Wall Street on The Huffington Post

Lita Smith-Mines: What Recession? Full Spend Ahead!

2009-12-22T18:05:51Z

For 30 long minutes, I sat within earshot of a woman who simultaneously catalogued her materialistic desires and her economic despondency to her hairdresser. Unable to escape, and admittedly engrossed by her fiscal highs and woes, I discreetly focused on my knitting and heard a tale I knew all too well. The seemingly insatiable holiday shopper to my right was the same kind of yuletide consumer that made appointments in my real-estate law office each January for another tradition: the annual pay off my holiday bills by refinancing consultation.

As the ability to charge-now, refinance-later vanished when most homeowners' equity evaporated, I hoped the chronic consumer had also become extinct. But judging by what I overheard, any celebration of the persistent purchaser's passing was premature. Though she said over and over again that "times were tough in the pocketbook this year", my fellow salonista proclaimed that she had eliminated the "pain in the ass" problem of applying mascara daily. She solved this derriere distress by having fake lash extensions permanently affixed to her lids (though I gathered that "permanent" was a misnomer, as her false lashes stay attached for about 10 weeks).

When her curious colorist asked Ms. Tough Pocketbook the cost of the counterfeits, we both learned the price tag was about $500! Ms. TP then elaborated on the care and feeding of 10 week lashes: when she wakes up each morning, her falsies are tangled, requiring them to be combed through (a motion not unlike running a mascara wand through lashes, I mused).

Moving on, we heard that her teenage daughter was also a pain in her posterior, pestering her for an upgraded cell phone and MP3, not knowing Mom had already charged these gifts on her "almost maxxed out emergency VISA."

TP wanted a "Pandora bracelet with lots of charms" as a holiday gift from "Jack", a boyfriend or husband, though Jack was depressed lately because his commissions were "way, way down." [Being mostly uninformed about jewelry, I later searched on-line and found such bracelets start at about $40, with charms upwards of $35 apiece. If TP desired even a basic model, and defined "lots" as maybe six charms, that's still $250 plus tax to be shelled out by a dispirited man with dwindling earnings.]

Moving on, TP griped about making her "third trip to the dry cleaners this week" after she left the salon. But before she left to bear the chore of the dry cleaner, TP advised her stylist that she was going to pick up "some more" of the decorative and scented candles sold in the front of the salon as she "loved seeing and smelling them everywhere in the house."

There was some chatter about jeans and boots that needed to be acquired for holiday parties, and one final declaration before she travelled beyond my prying ears: TP revealed that she was going to try a new restaurant for dinner that night because she "doesn't cook on weekends--period."

I couldn't ask any pertinent questions of TP, so I acknowledge my snoopy snapshot can't capture the contents of her wallet, the size of her bank accounts, or the scale of her pay stubs. But if "times were tough" as she asserted once every five minutes, I'm thinking that she could halt the financial assault on her pocketbook by re-wearing her 2008 party clothes, declaring an embargo on avoidable credit card charges, asking for a $25 scarf from down-on-his-luck Jack, picking up a bottle of Woolite, and ordering in a few cartons of Chinese take-out.

Job Hunting Tips: 5 Simple Ways To Get A Job This Holiday Season

2009-12-22T15:46:29Z

There are five easy things you can do right now, in December, while you're cramming your face with sugar and carbs, to set yourself up for a successful job search in January.

Chicago Unemployment Rate Drops Slightly Month-Over-Month

2009-12-22T15:40:19Z

Unemployment in metropolitan Chicago edged down to 10.3% in November but remained close to a 26-year high.

Chris Glorioso: The Wall Street "Trader Tax": Is Congress Targeting the Wrong Trades?

2009-12-22T14:28:06Z

The title is neither subtle nor catchy, but it has bank lobbyists quivering.

The "Let Wall Street Pay for the Restoration of Main Street Act of 2009." Otherwise known as H.R. 4191, it is a bill you'll hear more about in 2010. The idea is to tax the speculative trading that accounts for an increasing, and some say alarming, share of Wall Street profits. We're talking about the rapid-fire, high volume, high leverage trades hedge funds use to create massive gains from minuscule asset price fluctuations.

The tax would claim a quarter percent (.25%) of every large stock purchase and 2 tenths of a percent (.02%) of every large derivatives purchase.

Economists are currently engaged in wonk-warfare over the trader tax. Some calling the bill sound policy because it could generate $150 billion dollars for job creation and deficit reduction. Others declare the transaction tax is a sure fire recovery killer. That's an important debate to have, but if we assume some sort of securities transaction tax is fair (on the grounds US taxpayers deserve recompense for bailing out the banks), the tax should be apportioned so as to accomplish two goals: raise maximum revenue and de-incentivize systemically risky investment bets. The current bill fails on both accounts.

