criminal referrals for mortgage fraud indicates an annual rate of mortgage fraud in the many hundreds of thousands. The recipe for a lender optimizing accounting control fraud is: (A) grow extremely rapidly, (B) make extremely bad loans, (C) have extreme leverage, and (D) provide minimal loss reserves. (The first two ingredients are related. In a mature product like home mortgages, the optimal way to grow extremely rapidly while increasing yield is to make loans to individuals that cannot repay the loans. The rapidly expanding bubble allows fraudulent lenders to postpone loss recognition by refinancing the bad loans.) Nonprime specialty lenders followed this recipe. The pattern produces guaranteed record accounting profits in the short-term. Because a significant number of lenders follow the same strategy, the result was a hyper-inflated financial bubble followed by an economic crisis.

The accounting fraud optimization pattern that a lender follows, however, creates two weaknesses that we exploited as S&L regulators during the debacle. The lender must gut its loan underwriting standards and suborn its internal controls. Secured lenders must encourage inflated appraisals. Officers must be disciplined for rejecting bad loans and given bonuses for making bad loans. No honest lender would follow such suicidal practices. Bank examiners can easily, quickly, and precisely identify these perversions of honest, normal underwriting practices. We made closing such lenders our top priority -- while they were still reporting record profits and minimal losses (See: The Best Way to Rob a Bank is to Own One). The economists and lawyers thought that this proved we were insane because they were clueless about accounting fraud. The second weakness is that optimizing accounting fraud requires extremely rapid growth. This provided a quick screening device for identifying likely frauds and a means to force their rapid collapse -- by restricting their growth. Regulators could have targeted these same weaknesses and contained the ongoing crisis. Instead, despite the FBI's early warnings about the fraud epidemic, they functioned as anti-regulators. The FBI has put the matter starkly: it is "irresponsible" to purport to explain the crisis without discussing fraud.

This post originally appeared on New Deal 2.0 and New Economic Perspectives.

Goldman Sachs Staff Buying Guns 'To Defend Themselves Against Public Uprising'

2009-12-01T09:52:20Z

"I just wrote my first reference for a gun permit," said a friend, who told me of swearing to the good character of a Goldman Sachs Group Inc. banker who applied to the local police for a permit to buy a pistol. The banker had told this friend of mine that senior Goldman people have loaded up on firearms and are now equipped to defend themselves if there is a populist uprising against the bank.

Billionaire John Paulson's Hedge Fund Owns More Gold Than Many Countries (CHART)

2009-11-30T14:30:05Z

n case you missed it... early last week The Reformed Broker detailed the incredible amount of gold that hedge funds (in this case Paulson & Co.) have accumulated in a very short period of time:

Fed Said to Ask Stress-Tested Banks to Submit TARP Repayment Plans

2009-11-24T01:54:42Z

The Federal Reserve asked nine of the U.S. banks that were part of this year's stress tests to submit plans for repaying the government's capital injections, a person familiar with the situation said.

Don McNay: Washington: Totally Disconnected From Main Street

2009-11-23T19:30:25Z

Can you hear me calling you?

-Mike and The
Mechanics

Mark Twain said that when he died he wanted to be in Kentucky because everything happens 20 years later in Kentucky than in the
rest of the world.

I live in Kentucky but I
want to die in Washington. It might be the ticket to immorality. The people running Washington seem to exist in an alternate
universe.

Sunday’s Huffington Post headline read “Sherrod Brown: Obama
Focused on Main Street
but not all his advisers are.”

How long did it take you to figure that one out, Sherrod?

What was the first clue? Double-digit unemployment? Huge
Wall Street bonuses? The fact that no one on Obama’s economic team
has ever worked on Main Street
in his or her entire life?

Operating a business on Main Street is a lot different than lecturing
at the Harvard Economic Club. The team
President Obama surrounded himself with has spent way more time in a faculty
lounge than in the corner barber shop.

In the alternative universe of Washington,
the idea that Senator Brown, a progressive Democrat from Ohio, would criticize Obama’s advisers, is
considered earth-shattering.

Partisanship rules in Washington.
And Democrats and Republicans never
deviate from their talking points.

No one is supposed to think for himself. Even just a little bit, like Brown did.

In the alternative universe of Washington, they don’t really understand that
people on Main Street
are hurting. Not only are they hurting,
they are angry.

Charlie Rose recently hosted Warren Buffett on his show. Buffett is one of the richest guys in the
world, but he thinks he, and other rich people like him, should pay a higher
percentage in taxes.

