"I'd Rather Kiss a Wookie" Weekend Continues

[Demeter]

As promised, Part 2 of Weekend Economists ramble through culture, politics and the economies of the world.

I don't know about you folks, but I am fighting the urge to strip off my winter parkas and burn them. I want to eat cold food, wiggle my toes in the grass, run around half naked. I got Spring Fever, bad.

So, let's not go to whatever that frozen planet was. Let's go to the Land of the Ewoks!




At the end of each post, I want you to remember my prevailing opinion on the topic:

"I'd rather kiss a Wookie"

That sums it up perfectly.

[Demeter]

1. If You Came In Here, the Beginning Is over there:

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=103x522307

[Demeter]

2. More on the Lost Decade, Courtesy of Cheney-Bush

http://www.dailykos.com/story/2010/3/4/843147/-More-on-the-Lost-Decade,-Courtesy-of-Cheney-Bush

Just about any way you look at it, the country got smacked around from January 2001 to January 2009. Aside from its wretched foreign policy, violations of human rights and civil liberties, nowhere did the Bush administration pound us harder than on the economy. Despite this, the Republican Party's megaphones at Foxaganda and scattered throughout much of the rest of media are now eagerly telling Americans our future prosperity depends on another round of the clever governance that got us where we are.

To illustrate just how disastrous the GOP's last turn at the wheel was, The Economist recently highlighted figures from Christopher Wood, a strategist at the Hong Kong-based investment group CLSA:

Real GDP in America grew by an average of 1.9% a year during the 2000s. This may not sound all that terrible, especially for a decade that saw one short recession and another particularly deep and long one. But it is the economy’s worst performance for a long time. During the previous six decades, average growth was 3.9% a year. Only the 1930s—when growth was a mere 0.9% a year—were worse. And America’s population is growing smartly, so GDP per head has grown a good deal more sluggishly than GDP as a whole. The story is much the same when the growth in Americans’ personal consumption during the ten years to the end of 2009 is compared with previous decades. Again, only the 1930s were worse.

In terms of employment growth, the 2000s were also a lost decade. In the years between 1940 and 1999 the number of Americans employed outside farming grew by an average of 27% each decade. In the one just past it fell by 0.8%. In January this year, the number of people who had been jobless for more than six months reached 6.3m. And though the economy has grown for each of the past two quarters, the unemployment rate has only just begun to inch downwards. Though the recession is now supposedly at an end, the pain of the noughties’ miserable economic performance will be felt for a long time to come.

[Demeter]

3. All You Need To Know About Bank Balance-Sheet Fraud

http://market-ticker.denninger.net/archives/2049-All-You-Need-To-Know-About-Bank-Balance-Sheet-Fraud.html

I am constantly amused by those people who claim there is some vast "conspiracy" in this country when it comes to banks, balance sheets, and fraudulent lending and accounting.

There is no conspiracy.

It is, in fact, "in your face" fraud.

The FDIC does us the courtesy of explaining it virtually every Friday night, right on their web page.

I am simply going to take last night's bank closures, which numbered four. One of them has no "deposit insurance fund" estimated loss available, because they didn't find someone to take the assets - they're just mailing checks. But the other three do.

* Waterford Bank, Germantown MD: $155.6 million in assets, $156.4 in insured deposits. They were "underwater" by $800,000, right? Wrong: Estimated loss, $51 million. That is, the assets of $155.6 million were overvalued by approximately 30% at the time of seizure.

* Bank of Illinois, Normal IL: $211.7 million in assets, $198.5 million in deposits. They were "underwater" by $13.2 million (which is why they were seized), right? Wrong: Estimated loss $53.7 million. That is, the the assets of $211.7 million were overvalued by more than 25% at the time of seizure.

* Sun American Bank, Boca Raton FL: $535.7 million in assets (so they claimed anyway), $443.5 million in total deposits. Heh, why did you seize them - they have more assets than liabilities? Oh wait: Estimated loss: $103.8 million, so the actual assets are worth $443.5 - $103.8, or $339.7 million. That is, the assets of $535.7 million were overvalued by a whopping 37% at the time of seizure.

This isn't new, by the way. In August of 2009 I went through Colonial Bank's failure based on BB&T's presentation to its shareholders on the "merger" - and gift it was given by the FDIC. It too showed that Colonial had been carrying assets on their books at a ridiculous 37% above where BB&T ultimately marked them as a whole.

Folks, your bank is being assessed deposit insurance premiums to pay for these losses. You are paying these losses through increased fees and interest expense on your credit cards and all other manner of borrowing.

You are paying for outrageous, pernicious and endemic balance sheet fraud.

There is no conspiracy. It is right under your nose. One of these three banks, based on their balance sheet, wasn't even underwater - it was "to the good" by nearly $100 million dollars.

The balance sheet was a flat, bald-faced lie.

You want to sit for this?

Why should you?

Now let's ask the inconvenient question:

Are the big banks - specifically, Citibank, Bank of America, Wells Fargo and JP Morgan - all similarly overvaluing their assets?

Why should we believe they are not? You can go through more than a year's worth of FDIC bank seizure information and in essentially every single case you will find that overvaluations of somewhere from 20-50% have in fact occurred, yet not one indictment for book-cooking has issued.

So let's be generous and assume that the "big banks" are over-valuing their assets by 25% - the lower end of the range of what the FDIC says is, through actual experience, what's going on, and add it all up.

Bank of America shows $2.25 trillion in assets.

Citibank shows $1.89 trillion in assets.

JP Morgan/Chase shows $2.04 trillion in assets.

And Wells Fargo shows $1.31 trillion in assets.

This totals $7.49 trillion smackers.

The FDIC's experience with seizing banks thus far suggests quite strongly that all four of these entities are lying about these valuations, and that were they to be seized the loss embedded in them (and for which you, the taxpayer would be responsible) is somewhere between $1.49 and $2.99 trillion dollars.

Incidentally, neither the FDIC or Treasury happens to have either $1.49 or $2.99 trillion laying around, and it is highly questionable if they could raise it, should that become necessary.

Now of course neither you or I can prove this is correct. However, we can look at the FDIC's own published bank closing statements, and derive from them a pattern stretching back more than a year now that has disclosed that in essentially each and every case the banks in question have overvalued their assets by anywhere from 20-40%, and that as of the day of the seizure such an overvaluation was in fact a continuing and ongoing practice.

Back in the beginning of 2009 we had people argue that "mark to market" was invalid - that in fact the market-based pricing losses that were being claimed were ridiculous and would never happen. One of the claimants was the Federal Home Loan Bank of Seattle, which said that the $300 million in mark-to-market losses would not actually happen - that the real loss was only going to be $12 million dollars.

FHLB Seattle recently filed suit against the bundlers of this trash, claiming, surprise-surprise, that the real loss is not $12 million, not $300 million, but $311 million - on that bundle of trash alone. In all they are seeking $2 billion in damages.

We have now learned, a year into this "experiment" with mark-to-model promulgated at gunpoint by Congress that:

1. The banks indeed have been lying about asset valuation and the proof comes in the form of the FDIC seizures, which in essentially case have documented massive and outrageous overvaluation of assets on bank balance sheets.

2. The claimed "mark to model" losses, which were tiny compared to the market-price losses, were in fact fictions, to the point that the poster child of the "mark to model" argument is now suing the purveyors of the instruments supposedly not to be marked to the market for losses that exceed what the market-based loss was back in March of 2009.

If you wish to argue that the economy and banking system are recovering their health, you must deal with this. If indeed large bank balance sheets are concealing a deficiency of somewhere between $1.5 and $3 trillion in losses not only will the economy and lending environment not recover it can't as the large banks all know the truth.

I believe this is why those very same banks are hoarding cash. I believe they know that at some point in the future - a point not under their control - the truth may come out and if it does an instantaneous run would occur - not just on their bank, but on all banks. Such an event could be defended against only with a huge cash hoard - a hoard that, if they lend out said cash, would not be available to them.

The Federal Reserve knows this too. I believe this is why there is nearly $1 trillion of "excess reserves" sitting at The Fed, up from nearly zero prior to the crisis - it is these large banks' "backstop" against a potential run should the truth of their balance sheets reach public conscience.

The political and regulatory bottom line is simple: As I have repeatedly maintained for nearly three years, we now have the facts from our own government agencies, most particularly the FDIC: The banks have been and still are cooking their books in a manner that intentionally overstates their asset valuations - an act that is exactly identical to that which brought down ENRON.

Something to think about on this fine weekend.

[Demeter]

10. Imperial Dance Off

http://www.youtube.com/watch?v=uYDtSFeTYqs&NR=1

[Po_d Mainiac]

24. The very point made here a couple months ago

When I looked at http://banktracker.investigativereportingworkshop.org/banks/ Every closed bank under-reported troubled assets by at least 30% and in some cases closer to 60%....

For those of you who have not gone to the site, and looked at banks in their region, I encourage you to do so ASAP. If your institution is listings TA,s in excess of 35% be nervous :scared:

Any exchange listed business that marks assets to myth is committing Enronesque fraud....Where are the prosecutors?? :grr:

[Demeter]

4. No Wonder the Economy Isn’t Improving

http://www.nakedcapitalism.com/2010/03/guest-post-no-wonder-the-economy-isnt-improving.html

I’ve read countless news headlines recently about how economists are “surprised” over an “unexpectedly bad” economic indicator.

But it’s not surprising at all. It’s no mystery.

The government hasn’t taken the necessary actions, and has instead been doing all of the wrong things.

Let’s recap.

The leading monetary economist told the Wall Street Journal that this was not a liquidity crisis, but an insolvency crisis. She said that Bernanke is fighting the last war, and is taking the wrong approach. Nobel economist Paul Krugman and leading economist James Galbraith agree. They say that the government’s attempts to prop up the price of toxic assets no one wants is not helpful.

The Bank for International Settlements – often described as a central bank for central banks (BIS) – slammed the easy credit policy of the Fed and other central banks, the failure to regulate the shadow banking system, “the use of gimmicks and palliatives”, and said that anything other than (1) letting asset prices fall to their true market value, (2) increasing savings rates, and (3) forcing companies to write off bad debts “will only make things worse”.

BIS also cautioned that bailouts could harm the economy (as did the former head of the Fed’s open market operations).

And BIS warned that the Fed and other central banks were simply transferring risk from private banks to governments, which could lead to a sovereign debt crisis.

Virtually all leading independent economists have said that the too big to fails must be broken up, or the economy won’t be able to recover (and see this). Instead, they have been allowed to get even bigger (and see this and this).

While modern economic theory shows that debts do matter (and see this), the U.S. is spending on guns and butter like debts are a good thing.

Nobel prize winning economist George Akerlof predicted in 1993 that credit default swaps would lead to a major crash, and that future crashes were guaranteed unless the government stopped letting big financial players loot by placing bets they could never pay off when things started to go wrong, and by continuing to bail out the gamblers. (Not only has the government rewarded the gamblers, bailed them out and let them engage in a new round of risky betting, but it hasn’t even reined in credit default swaps.)

And instead of trying to restore trust in our financial system – which is a prerequisite for any sustainable economic recovery – Summers, Geithner, Bernanke and the boys have tried to sweep the problems under the rug and con the public into believing that everything is okay and that no real reform is needed.

As I wrote in October:

William K. Black – professor of economics and law, and the senior regulator during the S & L crisis – says that that the government’s entire strategy now – as during the S&L crisis – is to cover up how bad things are (”the entire strategy is to keep people from getting the facts”).

Indeed, as I have previously documented, 7 out of the 8 giant, money center banks went bankrupt in the 1980’s during the “Latin American Crisis”, and the government’s response was to cover up their insolvency.

Black also says:

There has been no honest examination of the crisis because it would embarrass C.E.O.s and politicians . . .

Instead, the Treasury and the Fed are urging us not to examine the crisis and to believe that all will soon be well.

PhD economist Dean Baker made a similar point, lambasting the Federal Reserve for blowing the bubble, and pointing out that those who caused the disaster are trying to shift the focus as fast as they can:

The current craze in DC policy circles is to create a “systematic risk regulator” to make sure that the country never experiences another economic crisis like the current one. This push is part of a cover-up of what really went wrong and does absolutely nothing to address the underlying problem that led to this financial and economic collapse.

