About Those Bailouts…

22 11 2008

By AndrewA. McCoy McCoy

I have read all I can (Yeesh my head hurts) on the current financial crisis. Especially interesting to me is all the partisans blaming everyone else for it. Here’s my thought’s.

The roots of the issue lie all the way back after the first S&L Crisis in the late 80’sFannie Mae and Freddie Mac hired a bunch of people and gave out lots of money to both parties to ensure they had the best possible regulations (for them to make money). They had the best of both worlds, they could loan whatever they wanted, and have very little cash reserves.fanniemay1108

Then came the wild 90’s. The Clinton administration decided home ownership was especially important and encouraged banks to make loans to marginal candidates and they would get tax breaks for doing so.

Things were going swimmingly in the late 90’s for the homes market. Inevitably though, a slow down was happening.  There is a market saturation point after all.

Then something else was thrown into the mix. Phil Gramm ,as a senator in Dec 2000, put an addendum on a spending bill that allowed companies to package up mortgages and sell them as securities (CDS’s), the best part of this bill (for wallstreet) was that it was a totally unregulated market. This allowed a lot… no, massive amounts of capitol to be injected into the mortgage market.

Well, now there was all this money

and not a lot of demand. So interest rates were lowered and people started taking out 2nd mortgages, buying up houses they could barely afford, etc. These were packaged into CDS’s, and since it was an unregulated item, sold as AAA investments. Wall street made billions selling these, banks were rolling in value (not cash, it was lent out).

Sometime, in the 2002 timeframe, state attorney generals started noticing these loans were becoming more and more predatory, so started asking for regulations on these loans. In response US Government (Bush administration) did this

In 2003, during the height of the predatory lending crisis, the OCC (Office of the Comptroller of the Currency) invoked a clause from the 1863 National Bank Act to issue formal opinions preempting all state predatory lending laws, thereby rendering them inoperative. The OCC also promulgated new rules that prevented states from enforcing any of their own consumer protection laws against national banks”.  Which by the way all 50 state AG’s and banking superintendents were totally against.

Ensuring that predatory lenders were completely protected from the states.

In 2004, Republicans on the banking committee wanted to look into Fannie and Freddie and the Democrats threatened a filibuster to the discussion so it was tabled. But, the same year, the SEC (bowing to pressure from the republicans) allowed investment companies to have greater than a 12 to 1 debt to cash ration. This means that prior to 2004 if Lehman Bros. had 120 billion in debt, they would have to have 10 billion in cash to cover any shortfalls. After 2004 they could have a 30 to 1 or even 40 to 1 debt to cash ration. So that same 10 billion would allow them to have 300 billion (or 400 billion) in debt. This ensured their competitiveness, really.

So we fast forward a few years and the AAA rated debts (remember, they’re AAA because we said so, no regulation involved) started faltering. Normally the banks and investments houses would have a lot of cash on hand to cover these issues, but now don’t thanks to the SEC, so start taking major losses. They don’t have the cash and when these items hit 50-60% of their previous values they have to revalue them/ sell them for a value much lower than what they said it’s worth (that value set arbitrarily, remember).

My solution is as follows:

The government nationalized fannie and freddie a few months ago.  So if we (they) bought all the housing loans under 500k made since 2003, chopped 25% off the amount owed, then made the people pay back the rest at say 4% interest. That would take the “bad debt” out of the CDS’s that were sold and help the banks. It would also help people due to them being able to afford their houses and not defaulting on them. We, the tax payers, would still take a bath financially, but we would do it at least helping people, not just big corporations.

If the treasury secretary and the financial houses don’t like this it’s because they are hiding something other than mortgages on their balance sheets and shouldn’t be bailed out.

Then, the long term fixes. Stop letting corporations pay elected officials, and by that I mean donate to their campaigns, for really good helpful legislation.  Second, if you want fannie mae/ Freddie mac to exist, either completely nationalize it, or make it completely private, no in between. Third, don’t let wall street trade in un-regulated items. And fourth, go back to the 12-1 debt to cash ration for Wall Street companies.

Andrew McCoy is an IT Consultant




Torturing Democracy – See it

17 11 2008

Documentary GOP Insiders Failed to Block Now Online

A compelling video about the Bush – Cheney Administration’s path to their torture policies is now available online.

(Update 1) (Update 2 – above)

Glenn Greenwald at Salon:

Last month, I interviewed Harper‘s Scott Horton regarding a piece he had written on the efforts of several PBS officials, including Jay Rockefeller‘s wife (the CEO of Washington’s PBS affiliate) to block broadcast of the documentary Torturing Democracy, tortureusawhich compellingly documents how virtually all of the torture and other illegalities and abuses of America’s interrogation programs were authorized and ordered at the highest levels of the Bush administration (of which waterboarding is but one small example).

