The (new) Financial Tsunami thread

[olderstill]

Old and gray
Message #824 - 12/17/09 04:14 PM
(7) lack of transparency about counterparty exposures and valuation of derivatives positions made it more difficult for regulators to respond to the crisis and made resolution of these positions more expensive for the taxpayer;
(8) bilaterally-executed derivatives contracts can provide key benefits to certain market participants and should be permitted under comprehensive regulation, but all derivatives activities should be accompanied by appropriate risk management and prudential standards;
(9) the derivatives market suffers from a lack of reliable and accurate transaction information that is available to the public, investors, market participants, and regulators, hampering surveillance and oversight of such markets;
(10) clearing more derivatives through well-regulated central counterparties will benefit the public by reducing costs and risks to American taxpayers, the financial system, and market participants;
(11) trading more derivatives on regulated exchanges should be encouraged because it will result in more price transparency, efficiency in execution, and liquidity; and
(12) the Group of 20 nations agreed that—
(A) all standardized over-the-counter derivative contracts should be traded on exchanges or electronic trading platforms, where appropriate, and cleared through central counterparties by the end of calendar year 2012 at the latest;
(B) over-the-counter derivative contracts should be reported to trade repositories; and
(C) non-centrally cleared contracts should be subject to higher capital requirements.priate, and cleared through central counterparties by the end of calendar year 2012 at the latest;
I’ve provided the bold and italicized to highlight the promise Dodd’s proposal offers to keep the American taxpayer involved in the derivatives fiasco in the future. The proposal promises us there will be future taxpayer responsibilities due to the nature of risk involved. They express interest in reducing the cost to the American taxpayer, not eliminating it! Also, in item (A)(10) there’s a genuine interest in reducing the risk to the American taxpayer! (This interest is repeated in the Purposes section, below.
Do we have grand representation in Washington, or don’t we?

As for Purposes of Title VII. –

(b) PURPOSES.—The purposes of this title are—

(1) to establish well-regulated markets for derivatives to increase transparency and reduce costs and risks to American taxpayers, the financial system, and market participants; and
(2) to promote the public interest, the protection ofinvestors, the protection of market participants, and the maintenance of fair and orderly markets to assure—
(A) the prompt and accurate clearance and settlement of transactions in derivatives that can be cleared through a central counterparty;
(B) the prompt and accurate reporting of transactions to regulators and trade repositories;
(C) the availability to the public, investors, market participants, and regulators of reliable and accurate quotation and transaction in formation in derivatives;
(D) economically efficient execution of transactions in swaps and security-based swaps; and
(E) fair competition among markets in the trading of swaps and security-based swaps.




Old and gray
Message #825 - 12/17/09 04:15 PM
Out of curiosity: do any of the readers here (other than professional bankers in large institutions who realize gain through internal compensatory practice) realize any gain from derivatives? I know there will be responses to indicate that passing on risk lowers interest rates or guarantees a larger venue by releasing capital, etc. But, I consider those arguments specious, because we’ve seen no indication of that. Insufficient capital, illiquidity, and improper risk controls are not the result of interest rates, larger consumer base, nor should they be the responsibility of taxpayers, in this case innocent, victimized third parties, completely disinterested until their taxpayers are confiscated to support the failed gambling process of rich, bored bankers. The question I pose addresses gain to be realized directly, holding the derivative until execution, be that maturity or an event that meets derivative conditions and payoff occurs.
On an individual basis, it may seem an impractical question, in view of the fact that FDIC regulations call for minimum proven available capital assets of $20,000,000 to be considered a trader or participant. I’m assuming there are other means of qualifying, through funds, etc. Does anyone reading here belong to such a fund or realize counterparty benefits from derivatives?
I ask because if banks and counterparties who place their assets at risk in the gambling process are the only parties involved, and they are assumed to have the smarts to understand the nature of derivatives as well as their weaknesses. Why should the American taxpayer have any of his/her interest jeopardized by a process proven to be impractical and a guaranteed failure as well as a potent threat to the global system? Why should the American taxpayer be promised (as this document assuredly does) a continued involvement in bailing out the derivatives the next time they fail, which is a certainty.
In this regard, I’d like to hear from someone who has something at stake



Old and gray
Message #826 - 12/17/09 11:08 PM
A previous claim was made that definitions of derivatives was contorted and/or torturous. It's not fair to let an accusation hang out there with no corroboration. There are at least four and possibly seven sources of "definitions" within reach on this desk which could support the claim. However, let's stay with the document itself and the new proposals. (cf. page 372)

SEC. 711. DEFINITIONS.
(a) AMENDMENTS TO DEFINITIONS IN THE COMMODITY EXCHANGE ACT.—Section 1a of the Commodity Exchange Act (7 U.S.C. 1a) is amended—
(1) by redesignating paragraphs (9) through (34) as paragraphs (10) through (35), respectively;
(2) by adding after paragraph (8) the following:
‘‘(9) DERIVATIVE.—The term ‘derivative’ means—
‘‘(A) a contract of sale of a commodity for future delivery; or
‘‘(B) a swap.’’;
Simple enough, right? That's the addition to the Commodity Exchange Act new sub-paragraph (9). Then, just a few lines further in the Dodd proposal we come to this suggested addition which is now the new sub-paragraph (35)-

‘‘(35) SWAP.—
‘‘(A) IN GENERAL.—Except as provided in subparagraph (B), the term ‘swap’ means any agreement, contract, or transaction that—
‘‘(i) is a put, call, cap, floor, collar, or similar option of any kind for the purchase or sale of, or based on the value of, 1 or more interest or other rates, currencies, commodities, securities, instruments of indebtedness, indices, quantitative measures, or other financial or economic interests or property of any kind;
‘‘(ii) provides for any purchase, sale, payment, or delivery (other than a dividend on an equity security) that is dependent on the occurrence, nonoccurrence, or the extent of the occurrence of an event or contingency associated with a potential financial, economic, or commercial consequence;
‘‘(iii) provides on an executory basis for the exchange, on a fixed or contingent basis, of 1 or more payments based on the value or level of 1 or more interest or other rates, currencies, commodities, securities, instruments of indebtedness, indices, quantitative measures, or other financial or economic interests or property of any kind, or any interest therein or based on the value thereof, and that transfers, as between the parties to the transaction, in whole or in part, the financial risk associated with a future change in any such value or level without also conveying a current or future direct or indirect ownership interest in an asset (including any enterprise or investment pool) or liability that incorporates the financial risk so transferred, including any agreement, contract, or transaction commonly known as an interest rate swap, a rate floor, rate cap, rate collar, cross-currency rate swap, basis swap, currency swap, total return swap, equity index swap, equity swap, debt index swap, debt swap, credit spread, credit default swap, credit swap, weather swap, energy swap, metal swap, agricultural swap, emissions swap, or commodity swap;
‘‘(iv) is an agreement, contract, or transaction that is, or in the future becomes, commonly known to the trade as a swap; or
‘‘(v) is any combination or permutation of, or option on, any agreement, contract, or transaction described in any of clauses (i) through (iv).
If the instrument itself were not so devastating, the description would be laughable. What makes it doubly nefarious, they are not yet finished with boxing derivatives in (or breaking the box walls down). They proceed to enlarge the scope of derivatives by including what ever they have left out in the above cited passages by describing the "Exclusions" below.





Old and gray
Message #827 - 12/17/09 11:10 PM
‘‘(B) EXCLUSIONS.—The term ‘swap’ does not include—
‘‘(i) any contract of sale of a commodity for future delivery or security futures product traded on or subject to the rules of any board of trade designated as a contract market under section 5 or 5f;
‘‘(ii) any sale of a nonfinancial commodity or any security for deferred shipment or delivery, so long as such transaction is physically settled;
‘‘(iii) any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities, including any interest therein or based on the value thereof;
`‘(iv) any put, call, straddle, option, or privilege relating to foreign currency entered into on a national securities exchange registered pursuant to section 6(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78f(a));
‘‘(v) any agreement, contract, or transaction providing for the purchase or sale of 1 or more securities on a fixed basis;
‘‘(vi) any agreement, contract, or transaction providing for the purchase or sale of 1 or more securities on a contingent basis, unless such agreement, contract, or transaction predicates such purchase or sale on the occurrence of a bona fide contingency that might reasonably be expected to affect or be affected by the creditworthiness of a party other than a party to the agreement, contract, or transaction;
‘‘(vii) any note, bond, or evidence of indebtedness that is a security as defined in section 2(a)(1) of the Securities Act of 1933 (15 U.S.C. 77b(a)(1)); or
‘‘(viii) any agreement, contract, or transaction that is—
‘‘(I) based on a security; and
‘‘(II) entered into directly or through an underwriter, that term is as defined in section 2(a)(11) of the Securities Act of 1933 (15 U.S.C. 77b(a)(11)), by the issuer of such security for the purposes of raising capital, unless such agreement, contract, or transaction is entered into to manage a risk associated with capital raising;
‘‘(ix) any foreign exchange swap;
‘‘(x) any foreign exchange forward;
‘‘(xi) any agreement, contract, or transaction a counterparty of which is a Federal Reserve bank, the United States Government, or an agency of the United States Government that is expressly backed by the full faith and credit of the United States; and
‘‘(xii) any security-based swap, other than a security-based swap as described in paragraph 38(C).
‘‘(C) RULE OF CONSTRUCTION REGARDING MASTER AGREEMENTS.—The term ‘swap’ shall be construed to include a master agreement that provides for an agreement, contract, or transaction that is a swap pursuant to subparagraph (A), together with all supplements to any such master agreement, without regard to whether the master agreement contains an agreement, contract, or transaction that is not a swap pursuant to subparagraph (A), except that the master agreement shall be considered to be a swap only with respect to each agreement, contract, or transaction under the master agreement that is a swap pursuant to subparagraph (A).’’;

That last (C) was thrown in to show that they still have not exhausted the need for definition. Other needs will pop up as the banks continue "innovating" new conditions.
I wouldn't expect anyone to memorize the provisions quoted above. It's posted merely as an example of what was meant by contorted and tortured.
These amendments are going into the Commodity Exchange Act - the previously cited "Agricultural" Act, in the company of beans, onions and cotton. The framers of the document may be trying to be complete. But, that's the way it is with band-aid legislation. Holes need to be patched, and a new surface laid down to make the amendments complete and without contradiction in order to survive court challenges, etc.



Old and gray
Message #828 - 12/17/09 11:11 PM
The hope is that the regulators will be equally thorough in tracing down their references in their documents to conform to what is being proposed here. Bearing in mind that the prior changes in need of re-defining were added in May and June of 2008, here we are one year plus a few months altering them again. The quickie band-aids applied then were incomplete and was not the final word. These additions will not be either.

I hope I can dispense with lengthy quotations for the remainder of the review. I'll have to if the review is to come in under 1136 pages. But by now, you must have the idea of how legislation is formulated, how it's all in the open for citizens' access and edification. And what complications evolve out of band-aid legislation. It's an ongoing exercize in Washington.
For the remainder of the review, the intent will be to generalize, draw conclusions after some discussion of the construct of the bill. If I must, I'll refer to the document by page number or citing paragraph, subparagraph, etc. For instance, the above quotations run from page 372 to 378 (and doesn't end there).
Also, if some of the terms intrigue but puzzle readers along the way, I'd suggest using wikipedia resources. It's thorough and handy once you learn your way around. But you probably all know that.



frank the impaler
Message #829 - 12/20/09 03:50 PM
Old and Gray and Duff-Would it be possible that you could put together a 30 or 60 second radio commercial that you would like like to hear on the radio..... that would make regulatory and elected officials squirm in their seats?

You guys have made some really good observations and if you could just summarize all the BS behind these derivatives and make it sharp, but short and sweet...I'd love to read it!!!

[olderstill]

Veteran_Lender
Message #830 - 12/20/09 11:40 PM
Frank... without revelation detail, please describe as well as possible your financial sector placement. I am a Lender... local to national, multiple tiers, capable of origination but mainly wholesale, operations and the Secondary. When I speak "bank" it is only from a credit perspective. Use that as your measure.
I'm not asking for any divisive reason. If you were associated with lending prior to 1999, you know that it was based on funding a serviceable commodity with yields based on term interest and/or margin yield. As of 2000, Mark to Market had no service forecasts and buys were based entirely on derivative spreads. The fantasy of derivatives was that the formula constantly projected higher returns than what traditional and known yields ever did. Simply, the product never survived the calculated duration, an integral component of that return. From 2001 to 2003, dumb banks went deep into derivatives that failed to match criteria in a year or two of creation. Rule modifications cropped up (must not pay off before x date) as did the fury to generate deposits (offset).
Before your time here on MT, we had some pretty deep discussions on this. Knowing your credential would be a big help in explaining the big picture in proper detail. This is the basis or "root" of the Tsunami that O&G describes. A failed derivative transaction does not collapse into itself like a bad loan, it accelerates exponentially because it only contained a minute amount of real money which was the crux for several more transactions. You shutter banks, it caps the well fire, collapses (destroys) untold fake fortunes but it does end the toxic spread. You exacerbate it (the Geithner Method) and it continues to grow absorbing all the real currency it gets its hands on, regardless of how fast or much you print.
Even your Bull Run (March to date) is a dynamic inflation of banking stocks to support the burgeoning of the derivative formulation effect of held transactions expanding beyond capacity. Which is why so many of us stayed out of it. Starve the bank, cure the depression.




frank the impaler
Message #831 - 12/21/09 08:00 AM
V_L-using common sense and seeing the progression of higher interest rate payments going forward those derivative values and interest payments were always suspect mainly because peoples incomes could never increase at a rate in order to service those rising payments.

I can understand your reluctance to enter the water when its so full of sharks, I didn't have any choice I had to go in the water.

What you will see now are the same players that took us out to pasture, reproducing that "implosion of those securitized debt obligations" around the world.

You see they have the playbook now and the same way things played out here, they will play out around the world and they have the parameters of what to expect....so the money should be easy for them to make...as they leave a wake behind them.