Buffett noted that “K Street lobbyists” had developed too
much influence in Washington
and the average American was not being heard.

Buffett was a big Obama supporter. But he is also a realistic businessman. He understands that our economic future
depends far more on Main Street
than on Wall Street.

Part of the reason Washington
can be an alternative universe is that it’s a city that tends to be immune to
recessions and depressions.

I was in Washington
recently and a friend told me of his dilemma of trying to buy an affordable home. Washington
has one of the most expensive housing markets in the country. The federal government has not had any
significant layoffs or cutbacks in many years.
They keep on printing money.
There are many others who work for agencies or firms that deal directly
with the government. They are not
feeling the recession, either. It seems
the business of government is always booming.

People in Washington
are not feeling our pain. Or the extreme
pain that their counterparts in state and local governments are about to
feel.

My business is somewhat recession-proof, but I operate just
off Main Street
in Richmond, Kentucky.
Economic despair is all around me.
I have friends, and friends of friends, come to me daily looking for a
job. Not a high-paying career with
possibilities for advancement, benefits and a pension. Just a job.
A paycheck.

I don’t know what to do for them. I don’t have jobs to give them.

We advertised for an entry level position earlier
this year. We were flooded with
applications, including people with advanced degrees and boatloads of experience.

As Sherrod Brown so astutely noted, some of President
Obama’s advisers don’t “get it.”

Those of us on Main
Street knew from Day One they wouldn’t “get it.” Nothing in their background, education or
life experiences prepared them to understand the economic crisis from a Main Street
perspective.

I don’t blame the people Obama appointed. I blame the guy who appointed them.

We don’t get to vote for Secretary of the Treasury or
Chairman of the Federal Reserve Board.

We do get to elect a president. A president I voted for. One who campaigned on “change we can believe
in.

We have not had change on the economic front because Obama
chose his advisers from the same bunch of Wall Street and Washington insiders
that George W. Bush chose from.

Tell me how Timothy Geithner,
Dr. Lawrence Summers and Ben Bernanke are different from Henry Paulson, Alan
Greenspan and the people Bush had around him?

Imagine how different economic policy would be if someone
who understood Main Street
was calling the shots.

We would have the kind of change we really could believe in.
And was promised.

Don McNay,
CLU, ChFC, MSFS, CSSC is one of the world's leading authorities in helping
people deal with “Big Money” issues.McNay is an award
winning, syndicated financial columnist
and Huffington Post Contributor. You can read more
about Don at www.donmcnay.com
McNay founded McNay Settlement
Group, a structured settlement and financial consulting firm, in 1983 and Kentucky Guardianship
Administrators LLC in 2000. You can read more about both at www.mcnay.com
McNay has Master's
Degrees from Vanderbilt and the American
College and is in the
Eastern Kentucky University Hall of Distinguished Alumni.

McNay has written two
books. Most recent is Son of a Son of a Gambler: Winners, Losers
and What to Do When You Win The LotteryMcNay is a lifetime
member of the Million Dollar Round Table and has four professional designations
in the financial services field.

Revisiting The Fed's Bailout Of AIG And The Benefits For Goldman Sachs

2009-11-22T02:12:22Z

A RAY of sunlight broke through the Washington fog last week when Neil M. Barofsky, special inspector general for the Troubled Asset Relief Program, published his office's report on the government bailout last year of the American International Group.

Raymond J. Learsy: The Key Question No One Asked About Goldman's Role In The AIG Bailout

2009-11-20T09:37:48Z

A key and fundamental question was not broached during the fierce interrogation of Treasury Secretary Geithner during Thursday's hearings before Congress's Joint Economic Committee. The contentious subject at hand was the Fed and Treasury's role on the issue of the American International Group's multi-billion dollar bailout. The key question neither asked
nor answered was:

What was the nature of the myriad discussions at the height of the crisis in September 2008 between Treasury Secretary and former Goldman Sachs Chairman Hank Paulson and Goldman Sachs Chairman Lloyd Blankfein?

It is hard to imagine that the issue of AIG was not broached, and information exchanged. Most tellingly, Geithners's testimony yesterday reiterated the fact that the Fed and Treasury viewed the prospect of AIG's failure as posing a highly significant risk to the economy, and after Lehman, AIG's failure was not going to be permitted to happen. That morsel of information, had it been made available to Goldman Sachs in September of 2008, would have been worth tens of billions of dollars to them.

