Econ 2009

[__HRB__]

Originally Posted by R.D. Silverman

We need to demand from our lawmakers that they reel in Wall Street.

<snip>

We need to stop the incestuous relationships that exist on corporate
boards. Senior execs sit on each others' boards, so of course they
approve each others' ridiculous compensation plans.

What could possibly go wrong by giving officials elected by voters who don't have a stake in a company more power over a company than the actual shareholders?

[ewmayer]

Originally Posted by R.D. Silverman

We need to stop the incestuous relationships that exist on corporate boards. Senior execs sit on each others' boards, so of course they approve each others' ridiculous compensation plans.

What about the incestuous relationship between Wall Street and Washington DC? Legislators (especially key committee chairs) bought and paid for by Bug Finance & Insurance ... revolving door between congressional aide-ships and industry lobbyist jobs ... most of the financial-regulatory apparatus co-opted by Wall Street ... entire government agencies effectively run like wholly-owned subsidiaries of Big Finance (e.g. Goldman Sachs` ownership of the U.S. Treasury) ... all of the presidential-candidates-with-a-prayer in the latest election got huge funding from Wall Street ... on average 5 financial-industry lobbyists per congressperson ... et cetera, ad nauseam.

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Car Czar: "Shocked" at Detroit`s Ways

Steven Rattner: Why we had to get rid of GM's CEO: The man who led the auto bailout tells about his shock at the state of the carmaker's finances and management.

Everyone knew Detroit's reputation for insular, slow-moving cultures. Even by that low standard, I was shocked by the stunningly poor management that we found, particularly at GM, where we encountered, among other things, perhaps the weakest finance operation any of us had ever seen in a major company.

...The cultural deficiencies were equally stunning. At GM's Renaissance Center headquarters, the top brass were sequestered on the uppermost floor, behind locked and guarded glass doors. Executives housed on that floor had elevator cards that allowed them to descend to their private garage without stopping at any of the intervening floors (no mixing with the drones).

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White House to push for big pay cuts: According to reports, Obama's pay czar will demand 50% decline in compensation, on average, for top earners at seven firms that received the most bailout funds.

Kenneth Feinberg, who was named the White House's so-called "pay czar" in June, is expected to demand that the seven largest bailout recipients lower the total compensation for their top 25 highest paid employees by 50%, on average, according to reports in both the New York Times and Wall Street Journal.

For the past two months, Feinberg has been reviewing pay plans at Citigroup, AIG, Bank of America, General Motors, Chrysler, GMAC and Chrysler Financial in an effort to put these firms in a position to pay back bailout money as soon as possible.

Under the plan, which is expected to be officially released by the Treasury Department next week, annual salaries for executives at those seven firms are expected to fall 90%, on average, according to reports.

My Comment: A step in the right direction, but any such cuts will come at least a full year later than they should have ... I expect many of the $100 million men, having thoroughly benefited from the taxpayer-sponsored bailout which saved their firms from collapse and which is allowing many of them - together with bottom-line-boosting government-approved accounting fraud - to record record profits even as the toxic loans on their books remain, will simply take their undeserved windfall profits and bonuses and ride off into the sunset. (That is for the ones who haven`t already done so).

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PBS Frontline had an interesting piece on the failure - even in the wake of the LTCM collapse in 1998 - of the U.S. Government to regulate the shadowy world of over-the-counter (OTC) derivatives. And of course at the center of the controversy were the bankster-friendly cabal of Rubin, Summers and Greenspan (aided by SEC Chairman Arthur Levitt, the only one of the gang who has shown any contrition for their Epic Fail), who apparently thought that not even LTCM using the huge loophole in OTC trading to leverage $5 billion into over $1 trillion (without any of the 15 banks they borrowed from knowing the extent of their exposure) and threatening to take the entire U.S. economy down when their huge bets went sour was enough reason to impose even the most modest forms of transparency and regulation on the OTC markets:

PBS Frontline: The Warning

In The Warning, veteran FRONTLINE producer Michael Kirk unearths the hidden history of the nation`s worst financial crisis since the Great Depression. At the center of it all he finds Brooksley Born, who speaks for the first time on television about her failed campaign to regulate the secretive, multitrillion-dollar derivatives market whose crash helped trigger the financial collapse in the fall of 2008.