The trader tax reserves its biggest bite for stock trades, though traditional stocks were not the investment instruments that spawned the Great Recession. Derivatives, especially credit default swaps, were the lethal multipliers that turned a real estate bubble into a crippling credit freeze.

One can debate whether a trader tax is wise or unwise on the whole, but it seems spurious to suggest the bulk of the tax burden should fall on traditional equities like stocks. If the two goals of a transaction tax are curbing systemic risk and generating revenue, the tax incidence should fall more heavily on derivatives - not blue chips. Derivatives are inherently riskier and taxing them has far more potential to create revenue.

Not convinced? Consider the global value of stocks versus derivatives.

The value of all the world's stocks traded on all the global exchanges is estimated to be about $58 trillion. The value of all the derivatives contracts traded over-the-counter is estimated to be about $605 trillion. Put another way, derivatives trading accounts for a pool of possible tax revenue that is more than 10 times the size of pool of stock trades.

In the wake the decade-ending market collapse, some have begun calling derivatives nothing more than gambling. Indeed credit default swaps, interest rate contracts, and currency swaps look a lot like bets, since they are essentially complex wagers not legitimately backed by collateral. The banks, of course, claim derivatives are skillfully crafted contracts essential to hedging risk and making the US market the world's most liquid. Whether or not derivatives are a glorified form of gambling is a debate I'll save for another day. It's like arguing over whether poker is a game of skill or a game of chance. Surely it has elements of both. The critical point here is that derivatives are certainly more like gambling than investments in stock. The added risk is compounded by the fact that "too-big-to-fail" banks have sunk prodigious portions of their assets into these contracts.

The IRS taxes Las Vegas gambling winnings at a rate somewhere near 25%. The trader tax sponsored by Rep. Peter DeFazio, D-Oregon and Sen. Tom Harkin, D-Iowa would seek a tiny, tiny fraction of that. Before the tax emerges from committee, policy makers should recalibrate the percentages, increasing the burden on large derivatives and reducing the burden on stock trades - perhaps even exempting stocks altogether.

Even with these changes, the securities transaction tax faces serious hurdles. Though House Speaker Nancy Pelosi backs the bill, President Obama has yet to endorse it. For the trader tax to be successful, it will not only need White House approval, the administration will have to convince European and Asian nations to enact their own transaction taxes. Otherwise, Wall Street will simply avoid the tax by moving taxable trades offshore.

Authors of H.R. 4191 have tried to protect middle class investors from the tax on trades by exempting all transactions less than $100,000 and shielding all mutual funds and 401K retirement plans. Still the financial services lobby claims the costs to big investment firms will inevitably be passed down to retail investors. The potential of a trickle-down tax burden is a concern. However, history provides convincing evidence that concern should not be inflated.

To cope with the Great Depression in 1932, Congress enacted a trader tax worth more than 0.4% of every stock transaction. That is far higher than the tax being suggested by today's lawmakers.

The Depression-era tax remained in place until 1966, and during its life the value of the NYSE increased more than 800%. In the 17 years following the repeal of the trader tax, the value of the NYSE actually decreased by about 10%. This is not to say the tax was the cause of prosperity, nor the cause of decline. It is simply an illustration that market cycles may not be significantly affected by taxing trades.

On the other hand, there is near consensus that even a small tax on trades will discourage massive speculative investments in things like credit derivatives. Considering we now use phrases like "toxic assets" to describe those derivatives, that might not be such a bad thing.

Chris Glorioso is a television journalist in New York City who covers economics and politics for WPIX-TV.

FDIC Lands 'Marijuana-Reeking' Tour Bus And Other Odd Items During Bank Failures

2009-12-22T14:08:25Z

The financial crisis that popped the real estate bubble and pushed U.S. bank failures to a 17-year high landed the Federal Deposit Insurance Corp. a rapper's tour bus that reeked of marijuana.

Norman Solomon: Obama Stagnation in the Political Dark

2009-12-22T13:14:49Z

The winter solstice of 2009 arrived as a grim metaphor for the current politics of healthcare, war and a lot more. "In a dark time," wrote the poet Theodore Roethke, "the eye begins to see."

After a year of escalation in Afghanistan, solicitude toward Wall Street and the incredible shrinking healthcare reform, we ought to be able to see that the biggest problem among progressives has been undue deference to the Obama administration.

In recent months, the responses from the progressive base to the Obama presidency have often resembled stages of grief -- with rotations of denial, bargaining, anger, depression and acceptance.