Baker also says:

“Instead of striving to uncover the truth, may seek to conceal it” and tell banksters they’re free to steal again.

***

Time Magazine called Tim Geithner a “con man” and the stress tests a “confidence game” because those tests were so inaccurate.

William Black said:

How do you think we did the stress tests? Like doing a stress test on an airplane wing, but you don’t actually have airplane wing. And don’t know what airplane wing is made out of. It’s a farce.

And see this.

And while stopping the rising tide of unemployment is key to reversing the financial crisis, the government hasn’t done much at all to staunch the loss of jobs.

For example, as I wrote last August:

The government has committed to give trillions to the financial industry. President Obama’s stimulus bill was $787 billion, which is less than a tenth of the money pledged to the banks and the financial system. <106>

Of the $787 billion, little more than perhaps 10% has been spent as of this writing. <107>

The Government Accountability Office says that the $787 billion stimulus package is not being used for stimulus. <108> Instead, the states are in such dire financial straights that the stimulus money is instead being used to “cushion” state budgets, prevent teacher layoffs, make more Medicaid payments and head off other fiscal problems. So even the money which is actually earmarked to help the states stimulate their economies is not being used for that purpose.

Indeed, much of the $787 billion was earmarked pork <109>, not for anything which could actually stimulate the economy. <110>

Mark Zandi – chief economist for Moody’s – has calculated which stimulus programs give the most bang for the buck in terms of the economy:



But very little of the stimulus funds are actually going to high-value stimulus projects.

Indeed, as the Los Angeles Times points out:

Critics say the is being used for projects that would have been built anyway, instead of on ways to change how Californians live. Case in point: Army latrines, not high-speed rail.

***
Critics say those aren’t the types of projects with lasting effects on the economy.

“Whether it’s talking about building a new hospital or bachelor’s quarters, there isn’t that return on investment that you’d find on something that increases efficiency like a road or transit project,” said Ellis of Taxpayers for Common Sense.

Job creation is another question. A recent survey by the Associated General Contractors of America found that slightly more than one-third of the companies awarded stimulus projects planned to hire new employees. But about one-third of the companies that weren’t awarded stimulus projects also planned to hire new employees.

“While the construction portion of the stimulus is having an impact, it is far from delivering its full promise and potential,” said Stephen E. Sandherr, chief executive of the contractors group.

It’s unclear how many jobs will be created through the Defense Department projects. Most of the construction jobs are awarded through multiple award contracts, in which the department guarantees a minimum amount of business to certain contractors, and lets only those contractors bid on projects.

That means many of the contractors working on stimulus projects already have been busy at work on government projects.even the stimulus money which is being spent <112>

David Rosenberg writes:

Our advice to the Obama team would be to create and nurture a fiscal backdrop that tackles this jobs crisis with some permanent solutions rather than recurring populist short-term fiscal goodies that are only inducing households to add to their burdensome debt loads with no long-term multiplier impacts. The problem is not that we have an insufficient number of vehicles on the road or homes on the market; the problem is that we have insufficient labour demand.<113>

Donald W. Riegle Jr. – former chair of the Senate Banking Committee from 1989 to 1994 – wrote (along with the former CEO of AT&T Broadband and the international president of the United Steelworkers union):

It’s almost as if the administration is opting for a rose-colored-glasses PR strategy rather than taking a hard-nose look at actual consumer and employment figures and their trends, and modifying its economic policies accordingly.<114>

As yesterday’s front-page story on ABC notes

:

Even as many Americans still struggle to recover from the country’s worst economic downturn since the Great Depression, another crisis – one that will be even worse than the current one – is looming, according to a new report from a group of leading economists, financiers, and former federal regulators.

In the report, the panel, that includes Rob Johnson of the United Nations Commission of Experts on Finance and bailout watchdog Elizabeth Warren, warns that financial regulatory reform measures proposed by the Obama administration and Congress must be beefed up to prevent banks from continuing to engage in high risk investing that precipitated the near collapse of the U.S. economy in 2008.

The report warns that the country is now immersed in a “doomsday cycle” wherein banks use borrowed money to take massive risks in an attempt to pay big dividends to shareholders and big bonuses to management – and when the risks go wrong, the banks receive taxpayer bailouts from the government.

“Risk-taking at banks,” the report cautions, “will soon be larger than ever.”

Without more stringent reforms, “another crisis – a bigger crisis that weakens both our financial sector and our larger economy – is more than predictable, it is inevitable,” Johnson says in the report, commissioned by the nonpartisan Roosevelt Institute.

The institute’s chief economist, Nobel Prize-winner Joseph Stiglitz, calls the report “an important point of departure for a debate on where we are on the road to regulatory reform.”

The report blasts some of Washington’s key players. Johnson writes, “Our government leaders have shown little capacity to fix the flaws in our market system.” Two other panelists, Simon Johnson, a professor at MIT, and Peter Boone of the Centre for Economic Performance, voiced similar criticisms.

Federal Reserve Chairman Ben Bernanke and Treasury Secretary Tim Geithner “oversaw policy as the bubble was inflating,” write Johnson and Boone, and “these same men are now designing our ‘rescue.’”

The study says that “In 2008-09, we came remarkably close to another Great Depression. Next time we may not be so ‘lucky.’ The threat of the doomsday cycle remains strong and growing,” they say. “What will happen when the next shock hits? We may be nearing the stage where the answer will be – just as it was in the Great Depression – a calamitous global collapse.”

***

Frank Partnoy, a panelist from the University of San Diego, claims that “the balance sheets of most Wall Street banks are fiction.” Another panelist, Raj Date of the Cambridge Winter Center for Financial Institutions Policy, argues that government-backed mortgage giants Fannie Mae and Freddie Mac have become “needlessly complex and irretrievably flawed” and should be eliminated. The report also calls for greater competition among credit rating agencies and increased regulation of the derivatives market, including requiring that credit-default swaps be traded on regulated exchanges.

With the Senate Banking Committee, led by Chris Dodd, D-Conn., poised to unveil its financial regulatory reform proposal sometime in the next week, the report calls on Congress to enact reforms strong enough to prevent another meltdown.

“Sen. Dick Durbin once said the banks ‘owned’ the Senate,” says Johnson. “The next few weeks will determine whether or not that statement is true.”

For supporting citations to each point, see the original article at the link!

[Demeter]

5. A Failed System by John Bellamy Foster

http://www.monthlyreview.org/090302foster.php


The World Crisis of Capitalist Globalization and its Impact on China


(It's long and rather technical--all right, outright wonky--but interesting and thought--provoking! It concludes:)

Beyond a Failed System

As the foregoing indicates, the world is currently facing the threat of a new world deflation-depression, worse than anything seen since the 1930s. The ecological problem has reached a level that the entire planet as we know it is now threatened. Neoliberal capitalism appears to be at an end, along with what some have called “neoliberalism ‘with Chinese characteristics.’”54 Declining U.S. hegemony, coupled with current U.S. attempts militarily to restore its global hegemony through the so-called War on Terror, threaten wider wars and nuclear holocausts. The one common denominator accounting for all of these crises is the current phase of global monopoly-finance capital. The fault lines are most obvious in terms of the peril to the planet. As Evo Morales, president of Bolivia, has recently stated: “Under capitalism we are not human beings but consumers. Under capitalism mother earth does not exist, instead there are raw materials.” In reality, “the earth is much more important than stock exchanges of Wall Street and the world. while the United States and the European Union allocate 4,100 billion dollars to save the bankers from a financial crisis that they themselves have caused, programs on climate change get 313 times less, that is to say, only 13 billion dollars.”55

The world economic crisis is now so severe that a figure like Martin Wolf, chief economic commentator for the Financial Times and longtime “Atlanticist” and apologist for U.S. policies, warns that the entire system of world trade could break down as in the 1930s. It comes as no surprise that Wolf lays the blame on “mercantilist countries” with large external surpluses and insufficient internal demand, such as China, Germany, and Japan. He singles out China as the main culprit. The so-called “mercantilist” countries are accused of carrying out beggar-thy-neighbor policies at the expense of the deficit countries (that is, above all, the United States) and the entire world.56 We have now reached the point where it is possible to ask what the consequences would be of the collapse of the dollar as unilateral global trade settlement and reserve currency, and this has thrown Wolf and the other Atlanticists into something approaching hysteria. It is just these same “mercantilist” states that are the plausible core of a new global multilateral currency, a prospect of unspeakable fear and horror to the Atlanticists, raising geopolitical tensions that obstruct any such project.

It is clear that neoliberal globalization has come to an end, and that capitalism is in a long-term crisis. We are now faced with “depression economics,” not as a special case, but as a general one. As world-system theorist, Immanuel Wallerstein, has suggested for some time, what was called “globalization” in the last couple of decades was really at the global level an “age of transition” away from the current capitalist world-system towards something else.57

What exactly this something else is we do not know, and cannot know at this point: because it depends on the responses not just of states and corporations, but more importantly the response of the world’s populations. On top of the intense class alienation, exploitation, and inequality endemic to capitalism at every level, we are now faced with widening global fractures. So far, on a continental level, leadership in recognizing that the only answer is the revolutionary one—a new socialism for the twenty-first century—has been taken by the peoples of Latin America, in Cuba, Venezuela, Bolivia, Ecuador, and is also manifest in struggles taking place in Brazil, Mexico, Nicaragua, and elsewhere.58 Latin America, which was the first continent to feel the full brunt of neoliberal globalization, the hardest hit region outside of the Middle East in terms military interventions in the last quarter-century, and the region that was the initial basis of U.S. international hegemony, is now showing the way to the world—not only in relation to the struggle for substantive equality, which is essential, but also in relation to saving the planet from capitalism. As Morales has stated, “Humankind is capable of saving the earth if we recover the principles of solidarity, complementarity, and harmony with nature, in contraposition to the reign of competition, profits, and rampant consumption of natural resources” that distinguishes the failed system of capitalism.

[Demeter]

6. Wall Street slightly favors Democrats -- so the GOP must be in the tank for banks Timothy P. Carney

http://www.washingtonexaminer.com/opinion/blogs/beltway-confidential/Wall-Street-slightly-favors-Democrats----so-the-GOP-must-be-in-the-tank-for-banks-86229812.html

Imagine you write about the intersection of business and government. Say the campaign finance numbers come in for 2009 at the Center for Responsive Politics. They show that the Securities and Investment Industry, Wall Street, gave 63% of its money to Democrats, improving on the Democrats' majorities from the 2006 and 2008 cycle when Wall Street gave Dems 52% and 57% of campaign cash. In fact, the numbers for the 2010 cycle so far are the most one-sided numbers we've seen from Wall Street as far back as records go.

As gravy, say the top three Wall Street recipients are all Democrats, and 8 of the top 10 are Democrats. And this is all amid harsh Democratic rhetoric aimed at Wall Street "Fat Cats."

What story would you write?

If you're the Washington Post, the story here is that "Commercial banks and high-flying investment firms have shifted their political contributions toward Republicans in recent months."
http://www.washingtonpost.com/wp-dyn/content/article/2010/02/23/AR2010022305537.html



This story, by Dan Eggen and Tomoeh Murakami Tse, fits nicely into the Democratic theme that Republicans are the party of the Fat Cats, and Democrats are their scourge. The story, however, doesn't fit the facts. If the long-term trend shows Democrats increasingly cozy to Wall Street, write the story about the last three months -- even if those three months showed a dramatic downturn in total giving, making them the least-significant quarter of the year.

Jonah Goldberg expertly dismantles this theme in a USA Today column:

Except there's one datum, mentioned but not explored in the article that doesn't quite fit this story line: Wall Street is still giving more money to the Democrats. "The wealthy securities and investment industry ... went from giving 2 to 1 to Democrats at the start of 2009 to providing almost half of its donations to Republicans by the end of the year," the Post reports.

Almost half. That's another way of saying that the allegedly vindictive Wall Street fat cats are still giving more than half of their political donations to Democrats, also known as the party in power.

I should add, that like Goldberg, I believe the GOP leadership -- like the Democratic leadership -- is far too friendly to Wall Street.

Read more at the Washington Examiner: http://www.washingtonexaminer.com/opinion/blogs/beltway-confidential/Wall-Street-slightly-favors-Democrats----so-the-GOP-must-be-in-the-tank-for-banks-86229812.html#ixzz0hRNxHmjf

[Demeter]

7. Greek Corruption Booming, Says Transparency International

http://www.spiegel.de/international/europe/0,1518,681184,00.html



The Euro Crisis

Related articles, background features and opinions about this topic.