"I didn`t know Brooksley Born," says former SEC Chairman Arthur Levitt, a member of President Clinton`s powerful Working Group on Financial Markets. "I was told that she was irascible, difficult, stubborn, unreasonable." Levitt explains how the other principals of the Working Group -- former Fed Chairman Alan Greenspan and former Treasury Secretary Robert Rubin -- convinced him that Born`s attempt to regulate the risky derivatives market could lead to financial turmoil, a conclusion he now believes was "clearly a mistake."

Born`s battle behind closed doors was epic, Kirk finds. The members of the President`s Working Group vehemently opposed regulation -- especially when proposed by a Washington outsider like Born.

"I walk into Brooksley`s office one day; the blood has drained from her face," says Michael Greenberger, a former top official at the CFTC who worked closely with Born. "She`s hanging up the telephone; she says to me: `That was [former Assistant Treasury Secretary] Larry Summers. He says, "You`re going to cause the worst financial crisis since the end of World War II."... [He says he has] 13 bankers in his office who informed him of this. Stop, right away. No more.`"

Greenspan, Rubin and Summers ultimately prevailed on Congress to stop Born and limit future regulation of derivatives. "Born faced a formidable struggle pushing for regulation at a time when the stock market was booming," Kirk says. "Alan Greenspan was the maestro, and both parties in Washington were united in a belief that the markets would take care of themselves."

Now, with many of the same men who shut down Born in key positions in the Obama administration, The Warning reveals the complicated politics that led to this crisis and what it may say about current attempts to prevent the next one.

"It`ll happen again if we don`t take the appropriate steps," Born warns. "There will be significant financial downturns and disasters attributed to this regulatory gap over and over until we learn from experience."

My Comment: I love the bit about summers having a baker`s dozen of banksters in his office and threatening financial Armageddon if they didn`t get their way ... precisely the same tactic Paulson and Bernanke used last Fall in order to ram the massive TARP bailout bill through congress ... recall that failed the first time it came up for a vote, the stock markets immediately threw a tantrum, and the next time around the number of legislators who "wanted to be responsible for Great Depression 2" had magically decreased in dramatic fashion. Works every time.

[ewmayer]

And yet another way of punishing the prudent...

Latest bank fee is for paying off credit card on time every month

You floss regularly, yield to oncoming traffic and use your credit cards judiciously, dutifully paying off your balance every month.

You may believe that your exemplary behavior shields you from unexpected credit card fees. Sadly, that is no longer the case.

Starting next year, Bank of America will charge a small number of customers an annual fee, ranging from $29 to $99. The bank has characterized the fee as experimental. But card holders who have never carried a balance or paid late fees could be among those affected.

Citigroup, meanwhile, has started charging annual fees to card holders who don't put more than a specific amount on their cards, typically $2,400 a year. Other banks are charging inactivity fees if customers don't use their credit cards during a specific period of time. You heard that right: You could be spanked for staying out of debt.

These fees are the credit card industry's response to credit card legislation that will, among other things, restrict credit card issuers' ability to raise interest rates on existing balances. Credit card issuers are looking for ways to raise income before the new rules take effect in February. During the first quarter, 27% of credit card offers included annual fees, up from 18% a year earlier, according to Synovate Mail Monitor, a credit card direct-mail tracking service.

Curtis Arnold, founder of CardRatings.com, says he expected credit card issuers to raise annual fees after the legislation was enacted. What he didn't expect, he says, "was that good customers were going to be hit."

My Comment: Why the big surprise? Banks have been hiking interest rates, jacking up fees and slashing credit lines even on their best customers for much of the past year. I wouldn`t be surprised to see banks start charging interest (as opposed to paying essentially no interest) on savings and checking accounts - as some well-known economists (e.g. Greg Mankiw) have proposed "in order to spur consumer spending".

If you are a non-abuser of credit who habitually carries low or no balances and your credit-card issuer pulls any such crap, my suggestion is to mail them them pieces of your cut-up card along with a brief account-cancellation request. You can obtain much-more-friendly credit cards from any number of issuers - just do a web search of e.g. "best credit card" for some comparative data. Also consider getting a no-annual-fee debit card instead of a new credit card.