Mobilization of progressive movements to pressurize Obama in the White House and Democrats on Capitol Hill has always been essential. It hasn't happened. Instead, among Democratic loyalists, reflexive support for the latest line from the administration has made it easier for Obama to move rightward.

In 2010, we should concentrate on generating the kind of public information, vigorous debate and grassroots organizing that could shift the center of political gravity in a progressive direction.

At every turn, progressives should be putting up a fight -- not only in all kinds of venues outside the electoral system but also inside the Democratic Party. Winning elections will require doing the methodical and difficult work of running candidates in Democratic primaries, sometimes against entrenched incumbents.

For instance, that's what stalwart anti-war progressive Marcy Winograd is doing in her challenge to Congresswoman Jane Harman in the Los Angeles area. Across the country, dozens of strong progressives are running for Congress with a real chance to win. They need our volunteer help and our financial support.

In some congressional districts with many progressive voters, blue dog Democrats are running for re-election without any declared primary opposition so far. That should change.

It's time for progressives to get out there and fight the good fight in election campaigns. We should do what our conservative and centrist and mushy-liberal adversaries least want us to do. They don't want more progressives to seriously engage in electoral battles.

This year, left to their own devices, the Democratic leaders on Capitol Hill and in the White House have managed to demobilize the progressive base that swept them into office. The latest nationwide polls are foreshadowing grim consequences; Republicans express far more eagerness to vote in 2010 than Democrats do.

In Washington, the conventional wisdom of top Democratic strategists has run amok, continually splitting the difference with Republicans. All year long we've seen Congress undermine basic progressive principles, whether for healthcare or peace or economic justice or environmental protection or civil liberties.

Despite the Democratic Party's leadership, we have a huge stake in thwarting GOP ambitions and in replacing tepid Democrats with progressives. It might be more comfortable to just engage in the politics of denunciation -- but we also need to change who is casting votes on Capitol Hill.

Among progressives, in these dark closing days of 2009, there's a surplus of frustration, anger and despair. Let's transform those downbeat energies into fuel for the imperative political work ahead.

Leo W. Gerard: The Gift America Needs Most: Manufacturing

2009-12-22T12:41:01Z

In Columbus Ohio, a 5-year-old girl jumped onto Santa's lap last month and asked if he could give her dad a job as an elf.

Mike Smith, who works the Santa station at the Polaris Fashion Place in Columbus, asked why, the Wall Street Journal reported. The little girl in the Dora the Explorer sweatshirt responded:

"Because my daddy's out of work, and we're about to lose our house."

Happy Holidays America.

The gift this country needs most this holiday season is an economy built on a solid foundation, one that will provide middle class, family-supporting jobs now and into the future.

That present would not be another version of Monopoly for Wall Street wannabes. It would not be Barbie-goes-to-the-mall-credit-cards for youngsters in families already maxed out on their plastic and their mortgages.

The metaphorical gift our economy could really use is an Erector set -- a strong steel construction kit from which the intrepid manufacture airplanes, automobiles, robots on motorized tracks, backhoes, helicopters, skyscrapers, cranes, even working Ferris wheels.

That's because, most of all, this economy needs manufacturing. Enthralled by the glitz, glamour and bogus bonuses of Wall Street, we've allowed multinationals to export our grit and grimy factories overseas. Factories that made clothing, sports shoes, large appliances, tire, glass and so much more in big and small U.S. towns and transferred to China and Indonesia and India, lured not just by cheap labor, but also by lavish government subsidies and absent environmental regulations.

Manufacturing, the basis of any strong economy, has continuously declined as a percentage of the U.S. gross domestic product since its World War II peak, when it was 28.3 percent. Its new low is less than half of that -- 12 percent.

Here's the most obvious difference between an economy based on manufacturing and one based on Wall Street: You can hold the handlebars of Harley-Davidson in your hands, but just try grasping a derivative.

The paper traders on Wall Street bundle mortgages into exotic financial instruments called derivatives, sell those, buy pseudo-insurance to secure them, then engage in legal betting on whether the "instruments" will soar or fail. This kind of activity caused the financial collapse in 2008. Frankly, beyond being incredibly risky, these transactions don't create true wealth; they just generate big bonuses.

In manufacturing, an entrepreneur takes raw material and adds energy, ingenuity, tools and labor to create a product -- like steel. That has real value and can be sold on the market to someone who needs it to combine with other materials to make finished merchandise like motorcycles or refrigerators. And those manufactured items are durable and valuable.

In the process of manufacturing, many people are employed -- to get the raw materials, whether it's limestone or iron or trees, to transport it to a factory, to generate electricity to run the factory, to transform the raw material at the factory, to deliver the product to the buyer, to pave the roads and build the bridges and repair the railroads necessary for all that transportation, to design the highways and factories and overpasses, to feed all the workers lunch.