That documentary is now available to be viewed in its entirety online — here — and I can’t recommend it highly enough.

(Note – Jay Rockefeller is the ranking GOP member and Co-Chair of the Senate Intelligence Oversight Committee.)

Ditto for me. Here’s a link to each of the 3 parts:

(Update! – 111708)

And here is an excerpt:

Also, There’s a pretty good timeline at the Torturing Democracy site, as well as all the key documents in the Bush administration’s decisions to stray beyond the boundaries of the Law.





Warrantless NSA Suveillance Hasn’t Gone Away

13 11 2008

Downloadable Collection at Civiblog.org

Here’s a collection of related documents NSA Gots You! I made shortly after the NY Times broke the story in December 2005 about blanket Warrantless NSA (National Security Agency) domestic (within the US borders) surveillance.

I think the NY Times is reprehensible for sitting on this story since before the 2004 election, waiting 13 months to publish, and then only because the reporters involved had the same story in a book coming out.

This is a comment I left on LawGeek in 2006.

I have been working on translating some of the publicly available PDF’s on this issue into html. They are here – http://thewall.civiblog.org/rsf/house_nsabrief_docs_012006.html

Here are the legal briefs and stuff:


LAWSUITS: Pending Litigation re Warrantless NSA Wiretapping
ELECTRONIC FRONTIER FOUNDATION:

Here is the EFF’s Class Action Complaint against AT&T.

http://thewall.civiblog.org/rsf/att-complaint.html

AMERICAN CIVIL LIBERTIES UNION

Here is the ACLU’s Complaint for Declatory and Injunctive Relief against the NSA.
http://thewall.civiblog.org/rsf/aclu-nsa-complaint.html

FOIA


Here is the ACLU’S Pentagon Spying FOIA February 1, 2006, seeking from the Pentagon records from Talon, CIFA, MX of infiltration, intimidation, dirty tricks, and spying on Richard Hersh, The Truth Project, Inc., Patriots for Peace, Ft. Lauderdale Friends, Melbourne Florida Counter Inaugural, Broward Anti-War Coalition, Jeff Nall, Maria Telesca-Whipple, and others.
http://thewall.civiblog.org/rsf/PentagonSpyingFOIA_020106.html

ISSUES BRIEFINGS


Here is the ACLU’s October 30, 2003 Issues Briefing THE MATRIX: Total Information Awareness Reloaded – DATA MINING MOVES INTO THE STATES with addendum, Shane Harris’ February 23, 2006 National Journal report, TIA Lives On.

http://thewall.civiblog.org/rsf/aclu_matrix_report.html

I put a lot of work into these…the ACLU Complaint has lots of internal navigation. You can go directly to any page from any page (60 pages), or directly to any of the 195 paragraphs of the complaint from the table of contents, a click away from any page.

I hope these, and the other documents on this site are of use to You.

Cheers,

-dcm





Threat Micro Thread Alerts Widget Added to Tech Resources

5 11 2008
The Trend Micro Thread Alerts will now appear on the Tech Resources page.

[clearspring_widget title=”Threat Resource Center | Trend Micro” wid=”46f38cdabe642cf9″ pid=”49124f7a1ab97236″ width=”328″ height=”328″ domain=”widgets.clearspring.com”]





President-Elect Obama Speaks

5 11 2008

Reaffirms America’s Penchant for Change

Ladies and Gentlemen, The President-Elect of the United States …

Well, who could possibly follow that?

Sphere-It!





AIG Not Telling US Treasury How They Used Up 3/4 of $123 Billion in 2 Weeks

4 11 2008

Possible Signs of Internal Financial Irregularities

After taking an $85 billion emergency loan from the Fed, and then another $38 billion, A.I.G isn’t being very aig-logospecific on how it has already spent most of the money, according to Mary William Walsh‘s article in the New York Times:

(emphasis added)

A.I.G. has declined to provide a detailed account of how it has used the Fed’s money. The company said it could not provide more information ahead of its quarterly report, expected next week, the first under new management. The Fed releases a weekly figure, most recently showing that $90 billion of the $123 billion available has been drawn down.

A.I.G. has outlined only broad categories: some is being used to shore up its securities-lending program, some to make good on its guaranteed investment contracts, some to pay for day-to-day operations and — of perhaps greatest interest to watchdogs — tens of billions of dollars to post collateral with other financial institutions, as required by A.I.G.’s many derivatives contracts.

No information has been supplied yet about who these counterparties are, how much collateral they have received or what additional tripwires may require even more collateral if the housing market continues to slide.