Goldman Sachs was AIG's largest counterparty and its holdings, directly or indirectly, through Credit Default Obligations and Credit Default Swaps, made up one third of the $62 billion counterparty trades on AIG's books. Given Goldman's know-how and connections it would seem probable that they also played a leading role as enabler in what Fed Chairman Ben Bernanke described to a Congressional Committee in March of this year as the following:
"AIG exploited a huge gap in the regulatory system; there was no oversight of the financial products division. This was a hedge fund basically attached to a large and stable insurance company, made huge numbers of irresponsible bets, took huge losses."

During the subsequent rescue of AIG, a game of high stakes poker evolved, perhaps with a touch of outright extortion. The New York Fed, which Geithner headed at the time, was charged with negotiating with AIG's trading partners to try to modify their counterparty contracts with AIG to levels more closely approaching their real time value, at the time hugely less than their face amounts. Discussions had taken place at one stage between the trading partners and AIG toward writing down the AIG obligations to some 40 cents on the dollar without success, as Goldman et al refused to budge.

And here the crunch, and key to the question: Did Goldman and the other banks know for certain that the bankruptcy of AIG was no longer a risk for them? That the Fed and Treasury were now irrevocably committed to saving AIG? With that foreknowledge all along that Goldman and the other banks were empowered to take, risk free, the inflexible position that "it would be improper and perhaps even criminal to force AIG's partners to bear losses outside of bankruptcy court." Thus Goldman, et al would have been playing poker with a clear view of the Fed's hand.

It raises the serious question of what Goldman knew and when did it know it and whether Goldman played the AIG derivatives card with "inside information" about the Fed's intentions. And, if so, what might be the legal ramifications?

As pointed out here, knowing Mr. Paulson conveyed a penchant for being showered with gold dust. Pimco pocketed $1.7 billion (Pimco's single largest payday was the proud boast) in taking positions in underwater Fannie Mae and Freddie Mac paper that were then surprisingly redeemed at full value piggybacking on the taxpayers $100 billion plus bailout of those institutions.

And when the big guys were in trouble because of the public's perception of greed and funny games, there was Hank Paulson telling us while flying on his way to Saudi Arabia, with oil on its way to $147 a barrel, that it was all about "supply and demand," thereby making us all feel better paying $4.00+/gallon at the pump and watching our economy go down the pipeline.

What Did TARP Accomplish? Simon Johnson In The NYT

2009-11-19T08:05:28Z

Here is my assessment.

In late September 2008, Treasury Secretary Henry S. Paulson asked Congress for $700 billion to buy toxic assets from banks, as well as unconditional authority and freedom from judicial review. Many economists and commentators suspected that the purpose was to overpay for those assets and thereby take the problem off the banks' hands. Indeed, that is the only way that buying toxic assets would have helped anything.

James Altucher: Why Ron Paul is Wrong

2009-11-18T16:41:25Z

In a recent article in Forbes Magazine, former Presidential candidate Ron Paul expounds on why the government has screwed the entire bailout up and that we are heading into a Great Depression even potentially worse than the one that hit in the 1930s.

He's wrong.

Lets take a look, step by step, through his argument.

His first argument is that although the economy seems to be improving, it is a false recovery similar to the false recovery in 1932 and that "the interventionist policies of Hoover and Roosevelt caused the Depression to worsen, and the Dow Jones industrial average did not recover to 1929 levels until 1954."

This is an unfair comparison. Hoover's, and then Roosevelt's, interventions were of a much different flavor than today's stimulus package. In 1930, Hoover signed the Smoot-Hawley Tariff Act, which put tariffs on thousands of imported goods, effectively ending all trade with foreign countries. While Obama has recently put on a small tariff on some Chinese goods, the overall trade situation has not changed much and has had very little intervention that would cause trade to be inhibited. Singlehandedly, Smoot-Hawley made the Depression ten times worse than it could've been, and there is no comparable act now.

In 1931, a full two years after the Depression started, Hoover set up the National Credit Consortium which pushed larger banks to lend to smaller banks. It didn't work. Bernanke and Paulson (and now Geithner), to avoid this pitfall, just directly had the government put money in all the banks (the TARP bill), significantly speeding up the process by which, eventually, money will start to flow through the system.

In 1932, Hoover raised taxes so that the top tax rate went to 63% on personal income and corporate tax went from 12% to 13.75%. While tax hikes might be in our future, so far none have been put in place.

In 1933, Roosevelt signed the National Recovery Act (Hearst referred to the NRA bill as "No Recovery Allowed"), which fixed wages. He did this with good motives: to stop the deflation in people's incomes. But the results of fixing wages produced the opposite effect as employers simply stopped hiring or would hire under the table and wages ultimately fell 21% over the next several years. No such interventionist bill is even being contemplated.