Tragically, the Great Recession caused by Wall Street has hit manufacturing hard. While unemployment is at a 25-year high of 10 percent, the unemployment in manufacturing has run a couple of percentage points higher than that. More than 2.1 million manufacturing workers have been thrown out of their jobs since the recession began in December 2007.

These workers are the parents of children in Dora-the-Explorer sweat shirts who are asking Santa for elf jobs.

These are the workers who have cut back on doctor visits or medical treatments -- although almost half are suffering from depression or anxiety, a New York Times/CBS poll of unemployed adults showed.
These are the workers who told the pollsters that the frustration and stress of unemployment has provoked conflicts and arguments with family and friends.

These are the workers who have lost their homes or have been threatened with eviction or foreclosure, who have difficulty paying bills and have resorted to borrowing money from friends and relatives. These are the workers profiled by Anne Hull of the Washington Post in a story that began by describing desperate laid off Warren, Ohio residents in a pawn shop:

"At campaign time, they are celebrated as the people who built America. Now they just want to know how much they can get for a wedding band."

These are workers selling their precious keepsakes to survive 15-percent unemployment in an area along the Mahoning River that once was the world's fifth-largest steel producer -- until it lost 50,000 of those family-supporting manufacturing jobs and another 11,500 middle-class jobs at the Lordstown General Motors plant all in a decade.

These workers could be holding good, steady factory jobs if the United States had implemented a manufacturing strategy, the way China, Japan, Germany, even The Netherlands did long ago.

Just last week, the Obama administration offered a gift to all those who believe in manufacturing. It is that strategy for America. Its formal name is the White House Plan to Revitalize American Manufacturing.

For that five-year-old girl in the Dora the Explorer sweatshirt. For her furloughed father and her family. For the future of this country, let's give ourselves the gift of a future constructed on a solid economic foundation. Let's implement that plan to revitalize American manufacturing immediately. Millions of unemployed workers can't wait.

Will Schwartz: Why Do We Hate David Paterson?

2009-12-22T11:45:41Z

Let's say that you're part of the 49% of New York State that disapproves of David Paterson's performance as governor. If you were given the hypothetical chance to act as his counsel, what would you tell him to do differently? What is it, specifically, that he's really doing wrong?

It seems that David Paterson's disapproval ratings have little to do with his ideology.

Last month, Governor Paterson conquered a devastatingly inept special session by the State Senate. Regardless of whether it was courage or desperation that spurned his proactivity, hard-luck David Paterson came out of last month's fiasco unusually popular. His earth-shatteringly low approval ratings pulled their way up to a standardly awful 40 percent. He had newspapers printing stories about his policy ideas for once, instead of his bad numbers. He offered us sound financial facts, responsible public addresses, and candid appeals to the people of New York through local media.

Somehow, David Paterson managed to cultivate a living, breathing financial ideology in Albany's hostile natural environment, a place where ideology is usually just a PR technique.

As noble as his financial ideas may be, they left him cut-off from his usual union pocketbooks, friendless and resourceless in an election year. He's combined his new ideology with necessity, appealing as a fiscal conservative to Wall Street at 5,000 dollar-a-plate dinners and speeches across Manhattan.

This has not proven popular in our local news narrative, and it looks like this kind of blatant politicking is what really draws Paterson his most negative feedback. In 20/20 hindsight, it looks like Paterson's most unpopular moments were his most blatantly political, and his most publicly mismanaged. Negative Paterson coverage surged during his commitment to running in 2010 despite pressure from the Obama administration. His numbers began to bottom out because of lack of damage control during a Senate meltdown over the summer that was hardly his fault.

As he wordlessly allows bad headlines to abound about his fund-raising, we should be asking ourselves if it's right to jump down his throat this time. As grotesque as it may seem to appeal to the securities industry's call for bonuses and huge salaries during our historic unemployment, what choice does David Paterson really have?

He definitely can't halt his fund-raising. As the Observer wisely pointed out last week, regardless of his level of delusion as to his chances for a primary win against Cuomo next year, David Paterson would be useless as a lame duck. The moment he implies he's settling for a single term, his administration would likely be sapped of staff and momentum to meet any goals for the upcoming year. For the press, his agenda would likely play second fiddle to Cuomo's. His peers in Albany would be more interested in the AG's office and its connections than the governor's.

We don't need a lame duck. We need a strong executive now; one that can tame the wilds of our legislature, or at the very least stand up to its corruption.