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03/02/2010

European Debt Crisis
Greek Corruption Booming, Says Transparency International
Corruption is endemic in Greece, an international watchdog says.
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AP

Corruption is endemic in Greece, an international watchdog says.

Corruption is widely regarded as one of the triggers of the Greek debt crisis threatening the euro common currency. A new study by Transparency International suggests that corruption is part of everyday life in Greece, and claims private households paid more than 780 million euros in bribes in 2009.

The Greeks paid an average of €1,355 ($1,830) in bribes last year for public services such as speeding up the issue of driver's licenses and construction permits, getting admitted to public hospitals or manipulating tax returns, according to a new study by Transparency International, the Berlin-based global corruption watchdog.

In 2008, average bribes were even higher, at €1,374, the study said, according to a report in the German daily Die Welt on Tuesday.

Bribes paid for private sector services such as lawyers, doctors or banks were even higher, rising to €1,671 on average in 2009 from €1,575 in 2008, the study said. It is based on a survey by polling institute Public Issue among 6,122 Greek adults, of whom 13.4 percent stated that they had been asked to pay bribes.

According to Die Welt, Transparency International calculated that Greek households paid a total of €787 million in bribes in 2009 -- €462 million to civil servants and €325 million in the private sector. The total sum is up 23 percent from 2007, when TI estimated that bribes totalling €639 million were paid.

Government, Corporate Corruption Not Measured

The figures show only a small part of the corruption in Greece because many people did not admit to paying bribes, the study said. "We only measure so-called small-scale corruption, meaning bribes paid by private individuals to civil servants and in the private sector," the head of Transparency International Greece, Konstantin Bakouris, told Die Welt.

He added that TI did not record the corruption going on at the government and corporate level, even though it was widespread.

The Greek budget deficit in 2009 amounted to 12.7 percent of GDP, more than four times the EU limit. Market worries that the Greek government might default on its debt have pushed up the cost of Greek borrowing and triggered a 10 percent depreciation of the euro against the dollar since the end of 2009. There are fears that a Greek default could lead to a breakup of the 11-year-old monetary union.

The Greek government has pledged to hike taxes and slash public spending to bring the deficit back down. German accusations of corruption, false public accounting and extravagance have led to a war of words between Greece and Germany in recent weeks.

Politicians in Germany are reluctant to rescue Greece, partly because such a move would be deeply unpopular after Germans have undergone reforms in recent years to keep their budget deficit under control. Bild, the mass circulation German daily, reflected the public mood on Tuesday with a banner headline on its front page asking: "Are The Greeks Breaking the Euro?"

[Demeter]

8. YVES SMITH DOES A TEASER ON: the Escalating Rahm Drama

http://www.nakedcapitalism.com/2010/03/on-the-escalating-rahm-drama.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29

It’s hard for those of us who are not political junkies or DC residents to relate to most official power struggles, but the one involving Rahm Emanuel has been building over the last few weeks to the point that it is getting hard not to notice (aside: for unrelated reasons Rahm has become a Person of Interest to this blog, as will become evident over the next ten days or so).

A brief synopsis for newcomers:

In some ways, the first serious salvo was an article by Edward Luce in the Financial Times, which discussed at length how Obama was unusually dependent on a tight inner circle of four people – Rahm; David Axelrod and Valerie Jarrett, both senior advisers; and Robert Gibbs – and attributed Obama’s declining fortunes to the fact that this group had been unable to change gears from campaigning to governing:

“Every event is treated like a twist in an election campaign and no one except the inner circle can be trusted to defend the president,” says an exasperated outside adviser.

The Luce piece got less play than it deserved initially, but it appeared to reframe how some viewed what was amiss with Team Obama. Roughly two weeks later, Leslie Gelb argued that Obama needed to shake up his team, in a piece titled “Replace Rahm“.

(Note: one can argue that the first major attack was the Jane Hamsher/Grover Norquist call for Rahm’s resignation in late December, alleging a persistent cover-up of his role at Freddie Mac. I question how much impact this had. The right and left were agog over this teki no teki , plus many consider Freddie to be an old hobbyhorse.)

So far, this looked like a typical search for scapegoats and solutions in the face of floundering performance. But then things took a bizarre turn.

A week after the Gelb piece, Dana Milbank of the Washington Post penned a truly vomititious article, “Why Obama needs Rahm at the top,” so fawning, indeed sychophantic that calling it propaganda is too kind. Propaganda is seldom so unctuous. It was simply stunning to see Rahm (or Friends of Rahm working fist in glove) devise with such a one-sided narrative.

But the desperation of the piece was not what made it seem so peculiar. What was remarkable was that it was an open attack on the President, claiming that Rahm had made consistently correct judgment calls (opposing closing Gitmo and sending Kahlid Sheik Mohammed to New York for trial; urging a less ambitious health care reform bill).

And the Rahm image-boosting campaign continued unabated. On March 2, Rahm got a page one story in the WaPo by Jason Horowitz, with the same unflattering-to-Obama story line but some new tidbits: Rahm was also right on jobs, more emphasis on Rahm as the voice of reason, and (after two full pages of hagiography) some snippets of the critics’ case.

David Broder of the Washington Post today decided to call this orchestrated love-fest out today in “The fable of Emanuel the Great“:

In the space of 10 days, thanks in no small part to my own newspaper, the president of the United States has been portrayed as a weakling and a chronic screw-up …This remarkable fiction began unfolding on Feb. 21…

It sounded, for all the world, like the kind of orchestrated leaks that often precede a forced resignation in Washington.

Except that the chief of staff doesn’t usually force the president out…..Maybe the sources on these stories think Obama is the one who should leave.

Here in a few paragraphs is what others high in the White House think is going on:

The underlying problem, in their eyes, is a badly damaged economy that has sunk Obama’s poll numbers and emboldened Republicans to blockade his legislative program.

Emanuel, who left a leadership post in the House to serve his fellow Chicagoan, Obama, has worked loyally for the president and is not suspected personally by his colleagues of inspiring these Post pieces.

But, as one White House staffer said to me, “Rahm likes to win,” and when the losses began to pile up, he probably vented his frustrations to some of his old pals in Congress. It’s clear that some of them are talking to the press…

None of this would rise above the level of petty Washington gossip except that some of Emanuel’s friends are so eager to exonerate him that they are threatening to undermine the president.

The Broder piece led to more speculation that Rahm was on his way out, both on some blogs, and one reader said he heard a mention on ABC radio.

Now I am not a DC expert, nor do I have any particular insights, but let’s reason from the well known character of this crowd. All accounts say they ran a remarkably disciplined campaign, so this apparent disarray looks mighty peculiar. All accounts say the inside group is extremely loyal.

Let me give you a probable outcome and then some speculation.

Unlike Timothy Geithner, another scalp some outsiders would like to collect, Rahm appears to have no vivid, politically unpopular decisions associated with his name (his personal unpopularity is not germane here). Recall the big WSJ reason why they thought Geithner was not at risk, despite widespread public fury with bank-friendly policies: most of the public does not know anything about him. Nor, unlike many top staffers who are forced out, is he the focus of a scandal (despite the Hamsher/Grovquist calls for an investigation). Even those who want him “out” merely want him in a different role.

So, despite the escalating headlines, this is an inside the Beltway drama. Obama’s permanent campaign posture leads his team to treat every problem as solvable through PR. I would think a cold-blooded calculus is that moving Rahm somewhere else does not even register in the heartlands, or if it did, could be seen as showing weakness (or at least that would be the reasoning).

So I don’t see Rahm move/departure as likely given the current facts on the ground.

However, the one fact not adequately incorporated into this calculus is whether Rahm’s own self-promotion damaged his relationship with Obama. I don’t buy for one second the line that Broder was fed, that Rahm was not suspected personally of being behind the Post pieces. Please. That account simply means that the officialdom has closed ranks, regardless of what the actual beliefs are.

For Rahm to call Milbank directly would be unseemly, but the idea that he simply complained vociferously to friends and then three stories (a second Milbank story reiterated some of the messages of his first story) with similar narratives run in less than two weeks is just happenstance? These stories bear all the hallmarks of being plants.

So let’s unpeel this.

The intransigence of the Rahm campaign was obvious BEFORE Broder called it out. These leaks/plants make Obama look bad. Broder was merely calling more attention to the obvious.

What would any NORMAL manager/executive do? If anyone working for me pulled a stunt like that, the minute I got wind of the Milbank piece, I would have the Rahm equivalent before me and rip him new asshole.

There would be NO second Milbank piece, no Horowitz piece. The message would be “if you are on this team, you make sure this NEVER happens again.” If Obama had reamed Rahm, Rahm would most certainly gone to his buddies and told them to cease and desist telling the media about his complaints.

So we are left with two possible conclusions:

1. Obama is an even bigger wuss than I thought (and I already gave him very high marks in the wuss department)

2. Obama is on board with this PR campaign

Assume Rahm the devious SOB sold Obama on this. How does making Obama look bad (by attacking his decisions) advance the ball?

Remember who the audience is: is anyone really following this story that closely besides Beltway types and political junkies (oh, and perhaps most important, journalists who write about politics?) Even though my buddy did catch a snippet on ABC radio, I’m not certain anyone outside the political hothouse is paying much attention.

What decisions that Obama made are attacked in this narrative? Ones that were left leaning. The real subtext here is that the progressives are all wrong, that Obama’s efforts to deliver on campaign promises were all doomed to failure, so he should be given a free pass. The Rahm PR push is a Trojan horse that allows Team Obama to push messages that serve Obama’s need to distance himself from his “change you can believe in” campaign positioning, which is looking more and more like a baldfaced bait and switch. (Note this isn’t quite as tidy as one might like; there is not just the Obama the supposed idealist, which I have trouble swallowing, versus Rahm the realist. There is another subtext to the story, which is neither flattering nor helpful, that of Obama being in a bit of an echo chamber. That could be the messengers adding their own frustrations/observations).

This way, Obama gets to have his cake and eat it too, provided he is willing to live with the short term embarrassment/annoyance of Rahm appearing to criticize him through proxies.

Look at the message:

1. Obama wanted to live up to his campaign promises of closing Gitmo and health care reform

2. Rahm the realist says No! No! not doable, but then falls into line like a good soldier. Rahm devotes his bulldog energies to trying to make the impossible happen. And all the efforts came to naught. So abandoning all those pinko promises is the only possible course of action

So this story looks like/is Rahm defense (which separately has its uses), but look at how much press it gives to the message that Rahm (and possibly Obama) wants to stress: what the progressives want is unreasonable, undoable. Obama tried, failed, we need to move to the center (really the right). Thus this is all part of an awkward but necessary process (from Team Obama’s perspective) of managing the optics of Obama’s left leaning campaign pitch versus the reality of his center-right governing posture.

This Rahm-led salvo could thus be an attack on the progressive demands and simultaneously deflects their criticism of him.

Of course, the proof will be in how this drama plays out. The Broder piece took this tempest in a teapot to a higher level. The next week will reveal a great deal.

WE WILL STAY TUNED FOR THESE PROMISED REVELATIONS! HEY, NEXT WEEKEND IS THE IDES OF MARCH! HOW CONVENIENT!

[Demeter]

9. More Credit Card Company Chicanery: Ban on Universal Default Gutted

http://www.nakedcapitalism.com/2010/03/more-credit-card-company-chicanery-ban-on-universal-default-gutted.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29

This report from Katie Porter at Credit Slips, which describes another ruse by which banks are undermining new credit card rules, illustrates why we need principles based regulation in the US:

http://www.creditslips.org/creditslips/2010/03/the-ban-on-universal-default.html

Did Congress’ effort to protect you from your card company with the Credit CARD Act inspire you to pore over the new Cardmember “Agreement” that probably arrived in your mailbox this week?…

The first place I looked in the Cardmember Agreement was the paragraph labeled “Default/Collection.” I was looking for the much-touted restrictions on universal default. Here is what I read, to my initial surprise: “Your account may be in default if any of the following applies: . . . we obtain information that causes us to believe that you may be unwilling or unable to pay your debts to us or to others on time.” Wait a minute? That sounds like my default (or purported default) on my debts to someone else is a default to JPMorgan Chase. Isn’t that what “universal default” is?