Veteran_Lender
Message #832 - 12/21/09 09:01 AM
I disagree Frank. A "playbook" is linear thinking in this- tumbleweed environment. The playbook would have told them the course given a fixed or rigid environment, but we're not even on the same planet we once were on.
This thread is about the underpinnings. Translate money into armor. There are huge armies on the field of finance today. Lessons from the book: Business Planning for an Uncertain Future (Amara/Lipinski) suggests the greatest armor and defense is being viral or amoebic (innocuous and shapeless thus flexible).


frank the impaler
Message #833 - 12/21/09 09:13 AM
Well perhaps playbook was a bad choice of a word...perhaps template of what to expect as to what the governments have available in their options of being "flexible"



Old and gray
Message #834 - 12/21/09 10:32 AM
frank

If it were possible to convey the essence of the strategy of the derivatives game in a 30 or 60 second burst, there'd be no need to explain all the sub-surface manipulations that eroded the underpinnings of global banking and finance. Interlaced and dependent on related tactics and maneuvering, history, ethics, and mores of the industry, everybody conspiring to spawn toxic papers. . . it's so deep-rooted and serving so many different interests, there's too much to cover. I don't think it's possible even if everyone understand how it happened.
First response of outsiders or the uninitiated, is "Well, what difference does it make whether they do this or not?" Point to the stalled economy, the loss of value in our possessions and I don't believe it would be enough to make it comprehensible. Tell them it was the permissive attitude of those who should have been on the other side of the issue and it falls or either deaf or offended ears. Then, when the hammer falls and things get worse, the question turns to, "Well, how could they be allowed to do this?" and the answers are twice as long as they were before the event. If we continue to live in denial, we may not be able to straighten things out.
If I knew of a way to strike at the root of the problem with one blow of the hammer, I'd put it to use. Sometimes, when you get an olive with a thick skin, it's tough to spear with a fork. It's just such a slippery situation we're faced with in derivatives, swaps, an indifferent set of legislators, the financial gamblers and the shadow banking system. How do you point to the development of the scam without including the solutions provided by global banking's best minds and the way their concern was ignored, or the calculated promulgation of laws passed by lop-sided margins which made it seem like the birth of a new golden age, which nine years later loses its sheen and reveals the lead core? Explain the sequence in a hell-blazing 60 seconds? How long does it take just to read the convoluted definitions of derivatives or swaps posted in messages # 826 and 827? Hell, I could work up a 60 second laugh in response and there goes my air time!
Dig into the material to explain the situation and the mind comes away crammed with thoughts, many condemnations, some praises for a lot of conflicting accumulated evidence. The definitions set out in Dodd's bill posted above, are no more than carryovers of wording from the Gramm-Leach-Bliley Act (1999). The difference between the two being: where GLBA said don't; Dodd says do! Maybe we should smile and clap hands for the little progress realized. But, why do we have to suffer so before we recognize what's needed? Do we have to experience bad before we realize the value of good?
Washingtonians got caught up in the confusion of melody and magic of new language, new visions and campaign contributions; conveniently forgetting what they were elected to do for the rest of the nation. Next thing you know we have a bunch of song and dance men performing before the camera as though they've reinvented civilization and we discover too soon they were working for it's demise all along! Meanwhile, the problem festers and the rest of us are supposed to hang onto the carousel railings to keep from falling off as it spins faster and becomes more dangerous. I have no respect for that. If I wrote a commercial, it's liable to end up unprintable and banned from the air on first review.



Old and gray
Message #835 - 12/21/09 10:33 AM
Dodd's bill is trying to provide a solution to something that was allowed to happen only because the people who should have been working for us, were working for themselves and their buddies. That's inconsistent with a democratic system of government.
Of course, none of this is a revelation to anyone with two brains to rub together (as my father-in-law liked to say). We discovered the destructive value of the credo, "What's mine is mine" when it was fitted with a one way flow control valve. So, now we back-peddle and we're discovering how difficult that is.
Easy to get worked up and difficult to calm down. . and, we need to be calm for the long haul of digging ourselves out of the mess, which is possible, the obstacle is probability. We can tilt the odds in our favor if we get down to work, put the good of all first over the benefits for the few. There was a fellow named Peacock who wrote something like, "While one man gains, hundreds retrograde; the end result is complete deterioration", or some such thing. Put another way, we're all playing king of the hill and we all lose.



Veteran_Lender
Message #836 - 12/21/09 03:03 PM
So we have exponential toxic growth and a dollar printing at phenomenal speed (think back to the Bush era and the frantic retrofit of the printing presses and new dollar designs- they were well aware of this during a time when it was fully manageable... this is why we have conspiracy theorists). Simultaneously, we have a drain of assets at street-level and continued steady degradation in cash flow through employment losses. It should occur to you that instead of being a "playbook" or "template" there is a conundrum: the unstoppable force is about to collide with the immoveable object. I don't care how much schooling or experience you have, the subsequent reaction is not something anyone can speculate on.




neohguy
Message #837 - 12/21/09 03:30 PM
Ralph Nader and Robert Weissman testified before the House committee on Oversight and Government Reform Subcommittee on Domestic Policy on December 16. Some of the items that have been discussed on this thread were brought up.
nader.org/index.php?/archives/2160-Testimony-of-Ralph-Nader-and-Robert-Weissman-on-The-U.S.-Government-as-Dominant-Shareholder-How-Should-the-Taxpayers-Ownership-Rights-be-Exercised.html
Testimony of Ralph Nader and Robert Weissman on "The U.S. Government as Dominant Shareholder: How Should the Taxpayers' Ownership Rights be Exercised?"
Today's topic is welcome and vital. Perhaps the most astounding feature of the trillions of dollars in public supports conferred on the financial industry in the past year is the government's failure to demand more than the tiniest forms of reciprocity. Thus we are this week subject to the spectacle of the President cajoling financial industry leaders to lend more or do a better job of modifying mortgages -- with virtually no acknowledgement that the industry continues to exist only because of unprecedented taxpayer supports...
In this testimony, we first review the government acquisition of equity in three firms: AIG, Citigroup and General Motors. We then turn to recommendations for how the government should manage equity positions in those firms, and more generally. We conclude by considering the terms on which the government should exit an equity position.....
Most notably in the case of AIG, the government did not condition its bailout and equity infusion on the firm's credit default swap counterparties accepting a haircut. This was not a small oversight; the primary rationale for the AIG bailout was the potential impact on counterparties. Rather than establishing that counterparties would accept a hair cut, they were paid 100 cents on the dollar. In this sense, the AIG bailout is a misnomer; the bailout of AIG has really served as a backdoor bailout of the giant firms on Wall Street, led by Goldman Sachs, and overseas (where AIG sent half of its credit default payments, after being bailed out)...
The proliferation of exotic financial instruments in the last decade led to massive leveraging and complicated interconnections among top firms that no one could track. While financial derivatives are rationalized as helping economic players hedge against risk, it turns out they are primarily speculative tools used overwhelmingly by a small number of players.
Until its collapse, AIG, of course, was perhaps the leading "insurer" of credit default swaps. AIG had taken on this role through a small London-based division that operated on the premise that there was zero chance of default on the underlying assets it was insuring. Setting aside no collateral, it believed it was taking money for nothing. This proved to be a false assumption. It also emerged after the AIG collapse that the firm did not know all of the credit default swap contracts into which it had entered.
The great financial collapse notwithstanding, the concentration of financial industry massive speculative betting continues, with five banks -- including Citi -- owning more than four-fifths of the notional value of all outstanding derivatives in the United States. The notional value of these banks’ derivatives exceeded $190 trillion in the first quarter of 2009.
For now, it appears that Citi is moving in the exactly opposite direction. Business Week reported in August that instead of swearing off risky financial products, big banks including Citigroup have rolled out a variety of “newfangled corporate credit lines tied to complicated and volatile derivatives,” linking the credit lines “both to short-term rates and credit default swaps (CDSs), the volatile and complicated derivatives that are supposed to act as 'insurance' by paying off the owners if a company defaults on its debt.”....
Although it is obvious that talented corporate executives must be paid well, there is no evidence that extremely high pay is correlated with excellent performance. Indeed, the Wall Street collapse provides abu



neohguy
Message #838 - 12/21/09 03:30 PM
continued
Right now, Citigroup is aiming to exit the TARP program, and have the government sell its shares in the company. It is widely understood that Citi's aim is to escape executive and highly compensated employee pay restrictions. Citi's rush to escape the government's embrace is selective; it aims to pay back TARP and have the government sell shares, but it continues to benefit from strings-free government guarantees and a host of other benefits and programs conferred on the financial sector.
Even looking at the issue from narrow financial terms, it is not at all obvious that Citigroup is healthy enough to pay back the government, or that it is in the public interest for the firm to do so. The money it will raise to pay the government will come with higher interest rates than the government loans, and is capital that the firm will not have available for lending. These issues merit more Congressional oversight and scrutiny.
A corporation should not be able to rent a government equity investment. A loan can be paid back, according to its terms. But once the government is an owner, it is an owner. Proportionate to the government's stake, the firm belongs to the government; apart from other valid stakeholder concerns, firm management does not have legitimate interests distinct from its shareholder-owners. Thus it must be the government, not the firm, that sets the terms and timing of exit. This is a matter about which public comment should be sought. The government in its investor role should consider how the timing of its exit may affect its financial returns. And a government that properly seeks to advance public policy objectives in its role as controlling shareholder should ensure that those objectives will continue to be achieved before it divests itself of its controlling position.

The testimony talks a lot about other hot button issues but are not the topic of this thread.



Crying Tree
Message #839 - 12/21/09 04:07 PM
Stimulus has a new meaning. It is a black hole where money disappears. Scientist has investigated this hole and have found AIG managers, Bankers with bags of government bonds, George Bush The 2nd with a smirk on his face but not my $250 that Obama promised. Where did that go?



Old and gray
Message #840 - 12/21/09 09:43 PM
Before proceeding to the review of Subtitle A - Regulation of Swap Markets of Title VII, reference has been made to the Gramm-Leach-Bliley Act but I'm not aware that anyone ever posted the pertinent section that unleashed the derivatives to allow the bankers/brokers/insurance people to corrupt the global financial system. It's very short. It's amazing how little space you need to ruin the world.

(2) The Commission is prohibited from registering, or requiring, recommending, or suggesting, the registration under this chapter of any security-based swap agreement (as defined in section 206B of the Gramm-Leach-Bliley Act). If the Commission becomes aware that a registrant has filed a registration application with respect to such a swap agreement, the Commission shall promptly so notify the registrant. Any such registration with respect to such a swap agreement shall be void and of no force or effect.
(3) Except as provided in section 78p(a) of this title with respect to reporting requirements, the Commission is prohibited from -
(A) promulgating, interpreting, or enforcing rules; or

(B) issuing orders of general applicability; under this chapter in a manner that imposes or specifies reporting or recordkeeping requirements, procedures, or standards as prophylactic measures against fraud, manipulation, or insider trading with respect to any security-based swap agreement (as defined in section 206B of the Gramm-Leach-Bliley Act).
To use less space they could have stated that swaps, derivatives, etc. were invisible to regulators. Fraud, manipulation and insider trading is permissible. How could people with such low standards become legislators? No wonder Ms. Born was agitated.
The definitions and treatment were proposed in GLBA sections 206B and 206C, two sections that the Dodd Bill would see repealed for everyone's benefit.

There are good passages in the proposed bill. Two things contribute to the confusion: First, lack of precedent for rules or regulation, all description, assigning responsibilities and establishing mechanisms are approached as though the documents are newly introduced to the world of finance; and, two, being forced to do so, as well as being aware of the destruction they wreaked first time around, the framers of the bill were careful to patch every little crack they could find to make certain nothing would leak out unnoticed the second time around. As a result, that attempt to be explicit results in endless repetition. I'm, sure the authors were aware of this, but they'd rather be painstakingly exact to avoid any possibility of misinterpretation or ambiguity or open to legal challenge.
Every regulating agency is named somewhere in the subtitle, with responsibility conferred on them, even those the bill seeks to merge into one of the newer entities. And all of the them, old or new, are cited at one time or another as contributors developing the new rules and regulations.
One thing to be said in favor of the authors, they did not presume to impose their will on the regulators. They defer to their experience and time after time, set time tables for the regulators working separately or jointly to formulate rules, sometimes even including a third and a fourth entity in the process. As written, there's no mistaking the intent to make the players aware there will be consequences.
Many of the steps called out in this thread are included in the proposal. Which means little more than they made conscientious proposals at the outset. What happens after negotiations, with rogue congress people applying pressure, committee meetings generating compromises, and floor tantrums forcing concessions, is difficult to predict.


Old and gray
Message #841 - 12/21/09 09:44 PM
Record keeping is one of the essentials, and those records will be available for inspection. It's mentioned repeatedly in many of the steps proposed. Parties involved would be required to meet reasonable standards (yet to be established) in resources, conduct and other qualifications to be developed by the regulating agencies like the SEC the CFTC, very often with overview and consultation from the AFS and the FIRA which then brings into the picture the power of the departments represented on those boards. Margin requirements, dealing, hedging, speculation, capital and market requirements, auditing trails, collateral, conflicts of interest, registration, compliance - even antitrust implications - are included in the proposals.
In addition the current regulating entities are requested to make adjustments and add new functions to strengthen coordination and cooperation between departments hoping this produces better regulation and more effective control of markets and the participants. We'll review some them in the next installment.
From what I've read in Subtitle A of Title VII, it's strong enough to overcome some of the doubts I had in previous sections. What was lacking there, indicating a suspect top level group, appears to have been made up for by endowing the regulators with more power and responsibility. To my way of thinking this is where the responsibility for market operations and transactions lies. The Chairman of the FRB or the new FIRA is not going to go down on the floor or out in the field to investigate, nor would those people be qualified to detect inappropriate behavior. So, the regulators can do the work they were trained to do, as long as they have the support of the overseers. But, the old flaws still exist. Probably no way we could get around that. There are a lot of political appointees heading the agencies. Where their interests lead, the regulators could be forced to follow. Like all political activity, what may be created to benefit the system in one administration can be quickly undone in the next. I wish it were just as easy to retrace the footsteps and undo the bad work.



Old and gray
Message #842 - 12/23/09 05:44 PM




SEASON'S GREETINGS TO ALL!

ALL THE BEST WISHES FOR THE COMING YEAR,

HEALTH, HAPPINESS. . .

AND MAY YOU SHARE IT WITH YOUR LOVED ONES.

[olderstill]

reverendbarb
Message #843 - 12/24/09 09:04 AM
SAME TO YOU OLD AND GRAY - and all the other folks who post here on MT!!



great depression1
Message #844 - 12/24/09 09:23 AM
bah humbug!!!!!!