So let's allow him to be one. He's right to root for taxable success in our financial sector. And since there's really no other sector for him to turn to for campaign contributions, he's right to go after their money for his campaign funds, too. He's accepting that he needs to turn to an unpopular fundraising machine in order for his policy ideas to remain relevant in a ferocious political system.

Perhaps our public narrative about Albany is misguided at its core. It seems silly to decry a politician for, well, playing politics. The worst thing about the long-term negative narrative surrounding David Paterson is its reductionism: it assumes that an dauntingly intricate and complex state government can be understood by the actions of one player, and that its problems can be even remotely blamed on him.

After all, we're talking about a man who works in a system that is openly buyable; a system whose engine runs on the fuel of ethically hazy private donation and bribery. When you think about it, it seems like he might be doing a decent job.

Study: Politically-Connected Banks Were More Likely To Get Bailed Out

2009-12-22T11:29:09Z

In a finding that is sure to confirm the musings of conspiracy theorists -- or may just prove the obvious to cynics -- a new study details how the financial institutions with the strongest political connections ended up getting the biggest bailouts.

Professors Ran Duchin and Denis Sosyura at the University of Michigan's Ross School of Business found that banks with ties to members of congressional finance committees or whose executives served on Federal Reserve boards were more likely to receive TARP funds (through the Capital Purchase Program) than banks lacking those connections. Also, they found a positive relation between banks' political contributions and lobbying expenditures and the amount of TARP funds received, concluding that "the effect of political influence was strongest for poorly performing banks."

Sosyura said: "The effects of political ties on federal capital investment are strongest for companies with weaker fundamentals, lower liquidity and poorer performance -- which suggests that political ties shift capital allocation towards underperforming institutions."

Though the report only names a handful of banks it's clear that it's aimed at top political donors like Bank of America, Citigroup and Goldman Sachs. Dealbook got this retort from a Wall Street lobbyist:

Scott Talbott, a senior vice president with industry lobbying group The Financial Services Roundtable, said the study was skewed because it did not exclude nine of the largest banks that were "strongly asked" by the government to take bailouts.

Those banks included Goldman Sachs Group, JPMorgan Chase, and Morgan Stanley -- all of which repaid their bailouts in June.

Bank of America and Citigroup more recently announced plans to pay back taxpayers

The report does single out OneUnited Bank, however, and its relationship with key lawmakers, including Rep. Barney Frank (D-Mass.), the chair of the House Financial Services Committeee:

To illustrate the power of the Committee on Financial Services, consider the following example, which appeared in the Wall Street Journal on January 22, 2009.14 In late September 2008, Boston-based OneUnited Bank found its capital depleted and its management
compromised with a cease-and-desist order from the FDIC for poor lending practices and the
abuse of management pay. Yet in mid-December 2008, the bank received $12,063,000 from
CPP.

The bank is based in the home state of Rep. Barney Frank, the head of the Financial
Services Committee, who acknowledges that he had included into TARP a provision aimed at
helping this particular bank and recommended to regulators that OneUnited be considered for
capital investment under TARP. The bank's lawyer admitted that he had discussed the bank's
financial situation over the phone not only with Rep. Barney Frank, but also with Rep. Maxine
Waters (a member of the Financial Services Committee and Financial Institutions
Subcommittee), whose husband used to be a OneUnited director.

Here are more details from the study:

The researchers used four variables to measure political influence: 1) seats held by bank executives on the board of directors at any of the 12 Federal Reserve banks or their branches (the Federal Reserve is involved in the initial review of CPP applications from the majority of qualified banks); 2) banks with headquarters located in the district of a U.S. House member serving on the Congressional Committee on Financial Services or its subcommittees on Financial Institutions and Capital Markets (which played a major role in the development of TARP and its amendments); 3) banks' campaign contributions to congressional candidates; and 4) banks' lobbying expenditures.

They found that a board seat at a Federal Reserve Bank was associated with a 31 percent increase in the likelihood of receiving CPP funds, while a bank's connection to a House member on key finance committees was associated with a 26 percent increase, controlling for other bank characteristics such as size and various financial indicators.

READ the report:

ssrn-id1426219 -

Small-Business Bankruptcies Rise 81% In California

2009-12-22T11:19:39Z

As credit lines have shrunk and consumers have cut back on spending, thousands of small businesses have closed their doors over the last year. The plight of struggling firms has been aggravated by the reluctance of banks to lend money, said Brian Headd, an economist at the Small Business Administration's office of advocacy.

"While bankruptcies are up, overall, small-business closures are up even more," Headd said.

California has been particularly hard hit. The latest data show small-business bankruptcies up 81% in the state for the 12 months ended Sept. 30, compared with the previous year.