Actually, no, at least not as defined in the legislation. The Credit CARD Act prohibits raising “any annual percentage rate, fee, or finance charge applicable to any outstanding balance” with a few exceptions. Notably, absent from the list of exceptions is the ability to increase those charges based on a cardholders’ default to other creditors. But of course, that is not what the JPMorgan Chase agreement permits. Rather, it says that I can be in “default” for being unwilling or unable to pay debts due to others, not that my charges can be increased. Under the Cardholder Agreement, a default permits JPMorgan Chase to close my account without notice and require me to pay my unpaid balance immediately. That is pretty grim result for a late payment to another creditor, even if it is not “universal default.”

In her presentation on the need for a consumer finance watchdog at the Roosevelt Institute session yesterday, Elizabeth Warren made the argument (not quite this crisply) that the complex agreements that financial firms foisted on consumers were not proper contracts, in that there was no way that most consumers could evaluate what they were agreeing to (this gets to the notion we’ve discussed earlier, of good faith and fair dealing. While the contracts may conform to the appearance of contracts, they violate these fundamental premises that undergird all agreements).

And there is no reason these agreements need to be this complex. She noted that the Bank of America credit card agreement, when you include all the riders incorporated in the agreement, runs to 30 pages. In 1980, its credit card agreement was one page long.

[DemReadingDU]

30. This is really really really really bad

Read the forums over at Denninger

Denninger essay
http://market-ticker.org/archives/2037-So-Much-For-Universal-Default-Disappearing.html

Denninger forums
http://www.tickerforum.org/cgi-ticker/akcs-www?post=130259
http://www.tickerforum.org/cgi-ticker/akcs-www?post=130240


Basically, for whatever reason Chase wants, Chase can call for the full payment on your credit card, immediately. And cancel the credit card!



Edit: I would assume this would apply to other credit cards too. Read those Agreements that come with your statements!

[Demeter]

11. Why No Regulatory Action on Banksters’ “Destabilize the Markets” Threats?

http://www.nakedcapitalism.com/2010/03/why-no-regulatory-action-on-banksters-destabilize-the-markets-threats.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29


We have pointed out more than once that a major impediment to reform of the financial services industry is that a small number of firms control infrastructure crucial to modern capitalism:

1. Credit is essential to any society beyond the barter stage

2. Debt markets are now at least as important in providing credit as traditional lending, by a lot of measures, even more so

3. A handful of firms are crucial because they operate the debt markets

4. These firms are deeply enmeshed. If one goes, the others are at risk of failure, which will take down the entire debt markets apparatus.

The banksters understand this situation full well, that they have a knife at the throat of the economy, and they will fiercely resist any efforts to disarm them. And note that the enmeshed-ness is one of the sources of their leverage (no pun intended). If single firms could be taken out and shot (wound down), the firms collectively would have much less power. The interconnectedness of the players, via their credit exposures to each other (most importantly but not limited to the repo and credit default swaps markets) makes “reforms” like living wills of dubious value. Unless the tight coupling is substantially reduced, these living wills remain fig leaves for political and regulatory inaction.

Put it this way: if banks can forestall a not very ambitious reform program by huffing and puffing about “destablizing markets” when the financial markets are on comparatively sound footing, do you think anyone, in bona fide financial crisis, will take the risk of putting down a significant player in an untested wind-down protocol? A bailout is the less risky course of action (although some ancillary operations might be hived off of a floundering firm to improve the optics).

Recall what took place during the Bernanke confirmation process. There was a point where opposition was significant, and there was a hope of getting a thumbs-down, particularly since conventional MSM outlets like the Wall Street Journal were making particularly articulate cases (as in going through his record as Fed governor as well as chairman, and arguing that his role in causing the crisis was much more significant than widely appreciated).

In addition, the claims that a no vote on Bernanke would be detrimental were wildly exaggerated. He would still have remained a Fed governor; the spectrum of opinion within the Fed is not terribly wide; the idea that a new Fed chairman would pursue radically different (as opposed to merely somewhat different) policies was a chimera. A vote against Bernanke was necessary for accountability, and a shot across the Fed’s bow on how it defined its constituency (as in a warning that its cognitive capture by the banking industry was no longer acceptable).

But what did we see around the time of the vote? Statements that a vote against Bernanke would “destabilize markets” and, lo and behold, markets fell appreciably when the nomination looked to be in doubt. And senators appeared to get the message. A number of senators who voted for Bernanke went so far as to explain their vote in terms of “I’m not wild about this, but oh, no, we don’t dare cross the markets.”

So the ability to get the markets to fall on cue when regulators are threatening to do things that are inconvenient has now become a critical source of power for the financial services industry.

On the Bernanke vote, do we have any reason to think that pension funds, insurance companies, endowments, retail investors, or mutual funds would have had a strong point of view either way on Bernanke, strong enough lead them to take action? Unlikely.

It has hit the point where the Administration has tried to use the same threat, which given the fact pattern above, must strike industry participants as truly comic. From the New York Times:

As part of a regulatory overhaul adopted in December, the House voted to create a freestanding Consumer Financial Protection Agency. Since then, the financial services industry has been largely unified in trying to reduce the proposed agency’s independence, as well as the scope of its powers.

The lobbying effort has been so fierce that the Treasury secretary, Timothy F. Geithner, called a meeting on Thursday with representatives of the United States Chamber of Commerce, the American Bankers Association and six other groups, at which he warned that failure to pass a regulatory overhaul could destabilize the markets.

Yves here. There are so many ways to interpret Geithner’s threat that I am not certain where to begin. Is this merely an effort to trump the industry’s usual nuclear option? The problem is that that his remark is not credible, at least in the short term, which is all that seems to matter these days in the US (yes, failure to pass reforms will perpetuate the underlying bad incentives and behaviors that generated the crisis, but that does not seem to be the argument Geithner was making). Does anyone really think that not having an independent consumer financial protection agency (something I favor) is going to roil markets? No.

Or (being cynical) was the use of that threat a deliberate effort to signal the Administration’s powerlessness? “Yes, I summoned you all, and I as Treasury Secretary must engage in some Kabuki theater to show we really really wanted this to pass, and that we really really gave it the good old college try. But you and I know you guys really have the upper hand.”

Now if we were back in the days of Johnson or Nixon, when the government was not ashamed of exercising its authority, the conversation would have been very different. Someone like Geithner would have hoped and prayed a lobbyist would invoke the “destabilize markets” threat, and would have responded these lines (no doubt more iron fist in velvet glove than this rendition, but the underlying message would have been the same):

Do I hear that you are threatening the government and the hardworking citizens of this country with a self-serving action of creating a market rout which will cause losses to investors solely to preserve your privileged and perquisites? I’ve heard this threat before, and I’ve seen it happen, and we are no longer willing to tolerate this sort of abuse.

Let me discuss how many legal violations that involves. Collusive action to manipulate markets, a probable violation under antitrust law. Mail and wire fraud. To the extent it involves equities or regulated options and futures exchanges, market manipulation. And given that all your clients operate only by the grace of various Federal and State licenses, I am sure we can add to the list. Given the repeated threats and consistent market declines after threats like these have been made, we can compel your client to divulge internal information.

The point here is that if you having made this threat gives us reason to believe you plan to engage in market manipulation should we proceed with our program. So you tell your clients this: we will engage in a full bore discovery process of any down market moves that appear to be an effort to undermine financial regulatory reform. We will post the results of trading activities, internal communications, meeting records, all the details in a public forum so as to leverage our resources. As you know, our colleagues in the EU right now are not very happy with the conduct of US firms either, so I am highly confident that we can obtain their cooperation in getting the same kind of information from your clients’ overseas operations. And I am sure you understand full well your clients will not come out looking very pretty from this level of scrutiny.

Do not try telling me that this sort of investigation will hurt your clients’ relationship with their customers. Whether we take action is entirely at their discretion. I have no sympathy for arguments that we might damage your clients’ precious customer franchises when they seek to place their interests over that of the US as a whole.

You go back and tell your client if they are not on this bus, they will be under the bus.

Yves here. So now I have to wonder whether Geithner having tried a clearly not credible “destabilize the markets” threat was to give the industry cover for its past bullying….Nah, I’m clearly too cynical.

[Demeter]

12. So Why Hasn’t the Credit Default Swaps Casino Been Shut Down?

http://www.nakedcapitalism.com/2010/03/so-why-hasnt-the-credit-default-swaps-casino-been-shut-down.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29


Credit default swaps played a much more central role in the financial crisis than is widely understood, and they continue to get a free pass in financial reform proposals that they do not deserve. As we have discussed on this blog, and recount in more detail in the book ECONNED, central clearing and/or putting them on exchanges are inadequate remedies. Only a small subset of CDS contracts trade often enough for to be suitable for exchange trading. As for central clearing, the logic is that this would provide for consistent and sufficiently large margin to be posted (think of it as a reserve against the ultimate possible insurance payment required on the contract). But unlike real derivatives, CDS are subject to massive price moves (”jump to default’) when a reference entity (the entity on which the CDS is written) defaults or goes into bankruptcy. That large price movement, means that the margin already posted will be insufficient, and there is no guarantee that the counterparty will be able to pony up the amount now due.

But perhaps more important, the idea that CDS have legitimate uses is questionable. They are used to hedge credit risk (sometimes) yet their pricing, per Bloomberg or any of the common commercial models, price CDS based on volatility, which is not based on any assessment of the underlying credit. So the idea that the pricing reflects default risk is spurious; indeed, CDS failed abysmally in predicting financial firm default risk during the crisis (Lehman was a particularly vivid illustration). But they serve to perpetuate the erosion of proper credit analysis (why bother if you can just lay off the risk?).

In the last two days, Gretchen Morgenson of the New York Times and Wolfgang Munchau of the Finacial Times have both launched salvos at CDS. Munchau’s is even more vituperative than Morgenson’s, which given the sober sensibilities of the Financial Times, suggests that opinion on the other side of the pond may be coalescing against the product.

Morgenson points out that even Ben Bernanke has started to question the legitimacy of CDS, but peculiarly is not as hard on his remark as she should have been:

“Using these instruments in a way that intentionally destabilizes a company or a country is — is counterproductive, and I’m sure the S.E.C. will be looking into that.”

Yves here. Huh? How, pray tell, is the SEC, of all regulators, going to look into CDS? CDS are specifically exempt from SEC regulation. If anyone has (or could decide it has) jurisdiction, it’s the Office of the Comptroller of the Currency, and the Fed. So saying that swaps are a problem, and saying that someone who cannot possibly look into them will handle them, is just a fancy form of regulatory three card monte.

And if anyone had any doubts that the CDS market is officially backstopped, look no further than the Bear Stearns and AIG rescues. To put not too find a point on it, the industry understands full well who is the ultimate bagholder:

United States commercial banks, those with insured deposits, held $13 trillion in notional value of credit derivatives at the end of the third quarter last year, according to the Office of the Comptroller of the Currency. The biggest players in this world are JPMorgan Chase, Citibank, Bank of America and Goldman Sachs.

All of those firms fall squarely into the category of institutions that are too politically connected to fail. Because of the implicit taxpayer backing that accompanies such lofty status, derivatives become exceedingly dangerous, said Robert Arvanitis, chief executive of Risk Finance Advisors, a corporate advisory firm specializing in insurance.

“If companies were not implicitly backed by the taxpayers, then managements would get very reluctant to go out after that next billion of notional on swaps,” he said. “They’d look over their shoulder and say, ‘This is getting dangerous.’”

Morgenson is positively tame compared to Munchau. I’m quoting him more liberally, because the tone of his remarks are remarkably pointed for him and the FT generally. Notice that he explicitly, and repeatedly, says the use of naked credit default swaps looks an awful lot like a crime:

I cannot understand why we are still allowing the trade in credit default swaps without ownership of the underlying securities. Especially in the eurozone, currently subject to a series of speculative attacks, a generalised ban on so-called naked CDSs should be a no-brainer…. Unfortunately, it is legal…

A naked CDS purchase means that you take out insurance on bonds without actually owning them. It is a purely speculative gamble. There is not one social or economic benefit. Even hardened speculators agree on this point. Especially because naked CDSs constitute a large part of all CDS transactions, the case for banning them is about as a strong as that for banning bank robberies.