[Prime95]

Originally Posted by ewmayer

Also consider getting a no-annual-fee debit card instead of a new credit card.

Do not under any circumstances replace a credit card with a debit card. Credit cards have vastly superior protections for the consumer.

[Fusion_power]

I'm with George on this one Ernst. Debit cards have virtually no protections and can be used to utterly drain your bank account in seconds. If it happens to you, you and only you are liable for it. A credit card on the other hand has protections to limit your liability in case it is stolen and gives you significant remedies if you make a purchase that turns out to be a lemon. Don't get me wrong though, I don't advocate use of a credit card in the first place. I write paper checks and avoid overdrafts like the plague.

DarJones

[Uncwilly]

Originally Posted by Prime95

Do not under any circumstances replace a credit card with a debit card. Credit cards have vastly superior protections for the consumer.

That is why I told my bank that I want an ATM card with out the fancy MC/Visa logo. I have an ATM card and a CC, and they each serve a seperate function.

[Fusion_power]

careful uncwilly. There is a rat in separate. sep a rat e.

[ewmayer]

Originally Posted by Prime95

Do not under any circumstances replace a credit card with a debit card. Credit cards have vastly superior protections for the consumer.

That depends entirely on the debit card - most name-brand credit (and debit) card issuers have updated their protections for debit cards in the past few years to make them identical or similar to those for credit cards. I've been using a Fidelity debit card for nearly 20 years, and the list of protections they send with each renewal every 2 years has always sounded just like those for a credit card. I notice Visa is making a big promotional push into the DC space as well, likely by way of catering (or pandering) to the "new frugality" that has resulted from the Great Recession. But your point is correct in the sense that since debit cards fall under a different regulation and thus don't *automatically* come with the same protections as credit cards, one should check with the issuer before signing up for one.

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California AG Sues State Street Bank for Massive Fraud Against CalPERS and CalSTRS

Oct. 20 (Bloomberg) -- California sued State Street Bank and Trust Co. to recover what officials said were more than $200 million in illegal overcharges owed to the state’s two largest pension funds for foreign currency trading fees.

State Street, based in Boston, charged the California Public Employees’ Retirement System, the largest U.S. defined- benefit public pension fund, and the California State Teachers’ Retirement System rates that were at or near the highest interbank rate for the day instead of the rate at the precise time of the trades, according to the lawsuit.

State Street “consistently marked-up the prices using rates far in excess of the Interbank rate at the time” the trades were executed, according to the complaint, which was filed by California Attorney General Jerry Brown in state court today in Sacramento, the state capital.

Brown said in a statement the claims were first made in a whistleblower lawsuit filed under seal last year by Associates Against FX Insider Trading, which alleged that the bank secretly marked up the price of interbank foreign currency trades. The interbank rate is the price at which major banks buy and sell foreign currency.

“We categorically deny any allegation of wrongdoing and will defend ourselves against any litigation,” State Street spokeswoman Carolyn Cichon said in a telephone interview about the California lawsuit.

California claims State Street concealed the overcharges by entering false exchange rates into its own databases and in documents. The overcharges started in 2001, according to the complaint, and exceeded $56 million. Brown is seeking triple damages and penalties of $10,000 for each false claim, which added together could total more than $200 million, Brown said in his e-mailed statement.

State Street is the world’s largest asset manager for institutions.

Henry Paulson`s June 2008 Meeting With Goldman`s Board in Moscow "Kept Secret" by Treasury

According to Andrew Ross Sorkin`s new book, which is out today, the Treasury department, and Hank Paulson in particular, have some new disclosure issues to discuss next time there is a hearing on matters of the financial crisis. Sorkin points out that in June 2008, at a time when Goldman`s Board of Directors was in Moscow for a meeting with Mikhail Gorbachev, then Treasury Secretary Paulson decided to invite the entire BOD to his hotel suite in a meeting that would be "off the record" as it was considered a social event. Among the events discussed were: economic forecasts, the prospects of banks blowing up (like Lehman), as well as previews of his upcoming speech. How this occurred in an uncalendarized meeting where there was material disclosure, boggles the mind.

My Comment: Worrying about massive conflicts of interest is for the Little People ...