Scared_Shirtless
Message #845 - 12/24/09 11:03 AM
Merry Chrstmas to all!!!
Now back on topic.
A very interesting article in the NY Times. The title is - Banks Bundled Bad Debt, Bet Against It and Won:
www.nytimes.com/2009/12/24/business/24trading.html?_r=1
Here's a snip:

Mr. Egol, a Princeton graduate, had risen to prominence inside the bank by creating mortgage-related securities, named Abacus, that were at first intended to protect Goldman from investment losses if the housing market collapsed. As the market soured, Goldman created even more of these securities, enabling it to pocket huge profits.
Goldman’s own clients who bought them, however, were less fortunate.
Pension funds and insurance companies lost billions of dollars on securities that they believed were solid investments, according to former Goldman employees with direct knowledge of the deals who asked not to be identified because they have confidentiality agreements with the firm.
Goldman was not the only firm that peddled these complex securities — known as synthetic collateralized debt obligations, or C.D.O.’s — and then made financial bets against them, called selling short in Wall Street parlance. Others that created similar securities and then bet they would fail, according to Wall Street traders, include Deutsche Bank and Morgan Stanley, as well as smaller firms like Tricadia Inc., an investment company whose parent firm was overseen by Lewis A. Sachs, who this year became a special counselor to Treasury Secretary Timothy F. Geithner.
...
While the investigations are in the early phases, authorities appear to be looking at whether securities laws or rules of fair dealing were violated by firms that created and sold these mortgage-linked debt instruments and then bet against the clients who purchased them, people briefed on the matter say.
One focus of the inquiry is whether the firms creating the securities purposely helped to select especially risky mortgage-linked assets that would be most likely to crater, setting their clients up to lose billions of dollars if the housing market imploded.
Some securities packaged by Goldman and Tricadia ended up being so vulnerable that they soured within months of being created.
...
But Goldman and other firms eventually used the C.D.O.’s to place unusually large negative bets that were not mainly for hedging purposes, and investors and industry experts say that put the firms at odds with their own clients’ interests.
“The simultaneous selling of securities to customers and shorting them because they believed they were going to default is the most cynical use of credit information that I have ever seen,” said Sylvain R. Raynes, an expert in structured finance at R & R Consulting in New York. “When you buy protection against an event that you have a hand in causing, you are buying fire insurance on someone else’s house and then committing arson.”
...
End of snip.
Gotta love those "synthetic" CDO's, huh?
And the game continues - doing God's work...
Let's work towards a 90% replacement of the House of Representatives next year.
Now THAT would be "green shoots".
ALL the best! Still shirtless here...




neohguy
Message #846 - 12/28/09 11:03 AM
An interesting article in Bloomberg today. Let's see where it goes.
www.bloomberg.com/apps/news?pid=20601109&sid=aeQNTmo2vHpo&pos=10
War on Wall Street as Congress Sees Returning to Glass-Steagall

....Resurrecting Glass-Steagall goes beyond the array of new regulatory powers that President Barack Obama has proposed to fix the financial system. It has also sparked debate among academics, regulators and legislators over whether the Depression-era law could have prevented the crisis of 2008 or might help avoid future ones. ...
....Splitting banking functions needed for the smooth operation of the economy from riskier securities and trading activities was proposed earlier this year by the Group of Thirty, a nonprofit organization made up of former government officials and bankers, including Paul Volcker, a former Fed chairman and head of the president’s Economic Recovery Advisory Board. ....
.....Those banks may have lost some of their political influence as their earnings have recovered, said William Isaac, a former chairman of the Federal Deposit Insurance Corp. “The TARP legislation and the way it was administered was political dynamite for the banks,” said Isaac, now chairman of the global financial services unit of LECG Corp., an economic and financial consulting firm in Emeryville, California. “The public feels that this was all about protecting Wall Street and did nothing for Main Street, and it’s largely true.




Defining Quality
Message #847 - 12/29/09 10:47 AM
No one will ever be able to find a way for "Wall Street" to fix the kind of systemic corruption and duplicity that resulted in the development of a Criminally Fraudulent Derivative Market. The bail-out of unregulated criminality is not something the people of any society should ever do period exclamation! MBA's and Attorney's on Wall Street should be prosecuted under the federal RICO Statute for destroying our economy.
en.wikipedia.org/wiki/Racketeer_Influenced_and_Corrupt_Organizations_Act
Only unregulated conspiring criminal minds intent on stealing other peoples money could ever devise such a complicated financial scheme, under the guise of serving as honest brokers.
I've written extensively on the real effect of GLBA and CFMA. Above was posted to MT by me 9/23/08.
boards.msn.com/thread.aspxThreadId=790471&BoardName=Hide&header=SearchOnly&Footer=Show&BoardsParam=PostID=22538798&LinkTarget=_parent&pagestyle=money1&ForumId=18
History has now clearly proven they actually set up an unregulated RICO Enterprise which destroyed the American Consumer and "Main Street". The "Funny Money", which never really existed, was traded and insured in and by a Criminal Derivatives Market and its' controlling RICO enterprise. The "Funny Money" of course is gone, because you can not create "Hard Capital" out of thin air and "Criminal Accounting Fiction".
All the "players" are insolvent, criminally and intentionally bankrupted by their own executive management, and no amount of "Regulatory Reform" will change that fact.
Total lack of "Criminal Prosecutions" proves the old adage "You can't sue a $Billion" as our Nations people pay the "real price" for government sanctioned financial corruption.
"The Fix in on" and "We the people" will not be the beneficiaries.
"The King" wants paid, and the unemployed and homeless are not "his" problem.




reverendbarb
Message #848 - 12/29/09 11:05 AM
Well Said, DQ.....unfortunately - for us though......




flow5
Message #849 - 12/30/09 03:35 AM
Crooks grow on trees, but money doesn't




Duffminster
Message #850 - 12/31/09 12:08 AM
Hello All,

Despite the tardiness of this message, may the Spirit of Christmas be with each of you every day and may that Spirit awaken the common sense and decency so lacking in our poltical and financial system today. May we find purity, peace and love among all people and Wall Street corporations from this day forward.

Now, seriously speaking, I am wishing each of you a most Merry Holiday Seasons and a most Excellent New Year.

Blessings upon all. And a special thanks to you Old and Gray for all you have taught us. With luck we can share a drink or cup of tea one day.
God bless us, every one!

Duffminster



neohguy
Message #851 - 12/31/09 07:54 AM
A comentary article from the only other person besides Old and gray that actually read H.R. 4173:
www.bloomberg.com/apps/news?pid=20601039&sid=a48c8UpUMxKQ
Bankers Get $4 Trillion Gift From Barney Frank:
Here are some of the nuggets I gleaned from days spent reading Frank’s handiwork:
-- For all its heft, the bill doesn’t once mention the words “too-big-to-fail,” the main issue confronting the financial system. Admitting you have a problem, as any 12- stepper knows, is the crucial first step toward recovery.
-- Instead, it supports the biggest banks. It authorizes Federal Reserve banks to provide as much as $4 trillion in emergency funding the next time Wall Street crashes. So much for “no-more-bailouts” talk. That is more than twice what the Fed pumped into markets this time around. The size of the fund makes the bribes in the Senate’s health-care bill look minuscule.
-- Oh, hold on, the Federal Reserve and Treasury Secretary can’t authorize these funds unless “there is at least a 99 percent likelihood that all funds and interest will be paid back.” Too bad the same models used to foresee the housing meltdown probably will be used to predict this likelihood as well.
More Bailouts
-- The bill also allows the government, in a crisis, to back financial firms’ debts. Bondholders can sleep easy -- there are more bailouts to come.
-- The legislation does create a council of regulators to spot risks to the financial system and big financial firms. Unfortunately this group is made up of folks who missed the problems that led to the current crisis.
-- Don’t worry, this time regulators will have better tools. Six months after being created, the council will report to Congress on “whether setting up an electronic database” would be a help. Maybe they’ll even get to use that Internet thingy.
-- This group, among its many powers, can restrict the ability of a financial firm to trade for its own account. Perhaps this section should be entitled, “Yes, Goldman Sachs Group Inc., we’re looking at you.”
Managing Bonuses
-- The bill also allows regulators to “prohibit any incentive-based payment arrangement.” In other words, banker bonuses are still in play. Maybe Bank of America Corp. and Citigroup Inc. shouldn’t have rushed to pay back Troubled Asset Relief Program funds.
-- The bill kills the Office of Thrift Supervision, a toothless watchdog. Well, kill may be too strong a word. That agency and its employees will be folded into the Office of the Comptroller of the Currency. Further proof that government never really disappears.
-- Since Congress isn’t cutting jobs, why not add a few more. The bill calls for more than a dozen agencies to create a position called “Director of Minority and Women Inclusion.” People in these new posts will be presidential appointees. I thought too-big-to-fail banks were the pressing issue. Turns out it’s diversity, and patronage.
-- Not that the House is entirely sure of what the issues are, at least judging by the two dozen or so studies the bill authorizes. About a quarter of them relate to credit-rating companies, an area in which the legislation falls short of meaningful change. Sadly, these studies don’t tackle tough questions like whether we should just do away with ratings altogether. Here’s a tip: Do the studies, then write the legislation.
continued



neohguy
Message #852 - 12/31/09 07:54 AM
continued:
Consumer Protection
-- The bill isn’t all bad, though. It creates a new Consumer Financial Protection Agency, the brainchild of Elizabeth Warren, currently head of a panel overseeing TARP. And the first director gets the cool job of designing a seal for the new agency. My suggestion: Warren riding a fiery chariot while hurling lightning bolts at Federal Reserve Chairman Ben Bernanke.
-- Best of all, the bill contains a provision that, in the event of another government request for emergency aid to prop up the financial system, debate in Congress be limited to just 10 hours. Anything that can get Congress to shut up can’t be all bad.
Even better would be if legislators actually tackle the real issues stemming from the financial crisis, end bailouts and, for the sake of my eyes, write far, far shorter bills.




Old and gray
Message #853 - 12/31/09 04:47 PM
Thanks for the compliments, neohguy.
I hope the New Year in Akron will be more promising than here in Florida. We have far too many delinquencies and foreclosures to indicate 2010 will get us anywhere worth going. I've seen assertions (don't know how reliable they are) that 72% of in-state mortgages have been in arrears lately; and, that as much as 45% of those face foreclosure. Those figures came to me during the second half of the closing year. To date I haven't heard anything to indicate the situation is improving.
Economics used to be the study of household spending. Aristotle started that off in his writing on "Politics". I can't give you the Greek spelling for it, but some of the early economists still spelled it oeconomics, sort of a half-spin off Greek into English or French. The reason I bring that up, if you want to know how the oeconomy is doing and where we're going, as I've said before, ask the housewife.
She knows her house has lost a substantial portion of its worth. (I'm being dunned by real estate people who keep reminding me that my house has lost between 32% and 37% of its value.) My assets, along with those of a lot of others, are being devalued. That's point one.
Point two, prices at the supermarket are up. My favorite lettuce, romaine, went from $1.69 three weeks ago to a blistering $2.49 currently. Quick calculation indicates about 32% increase in price. That's only one item. What else is that but inflation?
Point three, we can't even begin to guess how much funny money is floating around out there, diluting the value of the buck (or, euphemistically speaking, the dollar is losing its purchasing power). One means of combating the inflation-generating process of issuing too much currency is to retract, which means one of two things: either physically take money out of circulation by the Central bank issuing government bonds to banks, gathering currency in payment, and burning the currency. Or, another option is to lower interest rates to the point that it discourages the circulation of money and thereby reduces its inflationary influence. This is after the fact corrections, not in preparation or anticipation of alternate monetary policy. Which means that if we're fighting the fight, inflation has been taking its toll for some time.
We've been told that the Fed is fighting deflation. According to what I've learned and observed, this is not the truth. 1+6 does not equal -2. But, when you come from Princeton, it's assumed your credentials will squelch dissent when you say the world is square.
So, from the housewife, we learn that we're suffering asset devaluation, inflation, and monetary dilution (you could call that debasement if you want.) Those three items are devices for inflicting default! I mean specifically, that default is now taking place! The consumer loses in every case and the limp hope is that the ultimate debtor gains. The "ultimate debtor" in this case is the US government, the issuer of currency. Won't happen in this case. All US government debt is too huge and promises to grow disproportionately in the future. These facts all direct monetary policy, principally administered by the Fed. The other party gaining in this scam are those responsible for the degradation. That's a violation of O&G's rule #36: banks cannot continuously establish unfunded accounts or distribute unsupported commitments (derivatives) without creating a perfect scenario for a system's collapse rather than mere default.
We are, in a very real sense, sliding down the chute, greased by politicians' "I-don't-know-and-I-don't-care".



Old and gray
Message #854 - 12/31/09 04:49 PM
The fourth measure of default is hidden in the fact that those with the resources are unwilling to discuss at this time - and, that is, develop a new/old means to bolster our national wealth: Production! (A dirty word in today's financial mix. Too much like work, and woefully slow!) When you're going down, it seems like folly to those with the funds, to invest in the nation, the community, or the people without a promising future. We invest because we anticipate increased returns - IMMEDIATE! That's our national mind set. Given that outlook, there is no way other than gambling (speculation) to get there before we start out; and, of course, the game has to be fixed to favor the house. The house, in this case, consists of the banks/brokers/insurance combine and the government.
Failing to provide for a renewed dedication to industry means there is nowhere for those now unemployed to look for help, no promise of a future. Does that picture convey any indication that we're on the road to recovery? What else can go wrong? They're working on that.
They tried to fix the rules ten years ago by making the issuance of derivatives an invisible process. They spread the legal dodge for doing this through the Commodities Futures Trading Commission, The Security Exchange Commission, the Fed, the FDIC and elsewhere in little piecemeal snippets all advocating the same thing: don't pay any attention to it, you don't have the legal right to interfere with what's going on. Now, with that backing, which is the law of the land, how could banks not become too big to fail? Even the Supreme Court wouldn't be able to touch that. Especially not so if those sitting on the bench were chosen by beliefs and alliances rather than competence or concern for the future of our nation (I almost wrote their nation).
It's come around to the point where oeconomists don't refer to the toxic instruments by their generic name anymore; there's a new code phrase - "the issuance of the 2000s". They're learning English from the Brits I suppose, to develop a mellifluence and sophistication.
However, not to distract from my continuing review of the Dodd proposal, (which will resume after the holidays) there are, as the cited article contends, weaknesses to the proposed bill. Ignoring Too Big to Fail is the glaring omission. Despite some provisions to monitor further growth of the megaliths, they are already beyond the optimum size, beyond control, beyond regulation. The proposal also truly encourages NOT shutting down on the family of derivatives. On both issues I've made my points over and over again: there's a limit to how large an enterprise humans are capable of managing; and, my proposal for the clearing house process was to rid the market of the contamination of derivatives of any name, not to embrace and protect them and their continued issuance. That second point can never be stressed too much. Also, neither can be effectively regulated. Nor can regulators repair a financial or economic system after it's been crippled.
In summary, calling for the housewife to assess the situation, once she looks at her budget, the prospects for her income and the threat of the outgo, all she can do is sit down at the kitchen table and wonder where does she go from here. Bankruptcy looks all too real. She can escape that by sneaking off in the middle of the night leaving everything behind to be dealt with by someone else. How does a government do that?
England and France have been threatened with a credit ratings drop from AAA, if you've read the headlines. No one is publishing any evaluation of the US's standing.

[olderstill]

Old and gray
Message #855 - 12/31/09 04:50 PM
We have already put the default mechanism in operation on four levels. There's another step on the current path. Tell the rest of the world we can't meet our obligations. We're at the brink. It's not what we owe them, it's what the government owes itself. Remember the three Fed oeconomists studying how much longer is the debt load sustainable? Forty pages of text and math and all they could conclude was that there wasn't enough data? If they'd added "for someone of their capabilities", I'd agree. Off the top of my head, I'd say that it is no longer sustainable on the grounds that the difference between government sustainable debt and the non-sustainable portion is being forced on the citizens, which means we are suffering the government/bank combine's default! Now, that is the bald truth!
At this point, we are so deep in debt, our future promises debt growth no matter what we do. We've suffered this at the hands of incompetent managers of our systems, our money, our laws, and our future. People who obstinately refuse to observe or learn. If there's to be hope for us, it has to be turning away from the path that brought us here. The Dodd proposal should be strengthened not weakened as we might suspect it will be during its path to becoming law. Taxpayers should be relieved of the responsibility of supporting those who prey on them. I think that goes a good distance beyond "mitigating" taxpayer responsibility; it should be obviating the responsibility.
This is what we have done to ourselves in the past which includes the year coming to a close in a few hours. Obstructionism is not going to serve us next year. Nor is turning a blind eye or a deaf ear operative. The stakes are huge. Not only have we contaminated our own nation, but other countries are being dragged down with us. Is there any reason they should support us, or tie-in with us any longer?
There are good things in the Dodd proposal, but, at this point in my review, they are the smaller issues. The larger issues are not confronted since it is not expedient to do so. They're being avoided with half-steps some of which have good intentions, some diverting to protect current traditions, alliances, gratitude, pay-back, call it any of those. . . . so those larger issues will be ignored.