Economically, CDSs are insurance for the simple reason that they insure the buyer against the default of an underlying security. A universally accepted aspect of insurance regulation is that you can only insure what you actually own. Insurance is not meant as a gamble, but an instrument to allow the buyer to reduce incalculable risks. Not even the most libertarian extremist would accept that you could take out insurance on your neighbour’s house or the life of your boss.

Technically, CDS are not classified as insurance but as swaps, because they involve an exchange of cash flows. The CDS lobby makes much of those technical characteristics in its defence of the status quo. But this is misleading. Even a traditional insurance contract can be viewed as a swap, as it involves an exchange of cash flows. But nobody in their right mind would use the swap-like characteristics of an insurance contract as an excuse not to regulate the insurance industry. The fact that, unlike insurance, CDSs are tradeable contracts does not change the fundamental economic rationale…

Yves here. The “tradeable” aspect is exaggerated. While standardization of contracts has helped, most CDS are not traded; dealers lay off their risks by entering into offsetting swaps. Back to Munchau:

Another argument I have heard from a lobbyist is that naked CDSs allow investors to hedge more effectively. This is like saying that a bank robbery brings benefits to the robber. A further stated objection to a ban is that it would be difficult to police. There is no question that a ban of a complex product, such as a CDS, involves technical complexities that commentators like myself probably underestimate. It is conceivable, for example, that the industry might quickly find a legal way round such a ban. Then again, we would not consider legalising bank robberies on the grounds that it is difficult to catch the robber.

So why are we so cautious? From conversations with regulators and law-makers, I suspect they are not always familiar with those products, to put it kindly, and that they may be afraid of regulating something they do not understand. They understand, or think they do, what a hedge fund is. Restricting hedge funds is something they can sell to their electorates. Hedge funds were not at the centre of the crisis, but they are a politically expedient target. Banning products with ugly acronyms that nobody understands seems like unnecessarily hard work…

Yves here. Hedge funds and Wall Street prop desks replicating certain structured arb strategies that relied on CDS were far more important in the crisis than is widely understood. You’ll be hearing more about that in due course. Back to Munchau:

But naked CDSs have played an important and direct role in destabilising the financial system. They still do. And banks, whose shareholders and employees have benefited from public rescue programmes, are now using CDSs to speculate against governments.

Where is the political response? The Germans want to bring it to the Group of 20, but they hesitate to do anything unilaterally. Christine Lagarde, the French finance minister, was recently quoted as saying: “What we are going to take away from this crisis is certainly a second look at the validity, solidity of sovereign .”

A second look? I wonder what they saw when they looked the first time.

Yves here. The other defenses of CDS I’ve heard are equally dubious. One is they add to liquidity. Ahem, were corporate bond investors ever suffering from a lack of liquidity? That paper doesn’t trade much because most investors are buy and hold. Even when I was a kid, in the early 1980s, when there was as much appetite for corporate bond trading as are likely ever to see due to high uncertainty over interest rates. Yet no one complained about illiquidity in the corporate bond market (as in yes, it may not have been that liquid, but no one felt inconvenienced, dealer spreads were not seen as problematic). And as CDS drain liquidity in crises. As bond yields rise, intermediaries and hedge funds, both of whom are leveraged and normally serve as liquidity providers, have to tie up of their scarce cash and collateral in posting margins on CDS positions. So they suck liquidity out of markets are precisely the worst possible moment.

The more we can to to contain this product the better, but I am afraid it will take another meltdown to teach us the lesson we should have learned from the last one.

[burf]

13. A plan to save commercial real estate

NEW YORK (Fortune) -- Economists have long been predicting commercial real estate could be the next day of reckoning for the financial markets, with a wave of defaults looming as billions of dollars in troubled loans come due in the coming months.

But a little-noticed bill introduced in January could help bring a new source of desperately-needed liquidity to the sector: foreign investment

Introduced by Joseph Crowley, a six-term Democratic congressman representing parts of New York City's Queens and Bronx boroughs, the Real Estate Revitalization Act of 2010 would eliminate certain taxes that were part of the Foreign Investment Real Estate Property Tax of 1980, or FIRPTA -- which requires foreign investors to pay as much as a 55% tax on capital gains from the sale of U.S. real estate or shares in real estate investment trusts and real estate operating companies.

Repealing the tax, Crowley and the bill's supporters say, would get rid of a major impediment to foreign investment in the sector -- and could open the floodgates to new liquidity at a time when commercial real estate loan defaults pose a serious risk to the nation's fragile economic recovery.

Link: http://money.cnn.com/2010/03/05/real_estate/commercial_real_estate.fortune/index.htm

I honestly don't know what to say about this. If this passes, we have truly gone insane.

[Hugin]

14. As an honorary Ewok... I just want to say...

Let's partay!

(Oh, and George... The old ending was better.)

[Demeter]

15. Europe: A meeting of minds By Richard Milne

http://www.ft.com/cms/s/0/3df69142-249d-11df-8be0-00144feab49a.html?nclick_check=1

When Infineon faced a shareholder rebellion earlier this year, a look at its share register would have provided the German chipmaker with a bracing reminder of the new reality in European capitalism. None of its 10 largest investors was German.

Instead, the owners of at least 40 per cent of the company were US, UK, Norwegian and French funds. That was in sharp contrast with 1999, when Infineon was owned by Siemens, the German industrial conglomerate, which gradually sold down its stake – to foreign investors.

In a shift that represents perhaps the single most important change in European capitalism in the past decade, domestic owners of companies are being replaced by foreigners. That in turn is having a profound effect on how European companies are run and how they behave – pushing continental groups to adopt practices more common in the UK or US. The role of foreign investors agitating for change is likely to come in for renewed attention as the annual meeting season kicks off in Europe in earnest this month, with confrontation particularly likely over executive pay.

“There has been a massive rebalancing of the ownership structure of companies in Europe in the past 10 years. That has wide-reaching consequences,” says David Haines, the British chief executive of Grohe, the German company that is Europe’s largest maker of bathroom fittings.

Grohe used to be listed on the Frankfurt stock exchange but was bought out in 2000 by foreign private equity owners. Mr Haines continues: “Foreign capital has brought in a single-minded focus that is sometimes less understood on the continent. But it is a two-way learning process.”

That last comment hints at how investors have also had to fit in with the continental European model, with its stress on paying attention to all stakeholders, including workers and customers, rather than the British and US focus on shareholders. The financial crisis has also emboldened critics of the move towards Anglo-Saxon capitalism, as it is often called on the continent.

REMUNERATION WRANGLES

‘As soon as a concern is raised, they will contact us to discuss the issue’

The Netherlands offers Europe a glimpse of the future in corporate governance. As countries such as Germany join the UK and others in offering shareholders a non-binding vote on executive pay, the experience of a nation that has among the highest levels of foreign ownership shows the next step.

Since 2004, shareholders in Dutch groups have had a binding vote on remuneration. After a slow start, the bursting of the dykes came in March 2008 when Philips saw its proposals – which would have included paying bonuses when it underperformed – voted down. Mais Hayek at Hermes, the UK fund manager, says she met members of the remuneration committee after voicing concern and the company watered down the proposal. But it was still rejected.

Companies soon learnt to talk to their shareholders at an earlier stage, she says. “As soon as a concern is raised, they will contact us to discuss the issue. If there is a need they will even withdraw the proposal.” But the change in approach was not always quick enough to prevent bloody noses: Royal Dutch Shell, Heineken and DSM have all suffered defeats or had to withdraw pay proposals.

Still, some chief executives are unrepentant, pointing to changing moods among shareholders. Gerard Kleisterlee of Philips observes that investors previously asked for performance-related pay but now want fixed pay to exceed bonuses. “For years there has been a tendency in companies, under the pressure of shareholders, to go to more variable pay. And now, maybe we’ve overshot a bit and so the pendulum swings back,” he says.

Chief executives also have concerns about the visibility and transparency pay policies are bringing. “Because things have become more transparent, things have become visible. That brings pluses and minuses,” says Hans Wijers of Akzo Nobel. Companies can see best practice but striving to be paid at least the median amount pushes pay up for everyone.

The latest Dutch trend links pay to targets such as the environment and worker satisfaction – and the pressure is coming in part from investors. “We have been asking companies to include sustainability elements in their remuneration policies for several years now,” says Carola van Lamoen at Robeco, a large Dutch investor.

TNT, the mail operator, and DSM, the life and material sciences group, have gone furthest, basing half of executives’ variable pay – which in turn can represent half of total pay – on targets such as reducing greenhouse gases and improving customer satisfaction

Still, the shift in ownership has been deeply felt across Europe. Foreign investors own 37 per cent of listed European companies, according to the Federation of European Securities Exchanges, whereas they held only 29 per cent in 2003. Domestic fund managers and banks have seen their share over the same period fall from 32 per cent to 27 per cent.

The change in some countries has been more dramatic. In France, non-domestic investors have almost doubled from 1995 while the UK and Germany have seen near-tripling in their numbers. In contrast, Spain and Italy are among countries that have seen little increase in recent years.

The vast majority of the foreign investors are institutional shareholders from the US, UK and other European countries. But there is a high proportion too of hedge funds, with estimates in Germany that they hold up to 20 per cent of the free float of blue-chip quoted companies. In addition, and not reflected in the FESE figures, is an increased presence for private equity.

All this has come as shareholders acted to diversify out of their home markets while domestic banks and industrial companies in countries such as Germany and France shed some of their equity holdings.

The impact has been wide-ranging. “It is stimulating change. From the perspective of companies, you cannot separate the increase in the level of foreign shareholders from the higher level of corporate governance. Companies are making a big effort to understand who their shareholders are and even to avoid becoming a target for activist investors,” says John Wilcox, former head of corporate governance at TIAA-Cref, a large US investor, now of the consultancy Sodali.

The big changes include a greater say from investors on issues such as pay as well as board composition. “The governance system has developed dramatically – there has been an increase in transparency and the degree of reporting needed,” says Hans Wijers, a former Dutch economy minister who now runs Akzo Nobel, the world’s largest paint group.

Companies are being forced to engage with shareholders in a way they never did before and explain decisions fully – or feel investors’ wrath. “New York used to be an after-thought for a company like Siemens. Now they go there on investor roadshows before even Frankfurt because that is where the action is,” says a former fund manager of a big US investor.

Many European companies have sold businesses and restructured themselves under the pressure of foreign investors. Svein Richard Brandtzaeg, chief executive of Norsk Hydro, relates how his company divested itself of its oil and gas and fertiliser divisions in recent years to focus on aluminium. In the next breath, he describes how after visiting London he is due to go to New York, Boston and San Francisco – a twice-yearly ritual to meet the owners.

Some of the most radical change has come at the behest of activist shareholders such as The Children’s Investment Fund, one of London’s most aggressive hedge funds, which caused the break-up of ABN Amro in the Netherlands and the ousting of the chief executive and chairman of Deutsche Börse in Germany.

Jan Maarten Slagter, director of the VEB retail shareholders’ association in the Netherlands, says the fact that Dutch companies are more than 70 per cent owned by foreign investors “has a huge benefit: Dutch companies have more liquidity than others. They are also being forced to get their acts together, like you saw at ABN Amro.”

The ABN Amro and Deutsche Börse affairs may predate the recent crisis but – as shown at Infineon and in activist moves against companies such as TNT of the Netherlands and France’s Accor – aggressive shareholder behaviour is far from dead. That is likely to carry on as European shareholders become more assertive themselves. “Unfortunately, there are traditions in many countries of ignoring shareholders,” says Mr Wilcox, adding that the remark applies to the US as much as Europe.

But the impact has not just been on companies. Foreign owners of companies have been forced to adapt to local norms. Mr Haines points to the big role in many European countries of works councils, on which employees are represented. In Germany, they take half the seats on the supervisory boards of big companies, giving them a huge sway over decision-making.

“I wouldn’t design the system if I had to do it again,” Mr Haines says. “But it is working very well for us. The workers have supported all of our decisions. Yes, the discussions were very hard and yes, they didn’t always share our views, but they were enormously helpful.” The close co-operation helped Grohe to avoid firing workers but still cut costs.