These are just a few of the "interventions" that Bernanke, Paulson, Geithner have avoided in their attempts to fix the current issues without repeating the mistakes of the fast. The comparison is unjust at this point.

Ron Paul states, "Anytime the central bank intervenes to pump trillions of dollars into the financial system, a bubble is created that must eventually deflate."

If a bubble is being created, I'd like to see it. When there's a bubble, everyone will feel flush. Just as they did in 1999 from the internet bubble and in 2006 from the housing bubble. There's no bubble right now. In fact, the M2 money supply is actually decreasing. We are in a deflationary environment that desperately needs to be reflated. Until that happens, there's no worry about bubbles.

Ron Paul further says, "Those banks and financial institutions that took on the largest risks and performed worst were rewarded with billions in taxpayer dollars, allowing them to survive and compete with their better-managed peers."

Well, over 100 banks now have been shut down by the FDIC. And one of the largest broker-dealers, Lehman Brothers, was allowed to fail (with disastrous consequences). It sounds nice in theory to allow the excesses work through the system and I do believe that to a large extent is possible, Paulson and then Geithner have been allowing this to happen. But you don't want the system to collapse. Some institutions can only fail if we're willing to risk the tens of millions of checking accounts that people have with banks and the millions of credit lines that small businesses have with banks to make basic needs like payroll, etc. While it's fine to speak theory about our excesses, the average man, woman, and business can't change the status quo too much without significant personal pain being felt.

Perhaps Ron Paul doesn't mind because a better system would be the result, but I think the consequences in the short-term would be unbelievably painful and would rival the misery of the dustbowl Great Depression.

Ron Paul says, "Even with the massive interventions, unemployment is near 10%".
Most of the stimulus bill is taking effect in 2010. Even the "shovel ready" projects that were supposed to begin in 2009 are getting a slow start thanks to bureaucracy and won't have an effect until sometime next year.

Not only that, companies did exactly what they were supposed to do in the beginning of this recession -- they slashed inventories faster than any other time since 1940, and they fired the people used to make those inventories. Well, the world didn't end, and now they have to rebuild those inventories. And the hiring rate will be the fastest it's been in 50 years, as we need to completely restock the shelves. Paul doesn't take this into account in any of his discussions about the state of the current economy, and yet this is probably the most important statistic out there at the moment.

Paul says, "foreigners are cutting back on purchases of Treasury debt"

Well, that might be true, but interest rates are still near all-time lows because US citizens have been upping their purchases of Treasury debt as our personal savings rate reaches a ten year high.

Paul says, "As the housing market fails to return to any sense of normalcy"

Actually, the Case-Shiller Home Price index has been up the past four months in a row. So lets calm down a little bit and wait and see what happens. But its wrong to say its "failing to return to any sense of normalcy".

Finally, Paul, in a fit of rage about a declining dollar, says, "The Fed has already overseen a 95% loss in the dollar's purchasing power since 1913."

Well, the stock market is up 10,000% since then. And in every way the quality of our lives is better than 1913. I'd much rather live in 2009 than in 1913.

At the end of the day, don't succumb to populist panic. Capitalism works and is on its way to a recovery if we just sit back and let it happen.

'Too Big To Fail': Andrew Ross Sorkin-Lesley Stahl Interview (AUDIO)

2009-11-17T17:40:23Z

Andrew Ross Sorkin is a New York Times financial columnist, the editor of Dealbook, a popular financial blog, and most recently, the author of Too Big to Fail: The Inside Story of How Wall Street and Washington Fought to Save the Financial System -- And Themselves. The book, which details the fall of Lehman Brothers and the subsequent government bailouts, debuted at No. 4 on the New York Times bestseller list.

LESLEY: Andrew, let me ask you straightaway about what you learned in writing this impressive book. You interviewed virtually every major player on Wall Street and in the government crisis. How big of a mistake was it that Washington let Lehman Brothers fail?

Compared To Buffett, Paulson And Geithner Have Gotten Taxpayers Little Bang For Their Bailout Buck

2009-11-17T11:04:44Z

One of the best ways I've found to evaluate the actions taken by then-Treasury Secretary Hank Paulson in bailing out the nation's failing banks back in 2008 -- and current Treasury Secretary Timothy Geithner's efforts to uphold the validity of those actions -- is to compare them to the actions taken by billionaire Berkshire Hathaway CEO Warren Buffett around the same time.