But. . . that was last year. Next year will be better. . . .We must always hope.



Old and gray
Message #856 - 01/02/10 11:34 PM
The last sentence in message # 854 is bothersome. Before continuing with the Dodd proposals, elaboration is called for.

No one is publishing any evaluation of the US's standing.
Quite a bit has been posted on the message boards (including on this thread) about replacing the dollar with either another currency or a basket of currencies to service the changing world financial systems. It's needed. The fact that we can talk about Turkey holding a large portion of derivatives or that gamblers in Asia have invested in the toxic instruments, indicates that countries which not too long ago were considered minor players of little consequence are emerging onto the scene and forcing a change to this view.
The development of derivatives took place over the past two or three decades, all dependent on which timeline is used as the measure and how much credence is given to what cause is followed by what effect. We've also referred to the severity of problems faced in the 1970s, the 1980s, the 1990s, and now, twice in the 2000s. There was an attempt to show the relationship between those incidents and the try at recouping the perceived loss or dilution of gains by the banking industry as a direct result of the accompanying devaluation of currency, or, truthfully, nearly all assets. Proof is in the "bubbles" we've watched inflate, then deflate suddenly: housing, the "dot-com" bust, the junk bonds, the accounting scandals, the S&L scandal. . all of which are matters of inflation and the subsequent search for more money, needed to feed the insatiable beast.
That inflation is not contained within the borders of the US. In today's world it's not possible for one nation to be separated and accused of being responsible for the problems we face. It's a community affair. We may have a greater hand in it because we are the dominant consumer. Our markets are more active than any other single market, perhaps more active than any other combination of markets. As was mentioned, until recently, only the combined might of the EU could even pretend to mount a challenge. We may be running neck and neck currently.
Yet, world-wide, using the measure of our obligations to IMF and the World bank, we may be contributing no more than 16% of the total in market, investment opportunities and all the combined ventures (economists like the word "aggregate") of expenditures and market activity that contribute to the concept of Gross Product. That share is steadily growing less impressive. Just consider our dominant status at the end of WWII, among the nations devastated by war, when we assumed the responsibilities of becoming the world's banker and lending our currency as the reserve currency for the world. Comparing that with our position among nations today, at 16%, a considerable drop in economic activity has taken place. Viewed from the other perspective, 84% of the rest of the world has been using our currency! For which we get nothing but more indebtedness. It's been stated before, the nation providing the reserve currency must be willing to take on a deficit in current accounts. That's a given.
Since WWII, tremendous growth has taken place throughout the world forcing change to the countries that not too long ago enjoyed a favored status in terms of production, markets, currencies, and banking power. The activity they enjoy today is considerably less than the commerce they conducted a few decades ago. France, the UK, Germany, India, even Russia, and the smaller European countries: Belgium, Switzerland, Austria, Hungary and on and on, conduct less business on a world-wide percentage basis than they did, not too many years ago. So, whose grown? Japan, China, Korea, Singapore, Hong Kong along with a few European nations, and . . .surprise! . . Mexico and Brazil, along with most Latin American countries other than Argentina, Uruguay and Chile.
There's a different balance of economic power emerging which is exerting increased pressure on the old "system", or the manner of conducting commerce.



Old and gray
Message #857 - 01/02/10 11:36 PM
It hasn't been widely discussed but during the hectic days of the second half of 2008 and the first three quarters of 2009 there was considerable collapse of international commerce. The few who noticed it have been puzzling over a reason, or reasons for the decline, which may be on the way back up at this time, but with hesitation. As if the active parties are not yet assured of a sound commercial environment. Banking problems? How about something mentioned a while back. . .cultural differences? Or, trying to assert an increase in market power? Or, trying to assert a dominance which is not yet established, but is basis for a struggle. . . premature or otherwise?
Recognizing the growth and the sudden importance of other than the traditional suppliers of the past, there are new and increased demands that the old system cannot satisfy.
The limits of the old banking system is one of the major failing contributors; the limits of the old currency system is another; and, the new technology - e-money and e-trading - is yet another. The demand for more currency through loans to fuel and finance the very rapid international exchange required by today's technologically advanced business from remote, previously unacknowledged sources, has placed a strain on the system in calling for quicker bank reaction, more currency to support the transactions, and guaranteed consummation of deals before the fact.
There have been struggles to bring the new concepts up to date, bring the various centers into active and adequate service but what is in place cannot meet the requirements.
The largest of these issues is currency. And, that brings up the issue of just how weak is the US economy, how dependable is it's currency, and can it supply enough currency to fuel the increased and still increasing international commerce?
Consider this conundrum: if the US puts into circulation the amount of currency needed to support international business, in effect it will create hyperinflation at home which means more asset devaluation, inflation and monetary dilution (or debasement of our currency) since we don't have the resources to back-up any of the three. A large part of the gains the US shows in increased GDP are due to our policy of induced inflation to "mitigate" our debt burden. In turn, if we consult the IMF opinion of our share of the world's burden it gives us a truer picture of our worth, while it isn't difficult to suppose we've over-valued ourselves.
It's the business of banks to know this. The wild fling with derivatives is their acknowledgement and capitulation. Banks did not help matters by distributing the unsupportable amount of derivatives, the equivalent of unleashing demand for more US currency in already stretched demand. They must see the problem and recognize solution is beyond their capabilities. G20 knows this also, but when they attempted to implement steps to ease the stress, G20 member nations took matters into their own hands and ignored the decisions. Witness the refusal to abide by the rule not to raise trade barriers. Some wag mentioned here that when they get home, political pressure might play a role in whether those decisions are implemented.
Economists are trying to decide on which side of the supply/demand equation this problem hits hardest and how to handle it. If the picture of international trade slowing to a near-halt due to the lack of "generally accepted media" to conduct business means nothing to economists, they will not soon learn. And, will go on arguing about supply/demand of over stocked goods. World-wide, we have enough goods warehoused at this time while some (China among them) vow to continue pumping out more of the same on a market that's still pretty much at a stand still.



Old and gray
Message #858 - 01/02/10 11:37 PM
It isn't difficult to hold fast to the opinion that the most obvious solution to the global problem, the currency basket, if it is to happen at all. is still a minimum of ten or fifteen years off, with a possible maximum of twenty five years. There will be considerable political wrangling over who gets to sit in or share, the anointed chair. In the meanwhile anything is liable to happen when we have regional agreement on reserve currency substitutions to bypass the problems that will unfold. We've already seen the agreement between Russia, Iran, Saudi Arabia and . . was China the fourth? Or, was it Turkey? Who knows what other alliances will evolve and what kind of influence this will have on total international trade?
During that period, it appears banks will continue to abrogate their responsibilities and politicians will carry on with their games to the detriment of our nation and the amusement of our detractors.

With this view in mind, the reader should understand what is in the mind of the reviewer when the review begins again.



Defining Quality
Message #859 - 01/02/10 11:56 PM
We must always hope.
O&G - on that I must strongly disagree! All your analysis proves that Needed Reform will not happen!
Technology, Money, Optimism, and Hope
The quartet that is killing humankind
ecoglobe.ch/motivation/e/hope9o01.htm
"You know what makes me angry? Hope.
Hope is worse than desire. Hope is when you actually believe your desires are real, that what you desire may come to pass. Desire is an illusion, Hope is a delusion.
One of the greatest stories about Hope is Pandora’s Box, about which I made a film several years ago. According to legend, after Pandora released from the box all the plagues of mankind, only one was left: Hope.
Consequently, all the other curses of humanity may be recognized as such, but
Hope remains a gift-wrapped curse."
Friedrich Nietsche:
"So now man has the lucky jar in his house forever and thinks the world of the treasure. It is at his service; he reaches for it when he fancies it. For he does not know that that jar which Pandora brought was the jar of evils, and he takes the remaining evil for the greatest worldly good – it is hope, for Zeus did not want man to throw his life away, no matter how much the other evils might torment him, but rather to go on letting himself be tormented anew. To that end, he gives man hope. In truth, it is the most evil of evils because it prolongs man’s torment. (link)"
Observed reality has put our nation on a course of self destruction. Economic opportunity is evaporating for millions of our neighbors. $Trillions have been lost and stolen. Organized Crime is clearly in control of the government.
The Empire is failing and there is little we can do to stop the criminals that control the Government. There was no "Change We Can Believe In" and there is no "hope" for a better future for America.
2010 will mark yet another year in the beginning of the end of America.



Old and gray
Message #860 - 01/03/10 12:18 AM
DQ
O&G - on that I must strongly disagree! All your analysis proves that Needed Reform will not happen!
From one perspective you may be correct. . that is, whatever we do will not be a matter of choice.
We'll dilly dally for a couple of decades and in the end we'll get a letter of termination. "You're fired for non-performance! We're making other arrangements." At that point, we'll be completely unprepared to cope.


great depression1
Message #861 - 01/03/10 02:57 AM
THE END...................



saldeck
Message #862 - 01/03/10 06:42 AM
Let us hope and dream! "Most of the important things in the world have been accomplished by people who have kept on trying when there seemed be no hope at all".




Veteran_Lender
Message #863 - 01/03/10 08:09 AM
This continues to be an awesome thread of excellent information. I disagree with those who cannot see the end of this in positive light. We are quickly realizing that 1,100 pages of gobbligook isn't enforceable by it's sheer volume-- in a world that limits comprehension to about 250 written words at a time. The answer is a flight back to basics... fixed terms, full documentation, template contracts and instruction... all the bane of paper pushers. In all you've deciphered, O&G, does it say anywhere how to proceed from this point, or is it just a phonebook-thickness of restrictions?



neohguy
Message #864 - 01/03/10 03:51 PM
Akron, where I currently live, and Cleveland where I formally lived are experiencing the continuation of the recession of the early 80's. Cleveland lost much of its steel making and related industries. Akron lost most of its rubber fabrication industry. The Mahoning Valley towns are in similar to worse condition. We did not experience the big housing bubble that other parts of the country experienced so we don't have huge numbers of new housing that are vacant. Most of the foreclosures that I am aware of occurred because:
1. Loss of job, unable to pay
2. People refinanced using non traditional loans and borrowed heavily against equity in the house and were unable to pay when the payments reset.
3. Poor people that bought their house at above market price from landlords that arranged no money down "exotic" financing. There is an investigation ongoing for a couple of brokers that "helped" these people with their loan applications in Summit County.
I think the only things that are keeping the City of Cleveland afloat is their cash cow water department that provides water for most of Cuyahoga County and portions of northern Summit County. The Cleveland Clinic is the biggest employer in the city/ county so there is tax revenue.
The recession has affected the entire area but was not the shocker that the more prosperous areas of the country experienced. The exception would be Detroit/Flint which also has been in decline for decades but was crushed during the past couple of years. I'm afraid that Detroit may turn out to be like Gary, Indiana for awhile.
On the bright side, local people are starting to wake up. They are no longer falling for the guilt trip that a decent wage and benefits was an acceptable reason for outsourcing our manufacturing. The public and private investment, some say hundreds of trillions in today's dollars, for infrastructure to support manufacturing during the past century far offset the short term gains from cheap labor in places that will eventually have to provide that infrastructure. Infrastructure is a long term investment, not a short term trade for next quarters stock performance.
The long term prospects for the area are good. We have an abundant supply of high quality fresh water that most of the world does not have. Most of the country and China don't. The Great Lakes states have formed a coalition to resist sending our lake water to other areas of the country. Out attitude is if you need our water then move your business here.

edit: above post was in responce to:
I hope the New Year in Akron will be more promising than here in Florida. We have far too many delinquencies and foreclosures to indicate 2010 will get us anywhere worth going. I've seen assertions (don't know how reliable they are) that 72% of in-state mortgages have been in arrears lately; and, that as much as 45% of those face foreclosure. Those figures came to me during the second half of the closing year. To date I haven't heard anything to indicate the situation is improving.



Veteran_Lender
Message #865 - 01/04/10 07:51 AM
The Great Lakes states have formed a coalition to resist sending our lake water to other areas of the country. Out attitude is if you need our water then move your business here.
IMHO, you're staring at the crux issue in these approaching 2010 state elections. Look at the states that touch the Great Lakes-- Minnesota, Wisconsin, Illinois, Indiana, Michigan, Ohio, (out state) New York and Pennsylvania. The more they touch, the lower the economics right now. Michigan's business environment is supposed to be held back by a Small Business Tax but the overall tax environment blows away almost every other state. The only people who have actually relocated are: new retirees taking their windfall equity and pensions no one else gets-- to poor southern states where they live overly conservative, and. the genuine poor-- college degrees that lived on spending sprees and have no assets. Everything necessary for forward motion exists in these states.
I recall vividly, a PowerPoint Presentation by Richard (a noted prognosticator) outlining WHY Michigan will be a failure during [these times]. Certainly the evidence was there but the cause was easily mitigated should management (government) desire it to be. His projected course has been quite accurate, but it was caused not occurred naturally.
The compression of hourly workers directly impacted indigenous product sales (you buy what you make) and a cascade collapse of the dependency chain ensued. It seems wholly logical to grab the perpetrators of the crisis by the neck (they are obviously Analysts and Executives who use Analysts), drain them of gains and put it back into play as growth seed monies. I'll take a destitute executive unable to golf today over finding the frozen body of a neighbor in a dumpster because circumstances beyond his control and not his fault left him out in the cold.
Old and gray
Message #866 - 01/05/10 12:14 PM
Two responses are due to queries hanging out there patiently.
Duff;
In regards to OTC derivatives already issued and how they are to be treated - this is found on page 397
‘‘(7) TRANSITION RULES.—Rules adopted by the Commission under this section shall provide for the reporting of data, as follows:
‘‘(A) Swaps that were entered into before the date of enactment of the Over-the-Counter Derivatives Markets Act of 2009 shall be reported to a registered swap repository or the Commission. . . "
Some questions remain as to whether the swaps now in circulation will be treated as standardized contracts and thrown onto the pile indiscriminately, or whether they would qualify for exclusion or exemption if they don't meet all the requirements. . conditions which will be alluded to if not described in the next post.
And, V_L;
. . . does it say anywhere how to proceed from this point, or is it just a phonebook-thickness of restrictions?
Both the Frank and Dodd proposals are strong on structure, weak on particulars. If you're looking for a road map, they provide one - complete with secondary and tertiary roads twisting every which way, but any labels, directions, landmarks, etc. have to be filled in by the drivers as they speed on. By that I mean, they not only describe boards, detail their compensation, benefits, etc., the proposals also designate committees and their responsibilities, timelines, etc. but, no rules or regulations. All of which means that they're leading us up to the garden gate, but won't set foot on the property. We're left in the air guessing how much of the present rules and regs will be carried with them and what will be developed.
As a result, it's impossible to judge how effective the new set up will be.