Darth Vader Rings Opening Bell At New York Stock Exchange On Wall Street

2009-12-22T10:18:47Z

Some might find Darth Vader's presence on Wall Street today an ominous sign, but there he was with a group of Storm Troopers to ring the opening bell at the New York Stock Exchange.

Vader and everyone's favorite droid R2-D2 were on hand (tiny "Star Wars" pun intended) as representatives of Lucasfilm Ltd.

WATCH:

TARP Repayments Mean Huge Fees For Bailed-Out Banks: Andrew Ross Sorkin

2009-12-22T08:04:30Z

Here's what the post-bailout bonanza means for all the banks that helped find investors for the new shares: Bank of America's $19.3 billion offering generated $482 million in fees; Citigroup's $17 billion offering resulted in $425 million in fees; and Wells Fargo's $12.2 billion offering led to $275.6 million in fees. (The banks paid themselves roughly 2.5 percent of the offering price.)

Labor Agency Overwhelmed By Jobless Claims In CT

2009-12-22T07:46:51Z

HARTFORD, Conn. — A crush of unemployment claims has slowed the Connecticut Department of Labor's filing system to a crawl.

The state agency posted on its Web site Monday a warning that due to a high volume of claims, users may experience difficulty filing via the Internet or telephone.

Raymond J. Learsy: SIPC, The Grinch That Grotesquely Stole Christmas

2009-12-22T02:06:41Z

You have probably seen the Television ad. A young girl is given a bicycle set in a white painted rectangle that's, say, 8 by 4 feet. Delighted the young girl happily sits on the bicycle and starts to ride. Barely getting started she is stopped at the white line. "That's as far as you can ride" scolds an austere gentleman who we are given to understand is a banker. Stunned the young girl gazes at him, befuddled and sad. "Didn't you read the fine print?" he sternly asks, "It says you can only ride the bicycle in a predetermined space." Welcome to the world of the Securities Investor Protection Corporation (SIPC). Protection?

The Madoff calamity touched thousands of individuals and families, many of whom lost what amounted to their life savings. Many had gone to bed one night last December ensured that their financial future was secure only to wake up the next day to find their lives devastated and their savings worthless. Many were now without even the means to pay their monthly bills and many, given their ages, had no hope of ever finding a job again.

Confronted with disaster, all the Madoff account holders believed that with the SIPC seal prominently displayed on their brokerage statements -- the seal of an organization created by an act of Congress -- would protect them at least up to the $500,000 SIPC was authorized to pay out. Whether they were generally aware or not, SIPC, in its literature, such as its information brochure, brayed about its insurance coverage; "SIPC replaces missing stocks and other securities...", while the Financial Industry Regulatory Agency, Inc (FINRA) would point out in its literature; "SIPC's coverage also includes protection against unauthorized trading in customers securities accounts". With input like this even a highly sophisticated investor would have found comfort with the SIPC seal that appeared on their Madoff brokerage statement.

And yet, perversely and after the fact, SIPC sniffed out a legal loophole that imperiled probably the most vulnerable, longest standing and probably the oldest of the Madoff victims. They adopted a bizarre method of determining claims, namely the 'cash in cash out method' which repays customers the money they invested minus the cash they withdrew from their account, and thereby seeks where possible, to squelch their maximum $500,000 obligation. It makes as much sense as if the the Federal Deposit Insurance Corporation (FDIC) would deny paying out the bank statement balance of an interest bearing account of one of its failed banks because the customer withdrew more funds from his account than he deposited into the account over the years the account was active.

Instead of finding a solution that would uphold their moral and legal obligation and return credence to SIPC and what was once thought to be bankable government guarantees, it was with brazen callousness that SIPC's deputy solicitor would dismiss the last hope of thousands of claimants: "The claims of the Madoff investors cannot be valued based on the balance shown on their account statements". Possibly that would be true in some measure in bankruptcy court, but SIPC was specifically created to deal with the issues of failure and fraud, with a $500,000 account limit, and if that was the amount lost by the customer then that was the amount SIPC was expected to make good. All sums above that figure would be between the account holder and the bankruptcy court.

Testimony before the House Financial Services Committee on December 9th bore out the terrible straits of the victims and the callousness of SIPC . "The money I invested with Madoff represented 30 years of my life savings," Jeannene Langford from San Rafael, California told the committee, "this was my retirement, a down payment for a house, investment for the business I was starting and it was money for my daughter's education. I do not have thirty years to earn this money again."