It's a valuable comparison that hasn't gotten a lot of attention but those who have bothered to have shone an appropriately harsh light. In January of 2008, Mark Pittmaen got economist Joseph Stiglitz on the record, saying, "If Paulson was still an employee of Goldman Sachs and he'd done this deal, he would have been fired." Late last month, MBF Asset Management LLC founder Mark Fisher took it further in Bloomberg, ripping the bailout as the blown "Trillion-Dollar Trade of the Century," saying, "To put this all in perspective, just consider for a minute how in the world Warren Buffett managed to negotiate a better deal with Goldman Sachs Group Inc. than the government did for the taxpayer."

Flash-foward to this week's issue of Barron's, where we have Jon Najarian laying out the Buffett-versus-bailout comparison in terms of how well everyone did with their 2008 bailout-era investments. As it turns out, to make money, you sort of have to act as if you want to. Buffett, when he decided to invest in Goldman Sachs, chose "to invest $5 billion... through a purchase of perpetual preferred stock," and "got warrants to buy up to $5 billion of Goldman common shares at $115 each, some 8% below where the stock was trading at the time." This was, in Najarian's estimation, "a very public model" of how to structure a bailout investment. But come the middle of October, when "the Wall Street giants had their backs to the wall," Paulson "gave them billions of our taxpayer dollars for a relative pittance."

So. How'd that work out?

Fast-forward to Oct. 21 of this year, and now Paulson's successor at Treasury, Timothy Geithner, is telling us what a great investment the government made in Goldman. His office touts the 23% return on our $5 billion in taxpayer money. Let's compare that with what we might have gotten with terms similar to Buffett's.

Goldman was trading at $115, so a $5 billion stake bought the taxpayers 43 million shares. With the stock subsequently running up to $180, that $5 billion stake would be worth $7.8 billion, a gain of $2.8 billion. But wait, it gets better -- or worse, depending on your view. Given the added kicker of warrants on another $5 billion, 8% under the market, we'd also own warrants for 43 million shares at $105. So we'd have made another $3.2 billion.

Thus, the total gain before dividends would be $6 billion on a $5 billion investment. Last time I checked, that's 120% on our money, versus the 23% that Hank got us.

It's almost as if Paulson and Geithner are more concerned with their once, and future, Wall Street cronies than they are the taxpayers whom they serve. How Geithner can peddle his 23% return as anything other than a massive failure simply staggers the imagination.

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Georges Ugeux: Why Sen. Dodd's Opposition to the Federal Reserve is Ill-Conceived

2009-11-13T13:13:43Z

The Senate Banking Committee unveiled its proposal for financial reform. It differs from the Administration's proposal on one major point. It deprives the Federal Reserve of its regulatory responsibilities rather than entrusting it to oversee the "too big to fail" financial institutions. The explanation is that many Democrats resent the way the Federal Reserve has not anticipated the systemic risks contained in the financial bubbles that exploded.

Had Senate Banking Committee's Chairman, Chris Dodd's proposal been effective before the crisis, where would we be today? The Federal Reserve would be completely restricted to monetary policy and dissociated from any responsibility for the financial institutions. It might never have lowered interest rates as low as it did. It would therefore not have done what all Central Banks around the world have done: provide the liquidity at a time when banks were no longer prepared to trust each other. By the way, the first massive injection of cash did not come from Washington but from Frankfurt where the European Central Bank injected close to $ 150 billion into the system in one day.

The responsibility to act decisively and efficiently would have been devolved to Government Agencies, and the Administration would have had to go to Congress to obtain the amounts necessary to avoid the dislocation of the world financial markets. By the time Congress would have acted, based on the glorious records of Hank Paulson, John Mc Cain and the Republicans who only approved the TARP after being bribed, most US banking institutions would have been forced to file for bankruptcy and the system would have collapsed, making 1929 look like a kindergarten experience.

The FDIC Chairman, Sheila Bair, who was the first to draw the Administration's attention on the gravity of the situation and remarkably handled an impossible situation, would not have been able to fund the kind of interventions without massive injections of the Treasury, who would need Congress approval.

It is perfectly true that the Federal Reserve's performance was less than stellar before the crisis. Fed Chairman Greenspan did not see it coming, and his successor Bernanke often gave the impression that he was a great economist rather than a market leader. In order to avoid such a bloodbath during the crisis, it tripled its balance sheet, extended the access of its liquidity window to more institutions and more classes of assets. It required courage, determination and competence.