Foreign investors have also become more humble, realising that the overwhelming focus on shareholders is not necessarily the best model for every­one. “I think there is a great awareness that other models make sense. There is no one-size-fits-all for companies,” says Mr Wilcox.

Investors are even starting to fret that the crisis may put into reverse the rise of foreign ownership. Mr Slagter points to Dutch pension funds reducing the number of companies in which they invest and potentially how much they invest abroad. “We may now start to see a backlash,” he says.

Shareholder charts

Some believe that the crisis serves as a vindication for the continental approach. Mr Haines, with two US private equity groups as owners, is a convert: “You will see that the best companies are the ones that behave fairly to all stakeholders. Those with an overfocus on any one have tended not to do so well. That plays to continental European strengths.”

But, as Infineon and its shareholder rebellion suggests, that will not be enough to silence investors. In particular, two battlegrounds are emerging for the coming years: the nomination of board members and pay.

Infineon was an example of the former. Investors were upset with a proposed chairman who had been on the supervisory board for a decade, a period when Infineon had almost gone bust. Led by Hermes, a British pension fund, they mounted a rare proxy fight against Klaus Wucherer, Infineon’s preferred candidate.

The outcome of their campaign has much to do with Mr Wucherer’s reaction. First, he flew to the US to meet his largest investors. Then he agreed to serve just one year out of his five-year term, a climbdown thanks to investor pressure.

Willi Berchtold, the Hermes candidate for chairman, told friends: “I don’t think there will be too many cases like this, because you need a company where shareholders are totally fed up and a candidate prepared to risk a lot, like me. But it should lead to a huge discussion inside German companies over how they nominate board members and how they consult shareholders.”

Change is likely to be slow, however, as many companies still have “reference shareholders”, particularly families, which protect them from the full force of institutional investors. “In today’s market, there is an increasing short-termism driven by institutional investors. You are never better than your last quarter,” says Börje Ekholm, chief executive of Investor, the investment vehicle of Sweden’s Wallenberg family. “A lot of companies are looking for a long-term shareholder who can stay with a company.”

But Investor has been unafraid to sell out to foreigners, offloading big stakes in companies such as OMX and Scania to US and German companies. Jacob Wallenberg, Investor’s chairman, disputes some of the terminology as increasingly meaningless in Europe: “We do not see our companies as domestic. We see them as global,” he says, pointing out that about 90 per cent of sales of Investor-backed companies are made outside Sweden.

Pay is becoming more contentious as well. Companies such as Volvo, Carrefour and Philips have all been forced to rethink their pay policies in recent years amid investor dissatisfaction. The season of annual meetings is likely to see more confrontations similar to that at Royal Dutch Shell last year, where shareholders voted down its remuneration policy.

Mr Wilcox says companies need to see annual meetings less as an ordeal and more as a chance to gauge the opinions of shareholders: “Companies need to do things more systematically. There is a tendency to deal with problems only when shareholders are angry and banging on the door.”

For all the conflict, most observers believe Europe is still changing the way its companies behave, albeit in its usual incremental manner. For Mr Haines, that is not a problem, as Europe blends its own model with the Anglo-American approach: “It is a slow-burn change. But I’m not sure that’s a bad thing. We balance our change, we do it in moderation and we don’t flip-flop.”

[Demeter]

16. RBS paid £1.3bn bonuses on profit of just £1bn

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/7340087/RBS-paid-1.3bn-bonuses-on-profit-of-just-1bn.html

Royal Bank of Scotland paid its investment bankers £1.3bn in bonuses for making just £1bn in profit last year, not the record £5.7bn declared last week.

The state-backed lender's results show that £4.7bn of the investment bank's worst losses were hived off to the "non-core" division being wound down. Although the bank's split into "core" and "non-core" units has been well explained, the separation generously flattered the investment bank's numbers and allowed management to present it as a record year for the division.

Stephen Hester, chief executive, used the performance to justify the £1.3bn bonuses paid to investment bankers, at least 100 of which received more than £1m.

RBS's numbers show that impairments in the "core" investment bank totalled just £640m, helping it produce £5.7bn of the £8.3bn of profits made by the bank's ongoing businesses. By contrast, investment banking impairments dumped in the "non-core" bank totalled £4.7bn.

No other UK bank separates out its "toxic" legacy debt. Barclays' investment bank, Barclays Capital, suffered £2.6bn of impairments last year, cutting profits to £2.46bn. However, analysts point out that RBS, now 84pc owned by the state, has taken more conservative marks on its assets than peers, which contributed to the size of the "non-core" writedowns.

Few rivals have removed the "toxic" assets from their investment bank. Credit Suisse has hived assets off but is linking bonus payments to the performance of the portfolio. Last week, Commerzbank, the German lender that was rescued by Berlin, said it was not paying any bonuses at all in its investment bank.

In contrast with RBS, Michael Reuther, head of Commerzbank's corporates & markets division, said the lender would still be able to attract and retain talent.

RBS's revised profit numbers make no difference to its industry-best 27pc compensation-to-income ratio – the standard comparator for bonus practices. The ratio takes no account of loans that turn sour, only the income generated.

RBS did not dispute the analysis but declined to comment. Insiders pointed out that roughly 7,000 jobs have been cut in the investment bank in the past two years and the management overhauled. They produced record revenues despite a huge restructuring. The "non-core" assets are now handled by an entirely different team.

UKFI was fully aware of the arrangement when signing off the bonus on behalf of taxpayers.

[Demeter]

17. Pictures of a Market Crash: Beware the Ides of March, And What Follows After

http://jessescrossroadscafe.blogspot.com/2010/02/pictures-of-market-crash-beware-ides-of.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+JessesCafeAmericain+%28Jesse%27s+Caf%C3%A9+Am%C3%A9ricain%29

There are a fair number of private and public forecasters with whom I speak that anticipate a significant market decline in March. As you know I tend to agree to some extent, but with the important caveat that we are in a very different monetary landscape than the last time the Fed engaged in quantitative easing, the early 1930's. In short, I may allow for it, but I am not doing anything different about it -- yet.

The biggest difference is the lack of external standards. This introduces an element of policy decision that has been discussed here on several occasions. In other words, the Fed retains the option, albeit with increasing difficulty, to create another bubble, and levitate stock market prices in the face of deteriorating economic fundamentals.

The dollar was formally devalued by around 40% in 1933. We may yet see that done this time, but more gradually and informally. This is what makes gold controversial today; it exposes the financial engineering. So they feel the need to manage it, to denigrate it as an alternative to their paper. They want to have their cake, and eat it too.

Let's review where we are today.

The Bear Market of 2007-2009, marked by the Crash of 2008, has been a massive decline in equity prices precipitated by the bursting of the credit bubble centered around housing prices and packaged debt obligations of highly questionable valuations. The cause of the bubble was easy Fed monetary policy and the loosened regulation of the financial sector, which reopened the door to old frauds with new names.



Even today, I think most people do not appreciate the sheer magnitude of the decline, and the damage it has done to the real economy. This is the result, I believe, of three factors:

1. An extraordinary expansion of the Monetary Base by the Federal Reserve not seen since the aftermath of the Crash of 1929, and a swath of financial sector support programs from the Fed and the Treasury, resulting in a spectacular fifty percent retracement rally from the stock market bottom. This is the narcotic that permits the country to not notice that a leg is missing.

2. A comprehensive program of perception management by the government in conjunction with the financial sector to sustain consumer confidence and reduce the chance of further panic. In other words, a web of well-intentioned deceit, subject to abuse.

3. An understandable preoccupation by the individual with the details of breaking news, and a short term focus on particular events, diversions, and controversies, bread and circuses, without a true appreciation of the 'big picture,' in part because of some very effective public relations campaigns and a natural human reluctance to face hard problems.

This is resulting in a remarkable case of cognitive dissonance in which some of the victims of a spectacular man-made calamity are opposing remedies and aid as too costly and impractical, even as they walk around amongst the bleeding carnage.




For those who read the contemporary literature in the early Thirties, this is nothing new. In the early Thirties there was no sense, except for a few notable exceptions, of the magnitude of what had so recently happened. There was the sense of life goes on which seems almost eerie now to a modern reader. Indeed, Herbert Hoover could dismiss a delegation of concerned citizens with the advice that they were too late, the crisis was past, and all was well. Sound familiar?



The parallels with the Thirties and the Teens (today) are many, and uncanny.

There is the reformer President, elected to redress the extremely pro-business policies of his Republican predecessor. In the Thirties they had FDR who was a decisive and experienced leader. In the Teens the US has a relatively inexperienced community organizer, more influenced by the Wall Street monied interests, and a past history of 'playing safe,' who is trying to manage through indirection and persuasion.

There is a Republican minority in the Congress which opposes all new programs and actions despite giving lip service in order to delay and debilitate. In the Thirties the Republicans were over-ridden by a powerful, activist President, who created a "New Deal" set of legislation, much of which was later overturned by a Supreme Court which had been largely seated by the previous Republican Administrations.

Indeed, the remaining New Deal programs that were successful, the reforms of Glass-Steagall and the safety net of Social Security, are being overturned or are under attack in an almost bucket list fashion.



So what next?

Another leg down in the economy and the financial markets is a high probability.



Although one cannot see it just yet in the fog of corrupted government statistics, the economy is not improving and the US Consumers are flat on their back, scraping by for the most part, except for the upper percentiles who were made fat by the credit bubble, and are still extracting rents from it through officially sanctioned subsidies.

This was no accident; there is a consciousness behind it.

There are far too many otherwise responsible people who are not taking the situation with the high seriousness it deserves. Some would even like to see the US economy collapse, inflicting serious pain and deprivation because it may:

1.suit their investment positions and feed their egos because they think themselves above it all,

2. satisfy their ideological and emotional needs to see punishment administered, almost always to others, for the excesses of the credit bubble, especially if they are relatively weak, unwitting victims, and

3. the sheer nastiness and immaturity of a portion of the population which wallows in stereotypes, childish behaviour, and disappointment with their own lives. They tend to find and follow demagogues that feed their bitter hatreds.

They know not what they do, until they do it, and see the results. It is often a good bet to assume that people will be irrational, almost to the point of idiocy and self-destruction. And some of them never wake up until they are overrun, and then will not admit their error out of a stubborn sense of pride and embarrassment.

It seems likely that there will be a new leg down in financial asset valuations, as reality overcomes often not-so-subtle propaganda and disinformation. It may start in March, or it may be a 'market break' that provides a subtle warning for a large decline that begins in September 2010, with multi year progression to lows that are, as of now, almost unimaginable, at least in real terms. I cannot stress this issue of nominal versus real enough. As inflation comes, it will initially be in a 'stealth' manner, with the backing of the currency eroding slowly but steadily, and largely unrecognized for some time. It is not enough to try and count the dollars; one also has to consider the value behind them, the quality of the wealth, and its vitality. This is the case for stagflation.

The Fed is acting to mask quite a bit of this. One would hope that they would also not re-enact the policy error of their predecessors and raise rates prematurely out of fear of inflation before the structural healing can occur.

The debt incurred during the credit bubble cannot be paid and must be liquidated. So far we have largely seen transference of debt obligations from insiders to the public. Ironically these same insiders are lobbying to maintain these subsidies and transfers, and also to take a hard line against any further remediation of the consequences of the collapse, which they caused, on the public, to have more for themselves. Their greed and hypocrisy know no bounds.

But the policy error might not be caused by the Fed's direct action, but replicated by a governmental failure to stimulate the economy effectively AND to reform the highly inefficient and impractical financial system. The purpose of stimulus is to provide a cushion for structural reform and healing to occur, after an external shock, or even a period of reckless excess and lawlessness. The natural cycle can be disrupted beyond its ability to repair itself. But stimulus without reform is the road to further deterioration and addiction.

As it stands today the global trade system is a farcical construct that favors national elites and multinational corporations. Public policy discussion has been trumped by a handful of economic myths and legends that, even though disproved every day, nevertheless remain resilient in public discussions and reactions. This is because they have become familiar, and because they are the instruments of deception for certain groups of disreputable economists and policy influencers.

A more serious market crash might cause people to recognize the severity of their problems, and the thinness of the arguments of the monied interests for the status quo which is most clearly unsustainable. But a sizable minority of the population is always highly suggestible; demagogues rely on this.