[ewmayer]

A few economy-related links of the funny & bizarre variety:

$787 Billion In Federal Stimulus Creates/Saves 5.93 Jobs In Rhode Island

is this chart from recovery.org, proudly pasted on the front page, supposed to make Americans happy about the amazing misuse of taxpayer funds to only "create" 30,000 jobs in America (never mind that actual unemployment by state continues to skyrocket, putting all claims about saved jobs very much in the highlight reel on the Comedy Channel)? And just how does the government provide 0.93 jobs?

My Comment: "After handily beating analyst expectations of 5.22 jobs created/saved, shares of Rhode Island (RI) were up over 10% in after-hours trading."


$5,500 Golf Cart Credit Emblematic of "Tax Policy in the Age of Obama"

We thought cash for clunkers was the ultimate waste of taxpayer money, but as usual we were too optimistic. Thanks to the federal tax credit to buy high-mileage cars that was part of President Obama's stimulus plan, Uncle Sam is now paying Americans to buy that great necessity of modern life, the golf cart. The federal credit provides from $4,200 to $5,500 for the purchase of an electric vehicle, and when it is combined with similar incentive plans in many states the tax credits can pay for nearly the entire cost of a golf cart.

[ewmayer]

Markets today ... Microsoft gets rewarded handsomely for "not sucking as much" (Windows 7 vs the 2-year debacle that was Vista) ... Amazon posts handsome profit, share price goes from "nosebleed" to "oxygen mask required" territory (although P/E remains roughly unchanged at a "modest" 75 or so) ... it seems the 2009 Ponzi bubble rally has had the effect of lifting shares of crap and run-of-the-mill companies (i.e. those whose earnings are nil-to-negative and down-big-time from a couple years ago, respectively) to merely way-overpriced valuations, but the handful of companies which are actually thriving during the recession (e.g. Apple and Amazon) are getting their stocks bid up to stratospheric levels. (You might think Wal-Mart would also make that list, but their "thriving" has come about as a result of massive cost-cutting and lower-priced offerings to frugal consumers, i.e. they gain sales volume at the expense of profit margins)

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Homebuyer Tax Credit Attracts Legions of Fraudsters: Tens of thousands of people may have taken advantage of the first-time home buyer tax credit to defraud the government, an IRS watchdog office said Thursday, in testimony that could jeopardize efforts to extend the popular program.

Treasury Inspector General for Tax Administration J. Russell George told a House panel that more than 19,000 people filed 2008 tax returns claiming the credit for homes they had not yet purchased. Russell said his office had identified another $500 million in claims, by some 74,000 taxpayers, where there were indications of prior home ownership.

He told a House Ways and Means oversight subcommittee that they also found 580 taxpayers under the age of 18 who claimed $4 million in first-time home buyer credit. One was 4 years old.

My Comment: I for one think the age 4-6 demographic is one where increased homeownership should clearly be a national priority. We've already targeted the unemployed, income-impaired, illegal-immigrant and urban-pot-grower demographics for EZ-credit home loans, I suggest extending this largesse to young children - what better way of making them feel they have a stake in America`s future than for them to have a home of their own?

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Fortune senior writer Colin Barr asks a very pertinent question with respect to the Wall Street pay cuts (belatedly) proposed by Obama`s "pay czar^*":

Who cares if Wall Street 'talent' leaves?: If Ken Feinberg's lower pay rules lure some of Wall Street's finest away, so be it. It's not as if the best and brightest were doing a good job to begin with

NEW YORK (Fortune) -- There's no need to fear a Wall Street brain drain -- despite the crackdown on pay by Washington.

On Thursday, White House pay czar Kenneth Feinberg outlined compensation restrictions at seven firms that got special bailouts, and the Federal Reserve proposed to review pay practices at 28 unnamed giant banks.

Critics warn that reining in pay makes it hard to keep talented employees. Hemmed in, institutions like AIG,Bank of America and Citigroup could lose their best people.

These firms would then perform even more abysmally, if that's possible, leaving them hard pressed to repay tens of billions of dollars of taxpayer-backed loans.

Still, we say Godspeed to this "talent." After all, the traders and suits in the corner offices don't exactly have an unblemished track record. In 2008, Citigroup, BofA and Merrill Lynch (since acquired by BofA) posted a grand total of $51 billion in losses.