The Senate's anger at those who are responsible for this crisis is perfectly justified, and it can be directed as well at the bankers, their Boards, the Comptroller of the Currency, the SEC, the International Monetary Fund, the Forum for Financial Stability and the Bank for International Settlements.

The Federal Reserve, like every central bank in the world, has always combined monetary policy and regulatory oversight. This role is played by most of its counterparts around the world, although it is mostly confined to bank oversight. There is a rationale for it: accountability. It is important that the institution that will be asked to intervene at times of crisis and has the financial means to do so be held accountable for the oversight of those institutions who present a systemic risk for the US and the global financial markets.

Does that mean that the Fed is the ideal solution? There is no perfect solution to the problem of financial oversight. One thing is clear, however: there is a need for a single institution to act as a catalyst and a coordinator of all regulators and which will dispose of the global information needed to preempt systemic crises. The importance of the SEC as a market regulator and of the FDIC as the guarantor of deposits cannot be underestimated. The FDIC needs increased financial means to continue its current role of "distressed assets manager". But they are Government agencies, and as such report to Congress.

What is also very clear is that if the Federal Reserve System has to be trusted for this oversight, it needs to change its methods and its structure. There is indeed an imbedded conflict between monetary policy and financial oversight. But it is a structural one: the level of interest rates and the open market policy are inevitably intertwined with financial health. Those rates affect the general economy and the fight against inflation needs to recognize its effects on the financial system.

It is not because the Senate might not happy with the management of certain institutions, that the institution is disqualified to fulfill its duties. Again, the Senate is very justified to be angry at this situation but the Dodd bill's exclusion of the Federal Reserve's regulatory oversight is no way forward.

Lesley Stern: How to Live on $0 a Day: Assuaging Rage, One Prick at a Time

2009-11-12T10:53:50Z

If you've lived your life believing that hard work, ethics, observing the golden rule and fiscal responsibility will be rewarded, you're probably a little ticked off right now. Okay, you're probably roiling with rage (especially if you stopped taking your anti-depressants because your insurance company canceled you for being depressed).

A lot of that anger comes from a sense of betrayal and helplessness at seeing people who broke every law of decency living high on the hog while the rest of us are hard pressed to afford a swine flu shot (if we could find one).

The logical recourse is to seek justice. You've appealed to their non-existent sense of decency. You've written your elected officials, attorney general, chamber of commerce and better business bureau. Clearly, you can't afford a lawyer. Crank calls and Internet heckling bring no relief. And while sending offenders cat poop in the mail is satisfying, the postage is costly--there are no bulk media rates for mass poop mailings (which REALLY pisses you off). And try as you might, you can't seem to get your friends interested in storming Wall Street or the Capitol because pitchforks are too expensive.

If you're quivering with rage just thinking about it, it's time to take action. I've discovered a way to calm my ire and achieve a semblance of inner peace without costly aids like therapists, tranquilizers, a masseuse or weapons.

Whether your anger is directed at a TARP recipient harassing you for an overdue $69, a vile CEO, pundit or politician, someone who screwed you over, the neighbor's dog, or the waiter who lied when he told you the chef's special chicken was all white meat, my methods ensure that all bad behavior is met with swift and decisive punishment (finally!). I can't tell you how much better you'll feel. Here's how it works:

White House Looking To Cut Deficit With Extra TARP Cash

2009-11-12T03:07:02Z

The Obama administration, under pressure to show it is serious about tackling the budget deficit, is seizing on an unusual target to showcase fiscal responsibility: the $700 billion financial rescue.

Proposals In House Would Curb 'Too Big To Fail' Banks, Firms

2009-11-09T23:26:17Z

Democrats are advancing proposals in Congress designed to limit the size and complexity of financial companies so that any collapse wouldn't damage the broader economy, a sign that lawmakers are responding to anti-Wall Street sentiment by toughening the administration's rewrite of finance rules.

Goldman Sachs CEO Lloyd Blankfein: "I'm Doing God's Work."

2009-11-07T16:29:54Z

Goldman's reputation is suddenly as toxic as the credit default swaps and other inexplicably exotic financial instruments it used to buy with glee. That's bad for the one thing it values more than anything else: business. Being the prime target for popular and political outrage could put Goldman first in line for draconian new regulation. So it has, reluctantly, decided that the time has come to speak out, to fight its corner. That's how, on one of those bright autumnal New York mornings when anything seems possible -- even an invitation to break bread with the masters of the universe -- I find myself walking past the security guard who held up Michael Moore and into the building with no name.