Old and gray
Message #867 - 01/05/10 12:43 PM
Consider this: the supreme agency in the new setup would be the Agency for Financial Stability (AFS). Using the list of current incumbents, its Board would consist of:
Sec. Treasury, Geithner
Chairman of FRB, Bernanke
Chair of the new FIRA, a new presidential appointee
Chair of the Consumer Protection Agency, a new Presidential appointee
Chair of the FDIC, Sheila Bair
Chair of the SEC, Mary Schapiro
Chair of the CFTC, Gensler
And an independent presidential appointee
Most of the rules and regulations will be proposed by the agencies directly responsible for the enforcement. This means if swaps fall into a category which is regulated by the CFTC, they would propose the regulations governing those instruments. If they fell within the purview of SEC, that would be SEC's responsibility, and so on. First line of responsibility would be a clearing organization. Although there are two generalized standards for submission of swaps, the reference is to "rules of a derivatives clearing organization". Which invokes the idea of the derivatives clearing organization setting up its own rules. . subject to some approval . . . or rejection.
In turn the SEC and the CFTC will set up a series of rules and regs. If they aren't able to jointly agree to a set of rules, the AFS will step in and provide a set. And so on. Those sets of rules and regulations are not yet established. So, where do they take us and how effective will they be?
I'll turn this back to you. How effective do you believe the above list of Board members will be?
Is there a road map? Yes, but where are we and where do we want to go? With no lettering or landmarks, we can't make heads or tails out of it.


Old and gray
Message #868 - 01/05/10 09:28 PM
It's occurred to me that what may be contributing to my difficulty in picking up the trail like a decent analyst, is that I've forgotten about the learning curve. It was often a factor when trying to steer owners or managers in a direction that could yield positive results if not just slightly more than an improved outlook. There'd be wrangling over words, meanings, and a host of unimportant issues which were tolerated because someone was trying to shift gears to get into the proper mode. Sometimes it took a while before one side or the other could accept that present conditions were getting the company nowhere and something new was needed. When that point was reached, more than half the battle was over.
I believe this is what Congress is wrestling with. They're being called on to do something, are not certain that they know what to do, therefore, the result is a little mottled. . . not the right color or texture, but they feel forced to offer something. Of course, it might also be guilt. After all, they were responsible for passing the infamous bills which allowed the contamination in the first place.
This might not be a bad thing except for the fact they are straining against a situation mentioned back a ways. . the immutability of uneven change, inevitable and never-ending. Its always there, always will be, unpredictable and surprisingly. Any undertaking during a learning phase, will be less than whole-hearted commitment, weak, and when the circumstances change, the effort will collapse. They're old enough and know what's over the horizon. Faced with that, can they assemble anything but a tenuous program?
How many people have said, "It's important that they get it right this time." I can't tell you how many times I've read it, it's so common. Consultants often find it's better to do something rather than hem and haw over whether "it's the right thing to do". Any change will create a new atmosphere and fresher air, whereas procrastination only prolongs sagging morale and matters worsen.
Part of the learning curve is found in the foundering in the Title VII, for that's what I've finally decided it is. They've piled labels on labels, go to great lengths to set up some definition of what is required to round up the weaknesses in the banking system, product or operations, and then turn around in the next sentence or paragraph and open the barn door to let everything out again.
I can only conclude that it's either that darned learning curve or it's less than half a desire to get something done, knowing that their financial supporters are hoping nothing too restrictive results. Even if it's the latter of the two choices, it still means they have a lot to learn before they'll do anything right.

Title VII is divided into three section: Subtitle A, B, and C, labeled respectively, "Regulation of Swap Markets", Regulation of Security-based Swap Markets", and, "Other Provisions".
The last Section, Subtitle C, is an add on band-aid dealing with: "International Harmonization" (meaning coordinating with other nations); "Interagency Cooperation" (SEC and CFTC working together to solve common problems); "Joint Enforcement Task Force" (same agencies working together on enforcement; a "Trading and Markets Fellowship Program" (the Fed is to join in with the two agencies "in order to enhance staff understanding about the interactions between financial markets and the economy. . which seems too basic to legislate); a couple of other items not really addressing the issue of the day; and, then closing with a mention of paying attention to potential or real insolvency of swap participants. And, that'll be the total of our concern with Subtitle C.

[olderstill]

Old and gray
Message #869 - 01/05/10 09:30 PM
The flavor of "Subtitle B - Regulation of Security-based Swap Markets" is generally of the same variety as the part already started, Subtitle A, and, I believe, nothing is gained by rehashing it only to discover that nothing differs. Might call for a mention or two in the wrap-up.
There's the same discussion of contracts and master agreements, who's a dealer, who's a participant, which Federal regulating agency will be involved, etc.

To many out there, I know this will come as good news! It is suggested that the most damaging two sections of the GLBA, 206B and 206C, be repealed. A sample of the alterations brought about in legislation was offered in message # 840. The intent was to make derivatives of any nature invisible. The repeal is spelled out in Subtitle B, Sec. 752, beginning on page 500 of the Dodd proposal. Following this, amendments brought on by the Commodity Futures Modernization Act of 2000 (Which DQ has referenced several times) are moderated as well. So, to the credit of the Dodd Proposal, the foundation to set-up swaps marketing in more transparency, also subjects them to more regulation.
Hidden in the lines amending the portions of legalese referring to GLBA are some interesting little references to shenanigans that must have taken place on the market in an effort to bring about a profitable result for those who held swaps and other derivatives. On page 503 and 504 it is proposed that market churning to influence price where derivatives are involved would be illegal if and when this legislation becomes law. One can only assume, that, (1) since they were invisible before, the churning could not be noticed or tied-in with derivative positions; and, if there was churning that influenced the soundness of the basic index, or whatever, one wonders if such activity was not a contributing factor causing the market "retraction". In a sense, Lehman Brothers could have shot themselves in the foot. I know I've seen articles (there was a link to a NYTimes article on MSMoney) which pointed out that Goldman could have made a killing betting against their issued swaps and then trading to see the underlying holdings lose value. . . something similar to have five or six life insurance policies on the sick neighbor next door.
Those reading along as thoughts were posted here may recall objections to banks being able to evade certain obligations by the grace of "sweetheart" provisions in law or regulations. We may be witnessing the beginning of the pendulum's swing in the other direction. Quite a few times throughout Title VII, it is stipulated that evasion of provisions will result in penalties according to rules to be composed and enforced by the agency responsible for regulating transactions, which usually is the CFTC or the SEC.
And, where the above message # 866 responds to Duff's query about derivatives issued prior to the date of enactment of this law, the same provision is again mentioned on page 514. In both case, the issuances will be brought online within 180 days of the enactment of whatever law results. . . AND, in most of the threats, banks are specifically included among those required to conform. There will also be reporting, data collected and submitted resulting in needed transparency.
What does not look healthy is the still lax attitude which the legislation is proposing. Page 549, "Margin Requirements", the SEC and/or the CFTC can permit non cash collateral in transactions for swaps if the SEC, CFTC, or FIRA determines this will not feed "systemic risk" and is consistent with the "markets financial integrity".
Again, audit trails are called for, trades will be monitored, dealers will have responsibilities, and there will be consequences for inappropriate activity. They also propose to keep tabs on "aggregate" positions of participants with a mind toward limits and accountability.
Some general prohibitions are set-up to guard against abuses which obviously must have occurred and the framers of this document are not anxious to see happening again.



Old and gray
Message #870 - 01/05/10 09:31 PM
How would I rate Title VII? It all depends on what results when the regulators formulate their rules and regulations and how intent they are to serve the stability of the nation's financial system and its economy. If they take the attitude that they're doing all they can and that they can't control the world, equivalent to admitting failure beforehand, nothing will be gained. If their superiors in the food chain, the overseers, have not cut their ties to the industries they supposedly graduated from, and take a lenient, or lackadaisical attitude toward control or enforcement, nothing's to be gained.
Do we dare believe that attitudes can be changed after being confronted with the near-collapse the world faced? Or, are they positioning themselves for another try at it, going through the motions to convince the public that there is reason and fairness and once the confidence re-emerges the hammer will strike again? Or, will we get that disinterested effort that will serve for a couple of years until the next stumble and fall?
The document has potential. Will it be realized?

Duffminster
Message #871 - 01/06/10 09:52 PM
O&G,

You mentioned

It's occurred to me that what may be contributing to my difficulty in picking up the trail like a decent analyst, is that I've forgotten about the learning curve. It was often a factor when trying to steer owners or managers in a direction that could yield positive results if not just slightly more than an improved outlook. There'd be wrangling over words, meanings, and a host of unimportant issues which were tolerated because someone was trying to shift gears to get into the proper mode. Sometimes it took a while before one side or the other could accept that present conditions were getting the company nowhere and something new was needed. When that point was reached, more than half the battle was over.
I believe this is what Congress is wrestling with. They're being called on to do something, are not certain that they know what to do, therefore, the result is a little mottled. . . not the right color or texture, but they feel forced to offer something. Of course, it might also be guilt. After all, they were responsible for passing the infamous bills which allowed the contamination in the first place.
I believe that you are touching the periphery of the problem here. The "experts" that advise the Congress come from largely similiar contexts in my opinion. By necessity they come from the various "Academic" and "Corporate" cognitive molds and they also come from a relatively narrow set of disciplines (economics, banking, various financial, law, political science and so on) and to some extent the super set of their languages both proscribes and at points confuses the ability of the experts to communicate between one another and with their bosses in Congress. This is compounded by the infuriating lack of effort on the part of Academia to build lexical and cognitive bridges between the disciplines.

Let us however not put the entire burden or blame of problems in crafting meaningful, ethical, and healthy legislation only on the problems of lexicon, cognitive dissonance and other proscriptions. We must also look at how the political system is set up. It is setup so that the "experts" often come from the industries least wanting such legislation and many of the halls of Academia receive substantial fundign from corporate sponsers that want their interest represented by the graduating "experts" and for the experts, work in support of those halls of Academia and the supporting interest of the corporations from which they receive funding and other benefits is rewarded and makes life outside service in DC much more lucrative if their advisory and consultative and other work for the politicians ends up with the results that benefit the corporate interests rather than the interests of the nation as a whole.

Without large scale change in the campaign finance, and the revolving door policies regarding those who work in government, this massive obstacle to meaningful reform will not be overcome and we can not expect that those pulling all the strings to actually allow legislation which is not at least benign to their corporate agenda to passed in my opinion.

Duffminster




frank the impaler
Message #872 - 01/06/10 09:56 PM
Old and Gray-In regards to your board you have excuse Mary Shapiro and Rick Ketchum(new Finra head)you see when they were both at Finra in the old days they both were recipients of millions of dollars in options from going public(all membership monies) which is now under a VERY quiet investigation.

So you see the head of da Fed can't figure out how to pay his taxes with Turbo Tax.
the head of the SEC...is dirty
the head of Finra is up to his head...in dread
And you have a president who is just over his head...surrounded by nodding heads

You fellows have some lofty conversations here, which are very stepped in knowledge, but I have been in the rooms where the conversations are had and I am not as optimistic as you are.

The tide is turning and the thing is broken and what is broken the most are the souls on Wall Street. When you sell swaps that are worthless because it means your bonus pool is bigger, there are no discussions of ethics there. No lofty discussions...the thing is broken you see...its the thing that tells you when something is right and something is wrong...and they are broken.

I will have to tell when to watch and when to look; but when you see it and when you hear it, you will know.

You have to beat them at their own game is the only way you will earn their respect and rein them in.

"You mean if you don't get your bonus for the worthless swaps you sold and made big commissions on you are going to quit and work somewhere else"?

How's this for a response "Those licenses you hold give you the privilege of being a multi million dollar broker" "If you want to keep those licenses you will earn back the loses and pay a $1 million dollar fine per year; for the next ten years, until then your on probation".

You see I am past the point of conversation its time to do something


Old and gray
Message #873 - 01/06/10 11:08 PM
frank;
but I have been in the rooms where the conversations are had and I am not as optimistic as you are.

Been there, done that, too, a few times over, frank!
We're in the process of exploring what they've done, what they're doing, and what fits and does not fit and why.
Ever been in a war room? The most valuable man there is the one who has the imagination to propose a hundred ways the enemy will attack or defend. Then, everybody kicks it around and comes up with a plan that provides the most options when the unexpected is encountered. . . . because it will be. Better that's it's not a surprise.
In this case we know what's coming. No question about it. What to do to stop them? Raise a ruckus? Bang on the door to distrurb them, or let them know you're aware of their tricks?
First two won't work, you're not there.
This thread is creeping up on 50,000 hits. Somebody's reading the stuff.



Old and gray
Message #874 - 01/07/10 12:38 AM
I'd like to get Title VIII out of the way, Payment, Clearing and Settlement Supervision. It's short, something that was expected back at the beginning of this thread, and, except for a hitch here and there, pretty much acceptable. What I don't like is the need for it.

Since the Fed has been involved in the clearing process, the NY Federal Reserve Bank may very well handle the largest portion of settlements in the US, it's only fitting that they should be charged with the responsibility of looking after clearing derivatives, swaps, and the other step-children of legitimate investment vehicles. The disappointment comes from having to do so in the first place, and the continuation of the practice in the second place.
The main interest in the process is to provide "safe and efficient arrangements for the clearing and settlement of payment. . ." in such a way that they "reduce risks for their participants and the broader financial system. . ." (sec. 802, page 595)
Therefore, the "Payment, Clearing, and Settlement Supervision Act of 2009" authorizes the Fed Board of Governors "to prescribe uniform standards for the -- (A) management of risks by systemically important financial market utilities; and (B) conduct of systemically important payment, clearing, and settlement activities by financial institutions. . ."
For the most part of Title VIII, there's nothing unusual in the charges vested in the Fed in this regard. They know the process, the system and should be able to reconstruct a more than adequate system. The Dodd Proposals would divest the Fed of other supervisory and regulatory responsibilities, so this is a little payback to balance the scales.
The financial transactions they would handle through these facilities would be beyond the customary clearing and settling of bank accounts. It would include
(i) funds transfers;
(ii) securities contracts;
(iii) contracts of sale of a commodity for future delivery;
(iv) forward contracts;
(v) repurchase agreements;
(vi) swap agreements;
(vii) security-based swap agreements;
(viii) foreign exchange contracts;
(ix) financial derivatives contracts; and
(x) any similar transaction that the Agency determines, by rule or order, to be a financial transaction for purposes of this title.
Two items of interest here: (x) indicates the Fed will have the AFS (Agency for Financial Stability) looking over its shoulder to see everything relevant is included in the process. Which means in the event there are further innovations in banking's future with all the bright promise derivatives brought on, the AFS would proscribe regulation of the new devices, not the Fed (!).
The AFS will also, "on a non-delegable basis", dictate which utilities and activities "are, or are likely to become, systemically important". (sec. 804(a)(1))
There are a few other situations in the Title in which the AFS retains or would acquire a superior stance above the Fed in regards to the Payment, Clearing and Settlement functions. Even though the Chairperson of the Fed sits on the Board of the AFS, it gladdens my heart to hear they are being gradually reeled in to restrict that storied "independent within government" status. As an example, if "a designated financial market utility" should engage in activity which might pose "an imminent risk of substantial harm to financial institutions, critical markets, or the broader financial systems. . . " the Fed could take emergency action "after consulting with the Agency" (AFS) and any other Supervising Agency involved.
From my perspective, that appears to be a new situation for the Fed! I don't believe they are currently accustomed to consulting with anyone before they act.