The eventual outcome for the US is difficult to forecast with any precision now because there are multiple paths that events might take at several key decision points. Some of them might be rather disruptive and upsetting to civil tranquility. Game changers.

But as the dust continues to settle, the probabilities will continue to clarify.

"Suffering can strengthen our endurance. Endurance encourages strength of character. Character supports hope and confidence even during hard times and trials. And hope does not disappoint us in the end, because God has given us the Spirit and filled our hearts with His love." Romans 5:3-5

It is right to be cautious, and it is human to be afraid. But let us not allow our fears and trials to turn us from our genuine humanity in God's grace no matter how dire the day, even if it may drive some of the world once again into the jaws of desperation and madness. And if you stumble, gather yourself up and go forward again without turning from the way. For what is the profit to gain and hold some small and temporary advantage in this world, but to lose your self, forever.

[Demeter]

18. Chink In The Armor: The Meaning of MERS

http://chinkinthearmor.net/2010/02/26/meaning-of-mers/

"To Successfully Challenge a Foreclosure is to Exploit the Chink in the Armor of the Master Class"

Although only bankers are aware of it, there is a second wave of economic disaster starting to build up that will make the earlier one pale into insignificance. Let us start out with MERS, shall we?

MERS = Mortgage Electronic Registration Inc.holds approximately 60 million American mortgages and is a Delaware corporation whose sole shareholder is Mers Corp. MersCorp and its specified members have agreed to include the MERS corporate name on any mortgage that was executed in conjunction with any mortgage loan made by any member of MersCorp. Thus in place of the original lender being named as the mortgagee on the mortgage that is supposed to secure their loan, MERS is named as the “nominee” for the lender who actually loaned the money to the borrower. In other words MERS is really nothing more than a name that is used on the mortgage instrument in place of the actual lender. MERS’ primary function, therefore, is to act as a document custodian. MERS was created solely to simplify the process of transferring mortgages by avoiding the need to re-record liens – and pay county recorder filing fees – each time a loan is assigned. Instead, servicers record loans only once and MERS’ electronic system monitors transfers and facilitates the trading of notes. It has very conservatively estimated that as of February, 2010, over half of all new residential mortgage loans in the United States are registered with MERS and recorded in county recording offices in MERS’ name

MersCorp was created in the early 1990’s by the former C.E.O.’s of Fannie Mae, Freddie Mac, Indy Mac, Countrywide, Stewart Title Insurance and the American Land Title Association. The executives of these companies lined their pockets with billions of dollars of unearned bonuses and free stock by creating so-called mortgage backed securities using bogus mortgage loans to unqualified borrowers thereby creating a huge false demand for residential homes and thereby falsely inflating the value of those homes. MERS marketing claims that its “paperless systems fit within the legal framework of the laws of all fifty states” are now being vetted by courts and legal commentators throughout the country.

The MERS paperless system is the type of crooked rip-off scheme that is has been seen for generations past in the crooked financial world. In this present case, MERS was created in the boardrooms of the most powerful and controlling members of the American financial institutions. This gigantic scheme completely ignored long standing law of commerce relating to mortgage lending and did so for its own personal gain. That the inevitable collapse of the crooked mortgage swindles would lead to terrible national repercussions was a matter of little or no interest to the upper levels of America’s banking and financial world because the only interest of these entities was to grab the money of suckers, keep it in the form of ficticious bonuses, real estate and very large accounts in foreign banks. The effect of this system has led to catastrophic meltdown on both the American and global economy.

MERS, as has clearly been proven in many civil cases, does not hold any promissory notes of any kind. A party must have possession of a promissory note in order to have standing to enforce and/or otherwise collect a debt that is owed to another party. Given this clear-cut legal definition, MERS does not have legal standing to enforce or collect on the over 60 million mortgages it controls and no member of MERS has any standing in an American civil court.

MERS has been taken to civil courts across the country and charged with a lack of standing in reposession issues. When the mortgage debacle initially, and inevitably, began, MERS always routinely brought actions against defaulting mortgage holders purporting to represent the owners of the defaulted mortgages but once the courts discovered that MERS was only a front organization that did not hold any deed nor was aware of who or what agencies might hold a deed, they have routinely been denied in their attempts to force foreclosure. In the past, persons alleging they were officials of MERS in foreclosure motions, purported to be the holders of the mortgage, when, in fact, they not only were not the holder of the mortgage but, under a court order, could not produce the identity of the actual holder. These so-called MERS officers have usually been just employees of entities who are servicing the loan for the actual lender. MERS, it is now widely acknowledged by the courts, has no legal right to foreclose or otherwise collect debt which are evidenced by promissory notes held by someone else.

The American media routinely identifies MERS as a mortgage lender, creditor, and mortgage company, when in point of fact MERS has never loaned so much as a dollar to anyone, is not a creditor and is not a mortgage company. MERS is merely a name that is printed on mortgages, purporting to give MERS some sort of legal status, in the matter of a loan made by a completely different and almost always,a totally unknown entity.

The infamous collapse of the American housing bubble originated, in the main, with one Angelo Mozilo, CEO of the later failed Countrywide Mortgage.

Mozilo started working in his father’s butcher shop, in the Bronx, when he was ten years old. He graduated from Fordham in 1960, and that year he met David Loeb. In 1968, Mozilo and Loeb created a new mortgage company, Countrywide, together. Mozilo believed the company should make special efforts to lower the barrier for minorities and others who had been excluded from homeownership. Loeb died in 2003

In 1996, Countrywide created a new subsidiary for subprime loans.

* Countrywide Financial’s former management
* Angelo R. Mozilo, cofounder, chairman of the board, chief executive officer
* David S. Loeb, cofounder, President and Chairman from 1969 to 2000
* David Sambol, president, chief operating officer, director
* Eric P. Sieracki, chief financial officer, executive managing director
* Jack Schakett, executive managing director, chief operating officer
* Kevin Bartlett, executive managing director, chief investment officer
* Andrew Gissinger, executive managing director, chief production officer, Countrywide Home Loans<14>
* Sandor E. Samuels, executive managing director, chief legal officer and assistant secretary
* Ranjit Kripalani, executive managing director and president, Capital Markets
* Laura K. Milleman, senior managing director, chief accounting officer
* Marshall Gates, senior managing director, chief administrative officer
* Timothy H. Wennes, senior managing director, president and chief operating officer, Countrywide Bank FSB
* Anne D. McCallion, senior managing director, chief of financial operations and planning
* Steve Bailey, senior managing director of loan administration, Countrywide Home Loans

The standard Countrywide procedure was to openly solicit persons who either had no credit or could not obtain it, and, by the use of false credit reports drawn up in their offices, arrange mortgages. The new home owners were barely able to meet the minimum interest only payments and when, as always happens, the mortgage payments are increased to far, far more than could be paid, defaults and repossessions were inevitable. Countrywide sold these mortgages to lower-tier banks which in turn, put them together in packages and sold them to the large American banks. These so-called “bundled mortgages” were quickly sold these major banking houses to many foreign investors with the comments that when the payments increased, so also would the income from the original mortgage. In 1996, Countrywide created a new subsidiary for subprime loans.

At one point in time, Countrywide Financial Corporation was regarded with awe in the business world. In 2003, Fortune observed that Countrywide was expected to write $400 billion in home loans and earn $1.9 billion. Countrywide’s chairman and C.E.O., Angelo Mozilo, did rather well himself. In 2003, he received nearly $33 million in compensation. By that same year, Wall Street had become addicted to home loans, which bankers used to create immensely lucrative mortgage-backed securities and, later, collateralized debt obligations, or C.D.O.s—and Countrywide was their biggest supplier. Under Mozilo’s leadership, Countrywide’s growth had been astonishing.

He was aiming to achieve a market share—thirty to forty per cent—that was far greater than anyone in the financial-services industry had ever attained. For several years, Countrywide continued to thrive. Then, inevitably, in 2007, subprime defaults began to rocket upwards , forcing the top American bankers to abandoned the mortgage-backed securities they had previously prized. It was obvious to them that the fraudulent mortgages engendered by Countrywide had been highly suceessful as a marketing program but it was obvious to eveyone concerned, at all levels, that the mortgages based entirely on false and misleading credit information were bound to eventually default. In August of 2007, the top American bankers cut off. Countrywide’s short-term funding, which seriously hindered its ability to operate, and in just a few months following this abandonment, Mozilo was forced to choose between bankruptcy or selling out to the best bidder.

In January, 2008, Bank of America announced that it would buy the company for a fraction of what Countrywide was worth at its peak. Mozilo was subsequently named a defendant in more than a hundred civil lawsuits and a target of a criminal investigation. On June 4th, 2007 the S.E.C., in a civil suit, charged Mozilo, David Sambol, and Eric Sieracki with securities fraud; Mozilo was also charged with insider trading. The complaint formalized a public indictment of Mozilo as an icon of corporate malfeasance and greed.

In essence, not only bad credit risks were used to create and sell mortgages on American homes that were essentially worthless. By grouping all of these together and selling them abroad, the banks all made huge profits. When the kissing had to stop, there were two major groups holding the financial bag. The first were the investors and the second were, not those with weak credit, but those who had excellent credit and who were able, and willing to pay off their mortgages.

Unfortunately, just as no one knows who owns the title to any home in order to foreclose, when the legitimate mortgage holder finally pays off his mortgage, or tries to sell his house, a clear title to said house or property cannot ever be found so, in essence, the innocent mortgage payer can never own or sell his house. This is a terrible economic time bomb quietly ticking away under the feet of the Bank of America and if, and when, it explodes, another bank is but a fond memory.

Readers wishing to find out if their title is secure should write to www.ChinkintheArmor.net, leave a comment on any article and ask for contact information for legal advice.

http://www.tbrnews.org/Archives/a3019.htm

[Demeter]

19. A veritable Death Star

[hamerfan]

25. Hey!

That information is on a need-to-know basis. :yourock:

[DemReadingDU]

29. Thanks, I always wondered what that symbol was! n/t

[Demeter]

20. Grain of Salt Time: US manufacturers face skills shortages

http://www.ft.com/cms/s/0/8c800066-24a0-11df-8be0-00144feab49a.html

Manufacturing companies in the US are struggling to find workers with technical skills even though the sector has shed more than 2m jobs in the past two years. The shortage of skilled staff could restrict companies’ ability to step up production as the economic recovery gathers pace.

In interviews with the Financial Times, groups ranging from Boeing – one of the US’s biggest manufacturers and exporters – to small companies also said they faced a wave of skilled workers reaching retirement age in the next few years, with a shortage of younger workers to replace them.

“All large technical firms are facing similar issues, where a large part of the population is eligible to retire,” said Rick Stephens, senior vice-president of human resources at Boeing.

He said that by 2015, 40 per cent of the aircraft maker’s workers would be in that position. “That’s some 60,000 employees eligible to retire in five years. We just don’t see the pipeline meeting our needs.”

About 19 per cent of US manufacturing workers are 54 and older, roughly the same as for the workforce as a whole, according to the Bureau of Labor Statistics. However, only 7 per cent of manufacturing workers are under 25 years old – half that of the wider workforce.

For many industrial companies, the recession has not eased the skills shortage. Siemens, the German engineering group, has about 600 vacancies for engineers in the US, up from 500 on last year, according to Jim Whaley, president of the Siemens Foundation, which promotes technical education in the US.

Manufacturers said the biggest shortages were for engineers and skilled floor workers.

“It’s difficult to find people for assembly, machining and motor-winding positions – jobs that require maths skills and the ability to read technical blueprints,” said Ron Bullock, owner of Bison Gear, a manufacturer near Chicago with 225 employees.

Many in the sector said workers had delayed their retirement because of the financial crisis. But, as the economy recovers, they expect a large number of skilled workers to leave.

“As we go through the recovery, the situation will get worse,” said Lisa Simeon, a director of talent acquisition in the defence unit of ITT, the US industrial conglomerate.

IMO THIS IS SPECIALLY PLANTED FOR THE NEXT ROUND OF H1B VISAS. IF THESE JOBS EXISTED AND WERE ADVERTIZED, THEY WOULD BE FILLED, PROVIDED THEY OFFERED A LIVING WAGE.
THIS IS WHAT ENGINEERS GOT FOR DELUDING THEMSELVES THAT THEY WERE "PROFESSIONALS" OR "MANAGEMENT GRADE" AND THEREFORE TOO HIGH IN THE INSTEP FOR UNIONS.