According to some, SIPC's hard line is conditioned in part by a perception that it is grossly underfunded, having access to only limited funds and an inherent caution that paying out troublesome claims may not leave enough funding for future claimants. In testimony before December 9, 2009 before the U.S. House of Representatives, Subcommittee on Capital Markets, Insurance, Government Sponsored Enterprises, Committee on Financial Services, Stephen P. Harbeck, President and C.E.O. of SIPC, testified that the balance of the SIPC fund was $1,188,000,000 (note: less than 10% of the Goldman Sachs 2009 bonus pool alone). He also advised that SIPC "may borrow $1 billion line of credit from the United States Treasury." He then went on to proclaim proudly, "In its nearly forty year history, SIPC has never drawn upon the credit line". In doing so Mr. Harbeck clearly revealed he is not the man for the job. Instead of doing his utmost to calm the turbulent waters caused by the greatest economic crisis since the Great Depression, at a time of massive claims occasioned by the Madoff, Lehman, Stanford bankruptcies and myriad others, he is busy pinching pennies.

And where is our Treasury, so eager to bail out or make whole the likes of Citigroup, AIG, Morgan Stanley, Goldman Sachs and on, with billions upon billions of cash loans, infusions and guarantees of otherwise toxic loans and derivatives? And what would the prospects have been if, as a condition of the billions going to the banking and Wall Street crowd, they would have been persuaded or coerced to use some of their bumper profits to come, to significantly increase their fees to SIPC so it could substantially increase its lines of credit and conduct itself in a way that would be of real assistance to those victims of financial mismanagement and fraud, and to regain for itself the respect and confidence of the nation's stockholders? In the meantime Mr. Harbeck better watch out, that little girl may indeed be riding off on that bicycle.

Taxpayers Help Goldman Sachs Reach Height Of Profit In New Skyscraper

2009-12-22T01:37:29Z

In the first six months of 2010, about 6,000 employees of Goldman Sachs Group Inc. will take a break from their spreadsheets and move across the southern tip of Manhattan to a new 43-story, steel-and-glass skyscraper.

The building was a bargain -- and not just because the final cost is expected to be $200 million less than the $2.3 billion price the company had estimated when construction began in November 2005. Goldman Sachs also benefited from the government's determination to avoid losing jobs in lower Manhattan after the Sept. 11, 2001, terrorist attacks.

Unemployment Programs In 40 States About To Go Broke

2009-12-21T23:39:10Z

The recession's jobless toll is draining unemployment-compensation funds so fast that according to federal projections, 40 state programs will go broke within two years and need $90 billion in loans to keep issuing the benefit checks.

The shortfalls are putting pressure on governments to either raise taxes or shrink the aid payments.

Daniel Adler: What Do Professional Athletes Have in Common With Bankers?

2009-12-21T23:28:33Z

Today, we will examine two industries. Neither produces a tangible product. Both have close ties to the government and receive billions of dollars in government assistance. Both pay their top performers millions of dollars.

Wall Street firms such as AIG, which received $90 billion in government funds, and sports teams such as the Dallas Cowboys, who received roughly $325 million to build the monument to excess that is Cowboys Stadium, have more in common than being run by white males. Employees in both industries reap huge benefits due to government assistance.

Recently, Goldman Sachs has come under fire for paying lucrative year-end bonuses to their employees. They plan to pay $16.7 billion, an average of $700,000 per employee. Of course, this comes not many months after the US government, by way of AIG, paid Goldman $12.9 billion. Predictably, there has been much populist outrage and Goldman has taken steps to quell public anger and (far more worrisome to them) government regulation. Goldman should not be expected to spurn the government funds, but it seems quite inappropriate for the government to clean up someone else's (in this case, AIG's) mess. The government is essentially funding those high salaries. Why is a company that receives billions in government support paying their top employees far more than the usual rate for labor in other industries?

In the sports world, let us consider the example of the Cowboys. This season, they opened what may be the most impressive stadium in history. To pay for the $1.2 billion palace, they received $325 million in government funds. Last season, the Cowboys spent $146 million on players. Why is a company that receives hundreds of millions in government support paying their top employees far more than the usual rate for labor in other industries?

The Cowboys are not the only team to receive government funding for their stadium. The Yankees and Mets each opened new stadiums this year and received plenty of government assistance; through some creative bond financing, the Yankees will save $787 million and the Mets $513 million. The New York teams ranked first and second in total payroll last season. The savings on the stadium and high spending on players is not necessarily directly connected, but it is certain the Cowboys, Yankees, and Mets were not exactly in dire need of government money.

It's not just the high spending clubs that receive government subsidies for their stadiums. In an article in the Journal of Economic Perspectives, Siegfried and Zimbalist state that during the 1990s, $21.7 billion was spent (or planned to be spent) on 95 stadiums in the four major sports (MLB, NFL, NBA, and NHL). Of this massive figure, roughly two thirds came from public funds. Without government funding for stadiums, payrolls across the league could not be nearly as high as they are today.