Old and gray
Message #875 - 01/07/10 12:39 AM
The supervision of the "designated financial market utilities" by the Fed also would bring with it, the benefits and operational procedures which member banks enjoy and/or must comply with. Included would be such things as - access to the discount window; the privilege of borrowing from the Federal Reserve Bank; maintaining a balance and earning interest on balances with the Federal Reserve Bank; in short, all the privileges the Fed might provide a member depository institution.
DTCC and ICE had clearing and settlement arrangements with consortiums of banks, in which DTCC called the alliance one of their being owned by their bank clients. Does that mean the same arrangement would exist under the new supervision? It's my belief that neither DTCC nor ICE had any ties or obligations to the Fed. Under these provisions, they would. All in the name of protecting the financial system. With this arrangement, the taxpayer will be faced with another potential burden. That makes me uncomfortable. More on the backs of the innocent taxpayer.
In all, nothing here does anything to soften my objections to the very existence of derivatives or banks involvement with brokerages, speculation, insurance, or anything else on the financial horizon. Do away with such ideas, break them up!
In summary of this provision: if we need something to deal with the situation, this may be it. But! Why do we have to deal with the situation? It was, has been, and forever will be dangerous, toxic and unbearably expensive. I'll go back to Duff's post #786, where he provides the quote from Volcker, "If you fail, fail. I'm not going to help you. Your stock is at risk, creditors are at risk, but no one else is affected."
In the proposed set up, everybody and everything is at risk, and if the right institution fails, we all go down with it.
This is the wrong foundation on which to organize a financial system!



Old and gray
Message #876 - 01/07/10 01:31 AM
Oh, yes. . . Title XI. . . The Transition Oversight Commission. . . I'll pass on that. . . I'm too old to be moving furniture.



bubblyandblue
Message #877 - 01/07/10 11:23 AM
US National Security is inexorably tied to US and Global Financial Security and vise a versa.

Ardent belief in free market economics has evolved to same level of blind faith found in radical/extremist/fundamentalist religions of any faith.

The inability of free marketers to see the fundamental lack of freedoms found in many of our trading partners is to be blind to global financial security and US National Security.

To allow complete secrecy in monumental cash flows found in CDO’s CDS’s and exotic derivatives. To financially back the exploitation of cheap foreign labor without commensurate (leveling of the playing field) compensation and without recognition of the political environment for which that cheap labor is found is blind faith in our free market to resurrect our global ‘partners’ to our self proclaimed enlightened belief systems in a world where the definition of free market can not, in reality, exist. It is my view that this blind belief system is damaging to our fundamental freedoms and security and has demonstrated as much in the global crisis we find ourselves mired.

Thomas Jefferson once said (roughly) that the only defense to our democracy is a well informed citizenry.

Who out there can say that a counterparty or beneficiary of our financial giants gimmickry, those that we the people bailed out, was not a terrorist. I say not one of you can say that. You would have not one iota of evidence as those who are gamming the system do not recognize their duty to disclose but, instead fight to prevent that information from informing we the people. It is without doubt then that these financial institutions have no allegiance to this country nor do they care to uphold the constitution – that includes the Federal Reserve. And though they proclaim to be citizens (corporate) and claim the enjoyment of the constitution there action clearly state their rejection of ‘we the people’ and, therefore, there rejection of the constitution. I say it is a matter of national security that the Fed be audited, that the moneys lent to these obvious traitors be traced and audited if for no other reason than to inform the people, uphold the constitution and secure our nation from those who would undermine us.

Until we have information regarding this mess, until we are informed we will not have faith in our markets and we will have no faith in the Federal Reserve Notes we carry in our pockets. I am not an isolationist but I am not a blind scavenger either and am outraged that these financial citizens are blackmailing, undermining, spitting on our freedoms, our reputations with complete and total contempt of our Constitution and our nation.

[olderstill]

Duffminster
Message #878 - 01/07/10 01:04 PM
Ardent belief in free market economics has evolved to same level of blind faith found in radical/extremist/fundamentalist religions of any faith.
Bubblyandblue,

Yes, and lead initially by Rubin, Greenspan and the Sacks Oligarchy. Supplemental liquidity? I should say so. Its really not "free market" its becomming a monopoly. The companies at the top are afraid of honest competition, so they rig the government by greesing the wheels in a system that loves greese to basically kill all remenants of what was once a robust "anti-trust" system.

This has happened in banks, brokers, media, transport, military industrial, aircraft, telcom/datacom, and so on. Its a big part of what is ripping this nation apart.

O&G, yes, I continue to read and I know others are. The thread is not moving quite as fast from 40,000 - 50,000 as it did from 30,000 to 40,000. I think that is more a function of readership. I've noticed that it is increasingly hard to find this board if you are a first timer to MSN money. It keeps taking more clicks from the MSN main page to get here. I think I'll start posting more links back to this thread from all the other boards and blogs I read, such as the Wall Street Journal, Financial Sense, Investors Business Daily, CNBC.com, CNNMoney, Market Watch and so on. Backlinks are the key to driving visibility and developing readership outside of the MSN box. I'll start doing this in the next few days and I recommend others trying to get the word out do so as well. This link and this board are hard to find but provide more good reading and unusual market commentary than almost any place else I find on the WEB.

Ok, thanks and keep up the good work O&G.



bubblyandblue
Message #879 - 01/07/10 03:10 PM
We complain that China needs to decouple its currency from ours. Of course this would have led to any entirely different trade balance scenerio than what we have today. China does not decouple because it knows the result. China's interest is alligned not with the free market capatalist ideology but with obtaining socio economic and world dominance - while maintaining the aquiescence or grudging acceptance of it's people as required by it's form of government. You can label China a communist state which by this fact is tyranical and, therefore, anti-american as we fought against tyranny to birth this nation. China has tyranical control over its developement and the free market threatens that grip.
The US has somehow now accepted the 'too big to fail' scenario and believes in pumping hugh dollars in support of too big to fail. Those that are too big to fail employ tyranical tactics over a grudgingly accepting US government through bribes and quasi-scientific threats - we the people are the government - and now we oblige to tyrany in a tyranical mock free market financial system that is closed to our inspection.
When a plane goes into a tail spin the pilot's best chance is to let go of the controls.
You can be sure China among others never let the plane get into a tail spin as our Federal Reserve did. You can be sure China is and was more aware of our folly than the Federal Reserve because they have learned to use the free market to their advantage. Indeed the sucking sound in our economy/standard of living was lured by the shimmering light of finacial niravanna seen by our corporate leaders and money chasers. They saw only the money for their own benefit and to hell with our nation and world.... outsource our technology, industry and anything....leverage it out and put it in debt to provide cover for its flight overseas and increase short term individual gain (free market).
Globalization does not extinguish global and geopolitical difference...we do have enemys and friends and enemys pretending to be friends.
I do digress.
We need to know what happened and why because no one or no thing (legislation) can fix something without knowing what went wrong.
We have cornered ourselves into a long term slog through a swamp and lost radio contact with that helicopter that tossed loads of money at us when we really needed a flight out.


decoy409
Message #880 - 01/07/10 04:35 PM
I am not an isolationist but I am not a blind scavenger either and am outraged that these financial citizens are blackmailing, undermining, spitting on our freedoms, our reputations with complete and total contempt of our Constitution and our nation.
I said today as you have in the above post 'The Blind Leading The Blind' while shambles is what becomes. It is a matter of money that they have bestowed upon us,all of us. And the ruin of all will come forth out of it.
Not saying money is bad or creating,investing,purchasing is bad. It was made bad through instead of hope it had given to many,the dishonesty it has given others far outcries the honest. In turn for many nothing else can be seen but the mess in so stated in the quote above.
Show me honesty as you point out Duff
This has happened in banks, brokers, media, transport, military industrial, aircraft, telcom/datacom, and so on. Its a big part of what is ripping this nation apart.

Message #881 has been deleted.


HappyDaysareHere
Message #882 - 01/07/10 09:38 PM
We went out for dinner tonight and somebody was surfing the TV in search of something. Just for an instant, I saw a woman newscaster reporting that the large banks were being hit with withdrawal of accounts by irate depositors. Then it was gone. Didn't catch anymore than that.
Anyone hear anything about that? Is that the Tea Party I've been hearing and reading about?



stonerdr
Message #883 - 01/07/10 09:43 PM
Could the herd be restless tonight? Would anything come of this? We have a wave of Congressional resignations coming up. Does that tie in?



Veteran_Lender
Message #884 - 01/08/10 07:54 AM
Just for an instant, I saw a woman newscaster reporting that the large banks were being hit with withdrawal of accounts by irate depositors. Then it was gone.
I did not. However... this early January time is when people size up their lives and tend to make drastic promises or actual- change. Best time to sell exercise equipment. IMHO, the majority of Americans at some level, no longer trust banks and will either: join a credit union, insured brokerage, buy a new mattress or Mason jars and a shovel. Banks just increased fees and charges on services. That's the same as the drunk who slammed into your car after speeding through a red light, emerging from his car with a bat in hand to beat some sense into you- while you are pinned in by the crushed roof and door.




Veteran_Lender
Message #885 - 01/08/10 07:59 AM
So you see the head of da Fed can't figure out how to pay his taxes with Turbo Tax.
the head of the SEC...is dirty
the head of Finra is up to his head...in dread
And you have a president who is just over his head...surrounded by nodding heads
Why Frank... it appears you're aligning with the dark side.




HappyDaysareHere
Message #886 - 01/08/10 06:31 PM
bubblyandblue

You can be sure China among others never let the plane get into a tail spin as our Federal Reserve did.
Don't you believe for a second that anything happened to our financial situation that the Fed was not aware of. They downplayed everything - inflation, M1 currency in circulation, massive amounts of substitute currency dumped on the markets, bank reserves, the swooping blanket of illiquidity - you name it, they knew about it. But they chose to do nothing. Despite Krugman saying that the collapse arrived unannounced and asking what in the world economists were doing, economists in Europe were aware of just how dangerous things were, what could happen and they urged the US to wake up and do something.
We didn't, so here we are.
A heavy majority of the federal regulators come from the banks. Now, how in the world are you going to get bankers to do a good job in policing themselves? They still have interests in the industry and you can bet they'll do nothing to disturb that.
There's not one dependable stat coming out of Washington. They all lie to protect their holdings, their future and their positions, either the one in Washington or the one they're promised when they leave Washington.



Old and gray
Message #887 - 01/09/10 09:49 PM
Before I begin reviewing Title IX - Investor Protections and Improvements to the Regulation of Securities (the one remaining Title in Dodd's Proposals), I'd like to take a detour through economics and comment on something Happy's post brings to my mind. It's stimulated through this statement:
Despite Krugman saying that the collapse arrived unannounced and asking what in the world economists were doing, economists in Europe were aware of just how dangerous things were,
I don't disagree with it. But, it opened doors to thoughts.
Not only were European economists aware of the dangers involved, home-grown economists drew a good bead on it and were ignored by other economists as I pointed out previously. But, there's something else that prevents them from reaching the public - language. It may be a deliberate attempt to obscure what they're saying. In the event they make a mistaken assumption or draw unworkable conclusions, they can always go back to their math or circular reasoning and do something a little different without dropping the error. Or, they could say words or thoughts were taken out of context; or, the terminology was misundertood. After all, next time, their assumptions might prove true!
Several years before the first signs of the current dangers in our banking system became obvious, (and, in some cases such as Hyman Minsky's theory that stabilization is destabilizing, 1975!!, several decades!) economists were publishing warnings that the type of activities our financial gurus were engaged in promised unexpected and unwanted results. In the trade it was clear enough, but to outsiders, meaning non-economists, the warnings were steeped in the language that employs catch words and phrases that are perpetually unclear. Can you blame a non-economist for thinking, "Well, if they don't don't express it in clear language, it can't be much of a threat."
Papers were presented for delivery and publication that carried very specific and detailed discussion of the dangers involved, what would result, and how long term damage might bring our system to stagnation at a point much lower than we'd like to experience. The problem is that reading them even now, when results are real and solutions evade our leaders, we aren't stirred. They almost seem dry and pointless. Due to trade language, the studious, dispassionate descriptions seem cold, distant and not in the least threatening. In truth, when you meet these people outside the business circle, they do carry their message passionately and convincingly. But give them a pen or a podium and that suddenly, language barriers spring up.
Why should learned people use aloof tones to describe desperate situations and urgent needs for corrections? Talks about leveraging and deleveraging, interconnectivity, macroeconomic general equilibrium, dynamic stochastic general equilibrium, doesn't contribute a thing to understanding by even the people in the trades addressed to whom these concepts should mean the most. As frank points out above (message #872) that's not the daytime language of the people proposing and putting to use devious and destructive behavior. And, that is true! They won't spend the time of day to discuss the issues dressed as they usually are in imperious language.
It becomes habit with the professors, teachers of the emerging generation of practitioners; and as a matter of affectation, the practitioners first mimic the professors to convey a sophistication that hasn't had a chance to take hold. Too many of them don't truly understand what the terms mean in real, everyday occurrences.



Old and gray
Message #888 - 01/09/10 09:50 PM
Read the economist's assessment of a dangerous situation. The language might sound like approval or encouragement to continue whatever practice is under fire. Of course, economists could easily deny responsibility for what's going on openly or behind the scenes, which is true; and they are not paid to be watchdogs for the system; they have their studies and data collection and presentations to tend to. . . as well as their jobs to protect. But, the language doesn't spell insolvency and failure, it indicates pathways, needs, recovery and redemption all in theoretical terms down a long and tortured road, which we all understand is not of this very real and interactive world.
The strange part of the entire theoretical economic spectrum is that no matter how much the proponent is lionized when his new theories first emerges, in short order, which may be the next crisis in a year's time, his great theories are proven to fall short of the mark and lose all their luster. Show me which economist has survived any length of time with his reputation intact and I'll show you a theorist steeped in simplicity. As Krugman hinted at but didn't explicitly declare, when he equated Truth and Beauty with reality and mathematics respectively, economists delude themselves into thinking they are on the right course because the math says so. Maybe some simply deluded themselves into thinking they knew what was underfoot, but couldn't express it comprehensibly so they were lost in language (most likely mathematics) that conveyed nothing to the real world. Some were aware but were still captivated with the beauty of their insider language to the extent that they couldn't convey the importance of the problem or the need for attention to a solution. Fewest of the total were able to express themselves adequately, but because the numbers were so slight, they were ignored.
If economics wants to engage the real world, the trade better become accustomed to using the language of the real world. Doctors do, lawyers up front and personal do, engineers do. why not economists? I've never met accomplished people who had trouble understanding obscure concepts that applied to their well-being when explained to them in language they could understand. They go more than halfway attempting to meet someone with something to say that benefits them. Could it be that most economists are not thoroughly convinced they have something worthwhile to say? Better to use arcane language to distract the people than expose their shortcomings?
I simply do not understand why they would want to hold not only the general public but their own clientele at bay by spouting a foreign, untranslatable language. Believe me, they do. In doing so, they cut themselves off from a lucrative market out there.
But, then, they are a high priced group (average annual income in the $170-$180K range).
Maybe, they just don't care to expand their market.
What about expanding credibility to eliminate continuous apologizing for getting it wrong?