Some industry observers say there must be undisclosed irregular accounting leading up to the bailout for so much of the $123 Billion lifeline to have been used up so fast.

“You don’t just suddenly lose $120 billion overnight,” said Donn Vickrey of Gradient Analytics, an independent securities research firm in Scottsdale, Ariz.

Mr. Vickrey says he believes A.I.G. must have already accumulated tens of billions of dollars worth of losses by mid-September, when it came close to collapse.

The article details indications of a sustained effort on the part of AIG top management to bury any details of an internal debate on how to value it’s derivatives contracts over the past few years.  When a former SEC accountant was brought in due to previous irregularities,

He began to focus on the company’s accounting for its credit-default swaps and collided with Joseph Cassano, the head of the company’s financial products division … When the expert tried to revise A.I.G.’s method for measuring its swaps, he said that Mr. Cassano told him, “I have deliberately excluded you from the valuation because I was concerned that you would pollute the process.”

(emphasis added)

Astounding Burn Rate

In the roughly 6 weeks since AIG got the massive government loans they have already used up 90 of an available $123 billion at last reports.

A spokesman for the insurer, Nicholas J. Ashooh, said A.I.G. did not anticipate having to use the entire $38 billion facility. At midyear, A.I.G. had a shortfall of $15.6 billion in that program, which it says has grown to $18 billion. Another spokesman, Joe Norton, said the company was getting out of this business. Of the government’s original $85 billion line of credit, the company has drawn down about $72 billion. It must pay 8.5 percent interest on those funds.

For $59 billion of the $72 billion A.I.G. has used, the company has provided no breakdown. A block of it has been used for day-to-day operations, a broad category that raises eyebrows since the company has been tarnished by reports of expensive trips and bonuses for executives.

(emphasis, links added)

US Federal Deficit 1989 - 2004

US Federal Deficit 1989 - 2004

Possible Legal Violations

Rep. Barney Frank, House Financial Service Committee chairman said on Friday in remarks directed at Banks who had received a separate $125 Billion government buy-in, that financial institutions were “distorting” the government’s $700 billion economic bailout plan by using the money for bonuses, dividends and acquisitions.  Frank said any uses of that money other than lending were “violation of the terms of the act.”

On 7 October Rep. Henry Waxman’s Committee on Oversight and Government Reform held hearings on the causes of AIG’s need for a bailout. (Full Hearing Video).  At the hearing it came out that the week after AIG got an $85 Billion initial govenrment bailout, executives went on a retreat at a luxury resort, spending $443,343.71. Rep. Elijah Cummings (D-MD) said:

Have you heard of anything more outrageous – a week after taxpayers commit $85 billion dollars to rescue AIG, the company’s leading insurance executives spend hundreds of thousands of dollars at one of the most exclusive reports in the nation…Let me describe for some of you the charges that the shareholders, taxpayers, had to pay. AIG spent $200,000 dollars for hotel rooms. Almost $150,000 for catered banquets. AIG spent $23,000 at the hotel spa and another $1,400 at the salon. They were getting manicures, facials, pedicures and massages while American people were footing the bill. And they spent another $10,000 dollars for I don’t know what this is, leisure dining. Bars?

(emphasis added)

AIG Gets Another $25 Billion – Total: $144 Billion (so far…)

On Thursday 30 October, AIG said “it would be able to borrow up to $20.9 billion under the new program, raising its maximum available credit from the Fed to $144 billion under three different programs,” the New York Times reportsAnd there’s no sign yet that will be enough.

From Walsh‘s article:

Edward M. Liddy, the insurance executive brought in by the government to restructure A.I.G., has already said that although he does not want to seek more money from the Fed, he may have to do so.

AIG’s unwillingness or inability to place a determinative valuation on their deriviative contracts has poisoned the credit market. As Tavakoli Structured Finance President Janet Tavakoli observes, “When investors don’t have full and honest information, they tend to sell everything, both the good and bad assets. … “It’s really bad for the markets. Things don’t heal until you take care of that.”

The NYT reports “Ms. Tavakoli said she thought that instead of pouring in more and more money, the Fed should bring A.I.G. together with all its derivatives counterparties and put a moratorium on the collateral calls.”

Tavakoli is an expert in derivative and similar financial products, and recently debated “mark to market” options on Bloomberg.

Vodpod videos no longer available.

Morningstar Analyst – May be better to let losses be realised

Bill Bergman, Senior Equity Analyst at Morningstar observed, “We may be better off in the long run letting the losses be realized and letting the people who took the risk bear the loss.”

– assembled from various reports by dcm

Sphere-It!








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