[Demeter]

21. Secretary Geithner's Got Some Explaining to Do By David Yerushalmi

http://www.americanthinker.com/2010/03/secretary_geithners_got_some.html

WARNING! THOMAS MORE LAW CENTER WAS CREATED BY RABID WHACKO TOM MONAGHAN OF DOMINO'S PIZZA FAME. HE IS INFAMOUS IN ANN ARBOR BECAUSE OF HIS ECCENTRICITIES AND INSANITIES. HE WAS ORPHANED AND RAISED BY CATHOLIC NUNS, AND IS MILITANTLY CATHOLIC HIMSELF.


While everyone, including Congress, the media, and the public, have focused on AIG's $100-million bonus payments to key employees, and most recently on AIG's stealth payments to counterparties like Chase and the French giant Société Générale -- the latter made worse by the fact that it was the Federal Reserve (FED) that wanted to keep these payments hidden from public view -- the problem with the AIG bailout is much deeper and more fundamental.

Just about everyone has had something to say about this bailout -- mostly that it was an ugly but necessary step to stave off a domino effect that would have brought the world's financial system to its knees. But what we have not yet heard is just how Treasury Secretary Geithner, as then-head of the NY FED, got away with taking ownership of 77.9% of AIG's equity and voting rights in clear violation of the law.

The question we are left with is: Why? What motivated this illegal grab of AIG's equity and voting rights? Was it desperation in the face of the largest potential collapse in the history of modern finance? Was it unbridled power combined with supreme hubris? Or was it just criminal? The answer to this query resides in the as-yet-hidden files of the Federal Reserve Bank of New York, now subject to a subpoena issued by my office in the federal lawsuit Murray v. Geithner, pending in the Eastern District of Michigan.

In this lawsuit, brought on behalf of Kevin Murray, an Iraq War veteran and taxpayer, my co-counsel, Robert Muise of the Thomas More Law Center, and I have challenged the U.S. government's takeover of AIG as a violation of the Establishment Clause of the First Amendment because the taxpayer bailout has the effect of promoting and advancing AIG's Shariah-adherent insurance business -- the largest in the world. AIG promotes itself as a global advocate not only of Islam, but also of the Islamic legal doctrine known as Shariah -- which is the Islamic legal doctrine and program that calls for a global hegemony referred to as the Caliphate, the murder of apostates, and jihad against infidels. The most austere and important Islamic legal authorities who legitimize Shariah-compliant finance, like AIG's takaful insurance products, are the same ones issuing fatwas for jihad against the West.

In the course of discovery, resisted by the government at every turn, we have learned that the deal Geithner put together as the NY Fed's president was illegal on its face.

The Deal

Specifically, the deal Geithner put together in September 2008 was for the NY FED to pour up to $85 billion of debt funding into AIG to solve its liquidity crisis as the Credit Default Swap counterparties, the banks which had insured themselves against the sub-prime mortgage meltdown, demanded payments under their AIG insurance policies. AIG ended up drawing down $60 billion almost overnight.

But Geithner was not content with a straight debt deal where AIG promised to pay back principal and interest and handed over almost all of its assets as collateral. Geithner wanted real ownership and control (77.9%, to be exact) of AIG's equity and the voting rights to go along with that.

The problem Geithner knew he had to confront, however, was that the FED was not authorized to take ownership in AIG or any other financial institution. The law authorized the FED only to loan money and take collateral. While the FED might end up with ownership after a default and foreclosure on the collateral, the Federal Reserve Act does not authorize the NY Fed to structure the debt deal with an equity piece.

The Criminal Artifice

So what did Geithner do? He took equity, but he used a fictitious "Trust" to accomplish that which he could not do legally. The AIG Credit Facility Trust has three so-called independent, non-governmental trustees owning the 77.9% of the legal interests of AIG, and the Trust agreement assigns the U.S. Treasury the beneficial interests in the 77.9%. The highly-touted "independence" of the trustees is quite obviously critical to save the Trust from the claim that it is merely a ruse for FED ownership and control.

But there is only one problem with this Trust structure: It is invalid and illegal for two important reasons, not the least of which is that its independence is nonexistent.

Specifically, the Trust Agreement includes a hardly-noticed section 1.03, which gives the FED absolute authority over the Trust's existence and its terms, effectively granting the FED control over the actions of the trustees. By any legal definition, this is not a valid independent trust. This means, at the very least, that the FED is the real owner of the legal interests in 77.9% of AIG's equity, and this is, as Geithner himself testified before the Senate Banking Committee in April 2008, not legal.

But the Trust's infirmities do not stop at its lack of independence. The Trust Agreement also assigns the beneficial interests to the U.S. Treasury as the Trust's beneficiary. This assignment is patently invalid because a trust beneficiary must be a person or entity that can own title to things in its own name. But the U.S. Treasury is -- by statute, by case law, and by actual fact -- nothing more than a bank account or depository for things owned by the U.S. government. And a bank account cannot own anything.

So how and why did the dozens, if not hundreds, of government and private-sector high-priced lawyers working on this transaction make such an elementary mistake? We don't know the answer to this question yet, but we do know why they could not name the Treasury Department as the beneficiary: because like with the FED, at the time, it did not yet have legal authority to acquire an ownership interest in any of the failing financial institutions, either. That authority would come later, when Congress passed the Emergency Economic Stabilization Act, which authorizes the use of TARP funds for acquiring equity. But even that legislation instructs the Treasury Department to avoid acquiring voting rights. Geithner's deal was all about acquiring not just voting rights, but super-majority control. Unfortunately, there was no legal authority at the time to do so.

The brute fact that now standing exposed before us is the use of an invalid Trust structure to conceal the unlawful ownership and control over 77.9% of AIG's equity and voting rights by the FED. If Geithner knew he was breaking the law, then this just happens to be the definition of criminal money-laundering under Title 18, Section 1956. Secretary Geithner has some explaining to do to AIG's public shareholders. We suggest that he seek legal advice first -- but this time, from lawyers who actually know what they are doing.

David Yerushalmi is a litigator specializing in securities law and public policy and serves as General Counsel to the Center for Security Policy, a Washington, D.C.-based think-tank specializing in national security. Mr. Yerushalmi is also representing the plaintiff in Murray v. Geithner et al. in a federal lawsuit challenging the U.S. government's takeover of AIG on First Amendment-Establishment Clause grounds.

[AnneD]

22. The fat has hit the fire.....

Watch out for the hot Greece......



Iceland voters reject repaying $5 billion foreign debt

(CNN) -- Iceland's voters overwhelmingly rejected a deal to pay billions of dollars it owes to the United Kingdom and the Netherlands, the Foreign Ministry said Sunday.
With around 90 percent of votes counted, just over 93 percent said no and just under 2 percent said yes. Not enough votes remain to be counted to change the result. Some 62.5 percent of Iceland's roughly 200,000 register voters cast ballots, the ministry said.
The referendum was on a law about repaying the Netherlands and UK, which helped savers in their own countries who lost money in a failed Icelandic Internet bank.
The British and Dutch governments came up with more than $5 billion for bailing out people who lost money in Icesave -- an online retail bank branch of Landsbanki. That Icelandic bank failed in October 2008, along with two other banks in the country.
Under a European Union directive, Iceland now owes compensation to Britain and the Netherlands. The Icelandic government has said it will honor its international obligations.
Iceland's parliament passed a bill authorizing a state guarantee for repayment of the funds, but President Olafur Ragnar Grimsson declined to sign it in January. He cited public disapproval, and in particular, an Internet petition signed by up to one-quarter of the electorate, as a reason for not signing the bill. He said there needed to be a national consensus in addressing the issue.
That prompted Saturday's national referendum on the law.
The Icelandic public widely disapproved of the deal, the government said in a fact sheet on the deal. "There is widespread frustration over the claim on ordinary citizens in Iceland to pay the price for the irresponsible behavior of reckless bankers," it said.
Magnus Arni Skulason, who campaigned against the bill, called the terms of the loan repayment unacceptable.
"Of course we feel empathy for those people that lost money," he said Saturday while voting was going on. "We just want to get a more reasonable agreement," he told CNN.
It is not clear what happens now that voters have said no to the loan guarantees.
The International Monetary Fund loaned Iceland $2.1 billion in November, and said repaying the money to the British and Dutch governments was a requirement of the loan.
Iceland has begun moves toward applying for European Union membership, which Britain and the Netherlands could block.
Britain spent £2.3 billion ($3.69 billion) last year to cover the losses that British savers incurred when Icelandic banks collapsed.
The Dutch government spent €1.3 billion ($1.87 billion) to cover bank losses in the country.
The Icelandic government said it has "clearly stated its intention to honor its international obligations and remains fully committed to implementing the bilateral loan agreements with the UK and the Netherlands."


www.cnn.com/2010/BUSINESS/03/07/iceland.bailout.vote/index.html?eref=rss_topstories&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+rss%2Fcnn_topstories+%28RSS%3A+Top+Stories%29

[AnneD]

23. The fat has hit the fire.....

Watch out for the hot Greece......



Iceland voters reject repaying $5 billion foreign debt

(CNN) -- Iceland's voters overwhelmingly rejected a deal to pay billions of dollars it owes to the United Kingdom and the Netherlands, the Foreign Ministry said Sunday.
With around 90 percent of votes counted, just over 93 percent said no and just under 2 percent said yes. Not enough votes remain to be counted to change the result. Some 62.5 percent of Iceland's roughly 200,000 register voters cast ballots, the ministry said.
The referendum was on a law about repaying the Netherlands and UK, which helped savers in their own countries who lost money in a failed Icelandic Internet bank.
The British and Dutch governments came up with more than $5 billion for bailing out people who lost money in Icesave -- an online retail bank branch of Landsbanki. That Icelandic bank failed in October 2008, along with two other banks in the country.
Under a European Union directive, Iceland now owes compensation to Britain and the Netherlands. The Icelandic government has said it will honor its international obligations.
Iceland's parliament passed a bill authorizing a state guarantee for repayment of the funds, but President Olafur Ragnar Grimsson declined to sign it in January. He cited public disapproval, and in particular, an Internet petition signed by up to one-quarter of the electorate, as a reason for not signing the bill. He said there needed to be a national consensus in addressing the issue.
That prompted Saturday's national referendum on the law.
The Icelandic public widely disapproved of the deal, the government said in a fact sheet on the deal. "There is widespread frustration over the claim on ordinary citizens in Iceland to pay the price for the irresponsible behavior of reckless bankers," it said.
Magnus Arni Skulason, who campaigned against the bill, called the terms of the loan repayment unacceptable.
"Of course we feel empathy for those people that lost money," he said Saturday while voting was going on. "We just want to get a more reasonable agreement," he told CNN.
It is not clear what happens now that voters have said no to the loan guarantees.
The International Monetary Fund loaned Iceland $2.1 billion in November, and said repaying the money to the British and Dutch governments was a requirement of the loan.
Iceland has begun moves toward applying for European Union membership, which Britain and the Netherlands could block.
Britain spent £2.3 billion ($3.69 billion) last year to cover the losses that British savers incurred when Icelandic banks collapsed.
The Dutch government spent €1.3 billion ($1.87 billion) to cover bank losses in the country.
The Icelandic government said it has "clearly stated its intention to honor its international obligations and remains fully committed to implementing the bilateral loan agreements with the UK and the Netherlands."


www.cnn.com/2010/BUSINESS/03/07/iceland.bailout.vote/index.html?eref=rss_topstories&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+rss%2Fcnn_topstories+%28RSS%3A+Top+Stories%29

[Demeter]

26. Well, Don't Know About You All, But I Had a Lot Of Fun

That was some exercise in futility--the finance people are absolutely blooming nuts. I can't believe that they indulge themselves like that.

Well, it's only money, and it's not theirs....

Have a good week, and watch out for Storm Troopers!

http://www.youtube.com/watch?v=vQa31siu9KI

[Karenina]

27. Thanks as always, Demeter!

:loveya:

[ozymandius]

28. I enjoyed this weekend's double thread.

An occasional glance is all I could muster. I will say that my heart was warmed with the news of Icelandic voters saying "hell" to the "no" over covering their Banksters' losses.

See you in the morning.