Certainly, there are many advantages to a city having a professional sports team, some of which are not easily measurable. How do you quantify the value of a winning team to a region? I know surly Bostonians are more pleasant after a Red Sox victory. Siegfried and Zimbalist do find that new stadiums provide an economic boost to the area around the stadium, but generally come at the expense of other forms of entertainment and nearby neighborhoods, so the funds spent do not increase the tax base.

Sports salaries are at ludicrous levels because the entire system is predicated on a large portion of team costs being covered by the government. Why do we as fans accept this transfer of taxpayer funds to players (with the owners taking a little for themselves along the way)? In the UK, the government has taken action to limit bankers' pay by taxing their bonuses at a very high rate. I am not advocating that for athletes (or bankers). However, to say that athletes are deserving of high pay because, "that's what the market supports," is a little misleading. The market for pro athletes, like most markets, is heavily impacted by government activity. As long as the government is funding some stadiums, even those teams that do pay for their own stadiums (such as the San Francisco Giants and New England Patriots) are forced to pay more for players.

In both sports and finance, salaries are artificially high due to government support. Wall Street may not get large bailouts every year, but it seems likely that salaries are higher due to repeated government actions that signal to the banks that they unlikely to fail. Neither the teams nor banks are really at fault; we cannot blame them for asking. If someone offered me billions, millions, or even tens of dollars, I would also accept. It seems ridiculous that in both industries, government funds subsidize salaries that are far higher than necessary to keep the top talent.

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Pay Czar Agrees To Boost Unnamed AIG Exec's Pay Package By $4 Million

2009-12-21T22:23:29Z

WASHINGTON — A top executive of American International Group Inc. has been granted a $4.3 million pay-package bump by the troubled insurance giant's majority owner – the U.S. government – because the executive has decided to remain with the company.

Kenneth Feinberg, the Obama administration's pay czar, approved an AIG request to grant the executive a long-term compensation package that includes stock options with a current value of $3.26 million and an additional incentive award of up to $1 million. The package comes on top of the executive's 2009 base salary of $450,000.

Jim Wallis: AIG: We Shall Know the Truth

2009-12-21T17:05:26Z

"You shall know the truth, and the truth shall set you free." Those are the words of Jesus, and they couldn't be more relevant that they are today on Wall Street. Some very large financial giants triggered a massive economic crisis that has caused suffering for millions of people, and we still don't know exactly what happened. It's time to learn the truth behind the irresponsible, risky and selfish behaviors that plunged our nation and so many families into this painful mess. Today, I joined one effort to do that; and I invite you to join with me. Here's the story.

One of the giants whose practices led to the 2008 financial crisis was AIG -- the American Insurance Group. When it was on the verge of collapse, the federal government intervened with a bailout that ultimately totaled $180 billion. Now, as several major banks are re-paying bailout funds in order to get free from strict government regulation, AIG is beginning to discuss a similar action.

Yesterday, three of the leading corporate investigators -- Eliot Spitzer, former attorney general and governor of New York; Frank Partnoy, professor of law at the University of San Diego; and William Black, professor of economics and law at the University of Missouri-Kansas City -- wrote in the New York Times:

A.I.G. was at the center of the web of bad business judgments, opaque financial derivatives, failed economics and questionable political relationships that set off the economic cataclysm of the past two years.

They urge that before any deals are made to end government (read: taxpayer) control of the company, we should demand answers to questions such as: Who knew what, and when? Who benefited, and by exactly how much?

And, they conclude that:

The three of us, as experienced investigators and prosecutors of financial fraud, cannot answer these questions now. But we know where the answers are. They are in the trove of e-mail messages still backed up on A.I.G. servers, as well as in the key internal accounting documents and financial models generated by A.I.G. during the past decade. Before releasing its regulatory clutches, the government should insist that the company immediately make these materials public.

Since AIG is now 80% owned by U. S. taxpayers, it is more than appropriate that we know the truth here. A citizens group has created a website urging people to sign An Open Letter to the Trustees and US Congress, asking that all of these documents be released to investigators. I've signed it, and urge you to do so. With the economy still struggling to recover from the crisis AIG helped to create, with tens of millions of people unemployed and home foreclosures growing, we deserve to know how and by whose decisions this happened in order to hold them accountable. This is what democracy requires; this is what morality requires, this is what religion requires -- to tell the truth.

Jim Wallis is the author of Rediscovering Values: On Wall Street, Main Street, and Your Street--A Moral Compass for the New Economy, Editor-in-Chief of Sojourners and blogs at www.godspolitics.com.

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