Old and gray
Message #889 - 01/09/10 09:57 PM
Had a strange occurrence - one of many lately. This one had a message which, after shutting me down said that a "Malfunctioning or malicious add-on prevented you from accessing this website." No suggestion on corrective action or any identification of what that add-on might be.

I thought I lost the post, but apparently not.

Any thoughts on this, anyone. A word would be appreciated.




Veteran_Lender
Message #890 - 01/10/10 06:57 AM
Any thoughts on this, anyone. A word would be appreciated.
You should realize that I get A LOT of strange computer-related anomalies these days. Yesterday I signed in after reading several posts and it took me to a translation page in Spanish-English. Considering the Bush Era loss of privacy and personal ID, our whole lives are up for manipulation.



neohguy
Message #891 - 01/10/10 02:51 PM
They go more than halfway attempting to meet someone with something to say that benefits them. Could it be that most economists are not thoroughly convinced they have something worthwhile to say? Better to use arcane language to distract the people than expose their shortcomings?
I listened to an interview with an economist on NPR radio a few years ago (probably late 2006 or early 07). He was talking about derivatives. I had never heard of derivatives before. He did an impressive job in explaining the amount of derivatives that were out there and what would happen if that market failed. He did a terrible job of explaining what a derivative was when asked (at least when speaking to non economists). He was enthusiastic when explaining a situation that was becoming urgent but I think he lost most of us when describing what a derivative is.
Thanks for patiently explaining what they are and how they came to be. As you explained earlier in this thread, they do have a purpose when not abused.



Veteran_Lender
Message #892 - 01/10/10 03:29 PM
The former CEO of National City Bank used to BRAG about the bank's massive derivative exposure in all of his public and personnel communications. The first time the formulation was described to me, I asked how there was supposed to be collateral protection in lieu of deviation. Nobody understood my question but then, none of the so-called "experts" had pre-2000 credit exposure and we all know what kind they had after 2000.
This is also why I do so much industry bashing and trashing. The inevitable occurred. At that moment... we needed to throw these so-called "experts" out the window and brought in the seasoned lenders ousted from the industry. At least we knew what the industry looked like before derivatives and could have devised plan or strategy to recover to it. Right now, all we've got are giant egos lost and map-less telling us they know how to get back to where they were never sure we came from.



saldeck
Message #893 - 01/11/10 06:55 AM
Old and Gray,

I got this message:

[olderstill]

ask Microsoft or Google and they will just tell you exactly what the error itself tells you: an add-on screwed up. And you know what? They are right!
Regards
Valentine



Veteran_Lender
Message #894 - 01/11/10 07:39 AM
I have bubbled this up... will advise when I here back...

V_L



Veteran_Lender
Message #895 - 01/12/10 06:33 AM
Saldeck-- soft explanation for your issue is going into your system and adjusting your PC's tolerance for "Trusted Sites".

V_L



saldeck
Message #896 - 01/13/10 05:19 AM
Veteran_Lender, thank you for the advice..other things I wanted to tell you, but I am petrified. A fierce quake devastates Haiti. Some friends of mine are there.
Havens often become Hells. Hells rarely become Havens.



Veteran_Lender
Message #897 - 01/13/10 09:11 AM
A fierce quake devastates Haiti.
Hard to imagine something worse than cataclysmic devastation in a desperate place like Haiti.



Veteran_Lender
Message #898 - 01/13/10 09:14 AM
Adding this to your Tsunami O&G... the instance of China breaking into the e-mails of political activists through its Google interface. It will be interesting to know if this just scratched the surface or was there a particular reason. IMHO, it's a component of the wave, which is growing in dimension and fierceness.



Duffminster
Message #899 - 01/13/10 07:37 PM
This article came up in Bloomberg and seems very germane. O&G, if you also think it has new information or is of significant enough nature to comment on, I'd appreciate hearing your thoughts on CTFC Chairman and former Goldman senior executive Gensler's thoughts. To me, for the moment, Gensler's words are encouraging.

Derivatives Exemption Helps Big Wall Street Banks, Gensler Says

www.bloomberg.com/apps/news?pid=20601103&sid=aC0fX6c9vvvM

Jan. 13 (Bloomberg) -- “Big Wall Street banks” benefit from a provision in derivatives legislation that has been promoted as aid for companies hedging their own risks, Commodity Futures Trading Commission Chairman Gary Gensler said.
“It is the Wall Street banks that benefit from the so- called end-user exemption from transparency, not the businesses that use derivatives,” Gensler said yesterday in a speech to the Atlantic Council in Washington criticizing the provision.
The House of Representatives passed legislation on Dec. 11 designed to shed more light on the $605 trillion over-the- counter market for derivatives contracts such as swaps, options and futures. The measure would exempt from many of the rules so- called corporate end-users, businesses such as oil companies and airlines that use derivatives to hedge operational risks.
As the financial crisis “appeared to stabilize, Wall Street has been able to be more successful” in moderating the legislation, Gensler said. “The Senate is another venue.”
While the House bill, which the Senate has yet to consider, applies to standard contracts between broker dealers such as Goldman Sachs Group Inc. and JPMorgan Chase & Co., it wouldn’t regulate transactions between those banks and end-users.
Such provisions risk leaving as many as 60 percent of standard contracts “in the opaque, bilateral over-the-counter markets,” Gensler said. He said “all transactions in standard contracts should be required to be conducted on regulated trading facilities or exchanges.”
The Obama administration has said it wants to increase transparency by forcing more trades onto exchanges and through clearinghouses, which guarantee the transactions and require dealers and corporate end-users to post collateral and meet daily margin requirements.
Buying an Apple
“We would not tolerate it if other markets operated similarly to over-the-counter derivatives, where dealers are the only ones with much of the relevant information,” profiting from spreads between bids and offers that are wider than they would be in an open market, Gensler said.
He compared the situation to “buying an apple from the supermarket when the price of the apple is kept private” or “buying 100 shares of a stock for your 401(k) with no knowledge of where the market prices the stock.”
Gensler said Wall Street found an ally in a coalition of end-users, organized by the U.S. Chamber of Commerce, National Association of Manufacturers and Business Roundtable, which helped win the end-user exemption in the House.
“Wall Street is actively engaged on Capitol Hill to moderate proposals” to reform financial regulation, he said.
“There’s a legitimate public policy debate,” he said. “Corporate America is on one side of the debate, I’m on the other.”



Old and gray
Message #900 - 01/13/10 10:22 PM
Duff;

Gensler is on the other side??? Where is corporate America positioned: in favor of doing away with derivatives in order to preserve their own stability and survival?

This would be interesting if it were an honest position. But, remember the old saying, "Beware of politicians who steal lollipops form children and lie about it." That thought may be prematurely unfair. Let's wait and see what else develops in Gensler's (GS, 2009) service at the CFTC.

The following is the first third of the wrap-up of Dodd's proposal. I thought I'd be falling behind since Sen. Dodd indicated the Senate would be taking up discussion of the proposed bill the first part of December, 2009. I was worried that I'd be trailing the Senate's lead. Not so. They may be waiting to see what we post here before proceeding.
I've been running into some problems which have interfered with my intention to have finished this the first week of January. Have the notes and all, have completed the assessment; only organizing the presentation remains. And it's those pesky problems obstructing the process.
We may be on track again.

Old and gray
Message #901 - 01/13/10 10:55 PM
Next step in reviewing the Dodd Proposals for Financial regulatory Reform: Title IX - Investor Protections and Improvements to the Regulation of Securities.
The original path of the procedure for this extended review was to address new issues first and band-aids later. Well, the mother of all band-aids is Title IX, the last Title to be considered. Included among the list are band-aids where there are no wounds, items with less than a direct bearing on the current crisis.
The section is far-reaching, covering not only amendments to the Securities Exchange Act of 1993, and 1934 as amended, it also includes amendments to The Federal Advisory Committee Act, The Investment Advisors Act, The Investment Companies Act, Trust Indenture Act, Sarbanes-Oxley Act, Bank Holding Company Act, Federal Deposit Insurance Act, involves the GAO, the Attorney General and the Comptroller General, as well as state attorneys general, state securities commissions and other Federal and State agencies. This is in addition to establishing a couple of new offices reporting to the SEC and/or Congressional committees. All this for the sake of making certain that all dotted "i's" and crossed "t's" conform uniformly, leaving little chance for ambiguity, and that authority would be placed where it should be for most efficient administration and enforcement.
The format of the review from this point will be to assess the subtitles in order, look at the new proposals first and, if not self-explanatory, then address those suggested changes which are more obviously directed at the crisis.
There are other items in the document which, though they might have some value, it’s questionable that they bear any direct relationship to the crisis. One example is the issue of including futures in the regulatory reform. Futures with their demand for satisfying fluctuating margins on a daily basis, are less likely to have unsatisfied margins of any size, or place demands on reserves or capital. The existing mechanism allows for arrears of no more than one day’s accumulative margin. If there’s other loss along the way, that’s the fault of both the broker and the participant. So, regulations cover short-fall quite effectively, even if it is conducted on self-regulating markets. Should someone suffer loss from engaging in futures, it's their fault for falling behind covering margin..
It would seem if the SEC was interested in curbing speculation and eliminating wide margins, they’d concentrate on forwards, considering the one time front end payment, and then no other attention being paid to the OTC forwards before final settlement often months off (a margin demand that could grow to quite a burden in some cases). That would seem to be more important than an issue already under control, even if from self regulating markets. But, this may be something that someone wanted passed and this was the first opportunity to squeeze it in. It doesn’t seem appropriate to the general concern of the document.
Others proposals might be looked at similarly, they won’t be addressed. So, with these ground rules stated beforehand --



Old and gray
Message #902 - 01/13/10 10:57 PM
Subtitle A – Increasing Investor Protection.
New:
An Investor Advisory Committee will be created. An Investor Advocate will be appointed and serve on the committee. Serving along with him would be a representative of State Securities Commissions, and “no less that 13 nor more than 23” others appointed by the SEC. They should have wide-ranging experience pertinent to the job of representing individual investors. This position would probably be the closest thing to an ombudsman.
A new office of the Investor Advocate would be created, and the advocate, with “experience in advocating for the interest of investors in securities and investor protection issues from the perspective of investors” would be installed. (Sec. 911, page 637). The Advocate would report to the Senate and House Committees on his activities during the previous year and he’d also be vested with the right to propose administrative corrections or legislative action directly to the Congressional committees without prior review by or comment from the SEC.
Band-aids:
The SEC would be empowered to engage in consumer testing. New rules and regulations proposed by the SEC may be accompanied by gathering information from investors or the public.
Stock markets have been self-regulating (SROs) with little intervention to this point. The proposal would have the SEC review any proposed changes to stock market rules or regulations. If the SEC disapproves, provisions are suggested for appeal by the SROs.
The SEC will initiate a study of Financial Literacy among Mutual Fund investors and report to the appropriate Congressional Committees.
And Mutual Fund advertising will be studied, and conclusions will be reported to the Commission.
Purpose of the amendments:
‘‘(2) PURPOSE.—The Committee shall—
‘‘(A) advise and consult with the Commission on—
‘‘(i) regulatory priorities of the Commission;
‘‘(ii) issues relating to the regulation of securities products, trading strategies, and fee structures, and the effectiveness of disclosure;
‘‘(iii) initiatives to protect investor interest; and
‘‘(iv) initiatives to promote investor confidence and the integrity of the securities marketplace; and
‘‘(B) submit to the Commission such findings and recommendations as the Committee determines are appropriate, including recommendations for proposed legislative changes.
Comments:
Would such an arrangement have helped prevent the crisis? What would be their background and how detached from prior alliances can members be? As has been pointed out by several outstanding people, the crisis was missed by many qualified people. . . who are now apologizing for the misread.

Subtitle B – Increasing Regulatory Enforcement and Remedies
New:
An oversized committee.

Band-aids:
Restrict mandatory predispute arbitration.
Whistleblower protection is enhanced.
The award to whistleblowers is not less than 10% of that collected or sanctions imposed.
An investor’s protection fund will be established to fund the whistleblowers and the Inspector General.
Protection of the whistleblower is carefully detailed as is handling the information he/she supplies.
Person against whom the charges are made, if substantiated, can be suspended 12 months or barred from being associated with any transfer agent, broker, dealer, investment advisor, or municipal securities dealer.
Aiding and abetting circumvention or violations of laws is subject to prosecution in as severe terms as is the principal violator.
Comment:
13 to 23 seems a little heavy. More to share the blame should things go wrong again?
I had little respect for the mandatory predispute arbitration. I heard many stories of investors being burned by brokers with no resolution through the arbitration process. None from the other perspective. Restricting it might be better than depending on it, but, if it were eliminated entirely and remedy sought in courts, I think the investor public would be better served. Why shouldn't brokers defend bad advice or performance in court?





Old and gray
Message #903 - 01/13/10 10:59 PM
Subtitle C – Improvements to the Regulation of Credit Rating Agencies.
New:
Office of Credit Ratings. SEC will establish the Office to be administered by a Director who will report directly to the Chairman of the SEC on the practices of nationally recognized CRAs for “the protection of users of the service and in the public interest;” “to promote accuracy in credit ratings;” “ and to ensure that such ratings are not unduly influenced by conflicts of interest.”
Band-Aids:
Each CRA would be examined annually; and annual report would be required; and,
Provide public information on their ratings procedures.
The SEC could suspend or revoke registration of CRAs for lack of resources or personnel to “produce credit ratings with integrity.”
Sales and marketing for the
CRAs will be separated from the ratings services.
The SEC will prescribe methodologies to the CRAs.
CRAs would have to include information received from other organizations in the ratings process.
Proper training would be required for CRA personnel.
CRA independence would be under scrutiny.
SEC would study alternate business models, meaning compensation from sources other than the issuers.
GAO would study the effect of the SEC rules.
Purpose:
The streamlining would be implemented with a view toward checking the procedures and policies, independence and reduce the temptation to rate with the customers’ satisfaction in view.
Comments:
Again, we have to wait to see what rules the SEC draws up and whether implementation effectively serves the ends outlined in the document. At this point, the amendments seem to be headed in the proper direction.
Subtitle D – Improvements to the Asset-Backed Securitization Process.
“(65) ASSET-BACKED SECURITY.—The term ‘asset-backed security’—
“(A) means a fixed-income or other security collateralized by any type of self-liquidating financial asset (including a loan, a lease, a mortgage, or a secured or unsecured receivable) that allows the holder of the security to receive payments that depend primarily on cash flow from the asset, including—
“(i) a collateralized mortgage obligation;
“(ii) a collateralized debt obligation;
“(iii) a collateralized bond obligation;
“(iv) a collateralized debt obligation of asset backed-securities;
“(v) a collateralized debt obligation of collateralized debt obligations; and
“(vi) a security that the Commission, by rule, determines to be an asset-backed security; and
“(B) does not include a security issued by a finance subsidiary held by the parent company or a company controlled by the parent company, if none of the securities issued by the finance subsidiary are held by an entity that is not controlled by the parent company.” (page 719)
The intent here is to deal with credit risk retention by the issuer. This will be a joint effort of the Fed, the FDIC, and the SEC to prescribe regulations to require a “securitizer” to retain an economic interest, or, “material position”, in the asset covered by the asset-backed securities. Those regulations would prohibit a securitizer from directly or indirectly hedging or otherwise transferring the credit risk the securitizer is required to retain.
The interest the securitizer would be required to retain is not less than 10% - regardless if the securitizer is a depository institution.
Due diligence would be required.
Purpose:
To inhibit the dependence on the “originate to distribute” policy without regard to sound credit granting practices which we all understand to be responsible for a good part of the problems we've faced the past two years..
Comment:
This appears to be an adequate and needed response to counter the unlimited issuance of derivatives for the two most undesirable reasons, hedging and speculation, which were behind the unlimited issues which in turn corrupted the world banking and monetary systems. Will it survive?