Yet even as they were running themselves into the ground, the firms managed to pay out more than $12 billion in bonuses -- including 1,606 million-dollar-plus bonuses, according to a report from the New York attorney general's office.

My Comment: Contrast this agonizing over whether a Ponzi-finance peddler can really live on a mere $200,000 per year with what`s going on on Main Street:

[b]Tales From the Real Economy:[/i]

Indiana trucking firm gets 500 applications for $13/hour administrative-assistant job

C.R. England, a nationwide trucking company, needed an administrative assistant for its bustling driver training school here. Responsibilities included data entry, assembling paperwork and making copies.

It was a bona-fide opening at a decent wage, making it the rarest of commodities here in northwest Indiana, where steel industry layoffs have helped drive unemployment to about 10 percent. [EWM: That implies a real unemployment rate of around %20]

When Stacey Ross, C. R. England’s head of corporate recruiting, arrived at her desk at the company’s Salt Lake City headquarters the next Monday, she found about 300 applications in the company’s e-mail inbox. And the fax machine had spit out an inch-and-a-half thick stack of résumés before running out of paper. By the time she pulled the posting off Careerbuilder.com later in the day, she guessed nearly 500 people had applied for the $13-an-hour job. “It was just shocking,” she said. “I had never seen anything so big.”

The 34-year-old recruiter decided the fairest approach was simply to start at the beginning, reviewing résumés in the order in which they came in. When she found a desirable candidate, she called to ask a few preliminary questions, before forwarding the name along to Chris Kelsey, the school’s director. She dropped significantly overqualified candidates right away, reasoning that they would leave when the economy improved. Among them was a former I.B.M. business analyst with 18 years experience; a former director of human resources; and someone with a master’s degree and 12 years at Deloitte & Touche, the accounting firm.

Mr. Kelsey, 33, had just promoted one of his three administrative assistants, who handle the paperwork needed for drivers to hit the road. He needed a replacement quickly. To make the task easier, he decided they should be even more rigorous in ruling out anyone who appeared even slightly overqualified. “We like to get the fair and middling talent that will work for the wages and groom them from within,” he said.

In other words, he said, he did not want the former bank branch manager Ms. Ross had sent, or the woman who had once owned a trucking company, or even the former legal secretary.

My Comment: Clearly we need a multibillion-dollar federal giveaway program to put all these now-unemployed former financial-products folks (bank managers, stockbrokers, insurance salesmen, realtors, etc) back to work in a job which makes use of their "talents". A kind of "cash for financial clunkers" spending package. Perhaps it could involve extensive retraining in "dumbing down your resume", "life without a rolodex", "speaking without condescension", that sort of thing.

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^* I find the rampant proliferation of "czars" in the administration curiously anti-appropriate, since our government`s role in the economy is looking more communist every day ... shouldn`t the banksters and CEOs be the "czars" and nobility in our Russo-economic extended analogy, and the government officials in charge of reining them in be the neo-Bolsheviks? That`s an analogy I could sign on to, especially if it ends with the financial "nobility" which brought our economy to its knees and has effectively captured our government getting lined up against a wall and summarily shot.

[garo]

Good post from Matt Taibbi pushing Elizabeth Warren for Democratic candidate for President in 2012. More importantly, he puts his finger on what is wrong with the Democratic party.

http://trueslant.com/matttaibbi/2009...for-president/

The way I look at it, the problem with the Democratic Party is not the voters, it’s the 19 or 20 people who are paying for the campaigns and sitting in at those meetings with Rahm and Billy Tauzin. We have to get rid of those people, herd them all to the edge of a very tall cliff and push them off and be done with it. I think this can be done by electoral referendum if we actually put it all on the table openly and let people decide for themselves.
....
We need someone in there who is willing to run one this one issue: who owns the Democratic Party? Is it the voters, or is it Goldman Sachs and Morgan Stanley and United Health Care? There are plenty of candidates out there who’d fit — Toledo’s Marcy Kaptur got a nice bounce from the Michael Moore movie, and Jan Schakowsky is another who comes to mind — but Warren to me makes the most sense for the simple reason that it will be virtually impossible for the Democratic Party hacks to dismiss her as a fringe character, given that they themselves gave her such a big public position as chief of the Congressional Oversight Panel.