Veteran_Lender
Message #904 - 01/14/10 06:35 AM
Will it survive?
No. Too many words, too much attempted regulation. The better alternative would be to reduce the industry to managed basics (very elementary and fundamental) and let capitalism and common sense craft the new boundaries. Only one LAW needs placement: When deemed Too Big To Fail again... you just did. A Drop Dead Law.



Old and gray
Message #905 - 01/14/10 07:16 AM
Subtitle E - Accountability and Executive Compensation
New:
Nothing. Supports the status quo.
Band-aids
Any proxy or meeting notice in which SEC rules require compensation disclosure . . would also include a voting resolution for shareholder approval of executive compensation. This proposal is followed immediately with the "Rule of Construction" that any such vote should not be binding on board of directors, should not override any board decisions, nor in any way should it exert influence on fiduciary duties of the board or restrict or limit shareholder proposals to include suggestions for including materials in proxy material relative to executive compensation.
Sec. 952 amends the Securities Exchange act 1934 to extend the same dubious privilege to shareholders relative to "golden parachute' provisions.
The Compensation Committee of the corporation should be 'independent". (Rules on the independence will be formulated and issued by the SEC.
Sec. 956 is made up of two short paragraphs which direct that annual proxy material should include information on whether employees are permitted to hedge, through forward contracts, swaps, collars and/or exchange funds to offset decreases in market value s securities they receive as compensation.
Also, FIRA is to establish standards that prohibit "excessive" compensation to executives of bank holding companies.
Purpose:
There is a need for controlling compensating executives who run an organization into insolvency. Or, allowing them the privilege of protecting their investment in the company they should be managing to show profit without extending the same privilege to shareholders..
Comment:

The futility of allowing votes on compensation without regard for the outcome is obvious. Why vote if the board is allowed to ignore results?
Then, too what is considered "excessive" compensation? Ask the executives and they'll respond that it's all inadequate. If they didn't believe that, it would never be an issue. And, I can understand the desire of employees to find a means to guarantee the value of their holdings, though it is hardly reassuring that they would do their darnedest to see that the company performs well, if they're protected against loss should their less than adequate performance devalue the stock. Where's the incentive to perform or justify the compensation?
Obviously the same flexible thinking that leads Congress to deny Social Security recipients COLA increases but justifies their own COLA increases applies to banking executives. Anytime compensation practice contributes to raiding bank reserves leaving the bank near-insolvent and dependent on government bailouts would seem to indicate excessive compensation practice.
These provisions need a little more backbone, or more teeth.

[olderstill]

Old and gray
Message #906 - 01/14/10 08:12 AM
Subtitle F - Improvements to the Management of the Securities and Exchange Commission.
SEC is required to submit an annual report to appropriate Congressional Committees "on the conduct by the Commission of examinations of registered entities, enforcement investigations, and review of corporate financial filings." This is in order to review "internal supervisory controls of the Commission" and the "procedures of the commission". The report should certify that internal controls as adequate for carrying out the duties of the SEC. It would also include an assessment by the Comptroller General.
The same attention would be required in managing personnel.
There should be an annual financial controls audit with attestation by the Comptroller General that it was done.
Every three years the Comptroller General would submit to Congress a report of the oversight by the SEC of the registered national securities associations. The proposal lists the items to be examined by the SEC - Governance of the Associations, conflicts of interest, competence of examiners, executive compensation practices, arbitration provided, review of advertising practices, and whatever other matters the SEC considers might have significant impact.
The proposal would have compliance examiners in place within the Division of Trading and Markets to see that compliance is in effect.
And, any misconduct of SEC employees will be reported by the Inspector General.
Nothing unusual.
Comment:
Generally, this is run of the mill amendments. Whether needed or not is something best decided by the insiders responsible for implementing the examinations, reports, or deciding the adequacy of the provisions to do so. May make certain the organization operates smoothly but not much of a contribution to correcting the deficiencies leading up to the crisis.
Subtitle G - Strengthening Corporate Governance.
National securities exchanges and national securities associations would be required to abide by certain amended rules, such as, rules of election to the boards, reasons why CEOs are not up for reappointment to the position, why the replacement has been chosen, etc. All rules are based on considerations which allow exemption from compliance depending on size, capitalization, number of shareholders, etc., or other considerations deemed necessary or appropriate to the public interest.
New:
Nothing pertaining to direct public involvement or interests.
Comments:
A matter of indifference to this reviewer.
Subtitle H- Municipal Securities.
Won't comment on this or review it other than to say it probably applies to a very particular problem someone wanted to be attended. No discernible relevance to the current crisis.
Next post will conclude the review of the material in Dodd's Discussion Draft.



eaglemmx
Message #907 - 01/15/10 01:09 PM
Bury your money in the backyard??? Allow your coinage to work for you. "Boring" instruments such as utilities will buoy your portfolio.


Message #908 has been deleted.

[olderstill]

Old and gray
Message #909 - 01/16/10 01:06 AM
Subtitle I- Public Companies Accounting Oversight Board, Aiding and Abetting, and Other Matters.
Sarbanes-Oxley Act of 2002 is devoted about 2/3 to auditing public companies (meaning those issuing securities - referred to as "issuers"), the accounting firms conducting the audits and less than one third to the Public Companies themselves.
The S-O title is Public Company Accounting Reform and Corporate responsibility.
Early on, it sets up SEC authority to regulate accounting, accounting firms, or persons associated with accounting firms, and SEC is vested with the power to enact standards for accounting and conducting the accounting practices from perspectives of both the accountants and the companies, and formulate rules and regs for legal, administrative and disciplinary matters.
To this end, the Public Companies Accounting Oversight Board (PCAOB) to administer to audits of Public Companies subject to SEC rules and laws.
The PCAOB is a non-profit corporation, not considered part of the government, no one working for the Board is considered an employee or agent for the US government.
Non-registered accounting firms cannot lawfully prepare, issue, or participate in any audit of an "issuer". Ethics, independence, standards and more are all subject to board approval and authority. Regular examinations are required to verify their competence and performance.
As far as they go, the ethical and performance standards for Public Companies are as strict for public companies as they are for the accounting firms. The companies are expected to abide by professional ethical codes, perform with due diligence with effective internal controls. And, of course, in the interaction between the two firms when audits are conducted, it's unlawful for the company to intrude on, suggest or interfere in any way with the preparation of the audit. Penalties are attached.
Penalties are also mentioned should a consumer be victimized.

One interesting stipulation: back in 2002, three years after the GLBA, section 78m(j) required a study of off-balance sheet (the hiding place of derivatives) transactions to be conducted. This included "assets, liabilities, leases, loans, and the use of special purposes entities", and whether GAAP reflects the "economics of such off-balance sheet transactions to investors in a transparent fashion."
My personal reaction is that either the one year study was never completed or, on completion, was relegated to the back of the bottom drawer in some obscure desk lest it create havoc. Sarbanes and Oxley must have known the provisions of GLBA by this time. They had to vote for it. But, we hear nothing of the study required by law, what was learned of the effect the "special purpose entities" exerted.
The, too, if the study was completed, none of the subsequent crisis created by the derivatives was a surprise. The Fed, FDIC, CFTC, and all others lived through it in ignorance. So much for the called for transparency.
The above is in section 7261 of Sarbanes-Oxley, 15 USC Chapter 98. It is followed up by five very specific possible considerations.
(2) Report and recommendations
Not later than 6 months after the date of completion of the study required by paragraph (1), the Commission shall submit a report to the President, the Committee on Banking, Housing, and Urban Affairs of the Senate, and the Committee on Financial Services of the House of Representatives, setting forth -
(A) the amount or an estimate of the amount of off-balance sheet transactions, including assets, liabilities, leases, and losses of, and the use of special purpose entities by issuers filing periodic reports pursuant to section 78m or 78o of this title;
(B) the extent to which special purpose entities are used to facilitate off-balance sheet transactions;
(C) whether generally accepted accounting principles or the rules of the Commission result in financial statements of issuers reflecting the economics of such transactions to investors in a transparent fashion;



Old and gray
Message #910 - 01/16/10 01:08 AM

(D) whether generally accepted accounting principles specifically result in the consolidation of special purpose entities sponsored by an issuer in cases in which the issuer has the majority of the risks and rewards of the special purpose entity; and
(E) any recommendations of the Commission for improving the transparency and quality of reporting off-balance sheet transactions in the financial statements and disclosures required to be filed by an issuer with the Commission.

Black and white, folks. How do bureaucrats and politicians respond to this? Someone didn't do their job! The attempt to bring the derivatives or the entire family of "special purpose entities" never came out of the shadows. Nor is this indistinct. Written three years after GLBA, the two principals were in office during passage of both bills and interested enough in the ploy to want it brought out in the open.

Several places, the Act cites professional ethics should prevail through the auditing process for both accountants and company officials. Ethical standards must have been suspended long enough during audits to allow for the all-too-obvious oversight.
Another amendment is offered for including "commodity futures" with "securities". See sec. 983 - Portfolio Margining. My concern would not be with futures but rather with forwards. For those not familiar with the difference between the two, they are both contracts for commodity delivery in the future; but, whereas forwards are a one time payment up front with settlement for any shortfall for either side being settled when the contract is exercised; Futures, on the other hand ,have a daily settlement on fluctuations of prices. In effect there is no accumulation of margin beyond one day unless someone defaults. In which case it is not a question of procedure, but a failure on the part of one of the parties involved.
I do believe, if the framers of the document were looking for stability, they should have considered corrections for forwards, rather than futures. I can't offer a rational explanation of this.
The aiding and abetting section is very short, merely stating that one who aids or abets is liable to the same penalties and punishment that the principal suffers.
The Public Utility Holding Company Act is repealed. Nothing to raise a ruckus about. I don't believe there are any more Utility Holding Companies; LLCs, LLPs and such what with all the merging and divestiture going on, a holding company might be a hindrance to the transactions.
For those collecting incidental bits of obscure fact, material loss to the FDIC Fund has been assigned some values: in Dec, 2010 the material loss begins at $100mn; Dec, 2011, $75mn; Dec, 2012, $50mn.
Non-material losses will be investigated by the Inspector General and submitted to the Federal Agency, or to a member of Congress should it be requested.
Credit Unions have a lower threshold for Material losses, $25mn in 2010.
Proprietary Trading, that arcane procedure that none of the 4 Wizards of Wall Street knew anything about, will be subject to a GAO study. For those questioning how Proprietary Trading is defined, This is from page 814, sec. 989
(2) the term ‘‘proprietary trading’’ means the act of a covered entity investing as a principal in securities, commodities, derivatives, hedge funds, private equity firms, or such other financial products or entities as the Comptroller General may determine.
After that January 14th, 2010 farce in Washington, what could be expected after the search? The three see no, hear no, speak no. . have been expanded to four. What should we name this addition?


Old and gray
Message #911 - 01/16/10 01:14 AM
The Comptroller General has some options laid out for him when he's completed his study.
(2) CONSIDERATIONS.—In carrying out the study required under paragraph (1), the Comptroller General shall consider—
(A) current practice relating to proprietary trading;
(B) the advisability of a complete ban on proprietary trading;
(C) limitations on the scope of activities that covered entities may engage in with respect to proprietary trading;
(D) the advisability of additional capital requirements for covered entities that engage in proprietary trading;
(E) enhanced restrictions on transactions between affiliates related to proprietary trading;
(F) enhanced accounting disclosures relating to proprietary trading;
(G) enhanced public disclosure relating to proprietary trading; and
(H) any other options the Comptroller General deems appropriate.
I see nothing more appealing than banning them completely from bank activity. This is the option which would serve financial stability and the interests of the public best. There's an inconsistency in the situation where a bank serving the public, takes that money and goes out on the market to gamble for better returns than they can receive from their customers.
There is but one way to relieve the bankers of the temptation, make it illegal. They have evidence enough what results from the practice. Are they searching for a complete, irrecoverable collapse. Engage in the practice again and we'll see that.
Last, is Subtitle I - sec. 988A - Senior Investor Protection.
The Office of Financial Literacy (in the CFPA) will establish a program and enforce performance objectives. Standard rules for professional designations will be formulated, as will suitability rules for securities. FINRA will be enlisted in a cooperative effort in the consumer interest.
As for Subtitle J - Self-Funding of the Securities and Exchange Commission
Not much more to say than that the cost will not be drawn from the Treasuries general operating fund. So, the cost of these changes go directly to the clients of the respective agencies.
The review will continue by posting the outline that made such glorious promises and started us off on the search. We'll see how accurate the advertisement was. . . whether the Dodd Proposal lives up to the demand that the agencies work with integrity and honesty, or whether they feel a little liberty with reporting is OK for the legislators.
Message #912 has been deleted.


stonerdr
Message #913 - 01/16/10 05:21 PM
And. . . from unexpected sources!
Does this mean their bankers are smarter than our bankers?



Veteran_Lender
Message #914 - 01/16/10 10:32 PM
Does this mean their bankers are smarter than our bankers?
No. It's a recognition of a cause that controls an effect. Crushing the order desk for fantasy monies is a good first step toward eliminating gamblers from the credit market. It should be obvious by now that the bankers on the job today are headed for a world of hurt and equally as obvious, that to know your trade well is imperative for replacing these jokers and lending properly to recover the world.




reverendbarb
Message #915 - 01/20/10 04:22 PM
This is a good little article - short, but to the point and with a couple of interesting graphs.
www.economicpopulist.org/content/blame-real-cause-crisis



neohguy
Message #916 - 01/20/10 04:54 PM
Excellent article reverendbarb. Sobering but true.

[olderstill]

Old and gray
Message #917 - 01/20/10 10:42 PM
Tommy has it right, but he's shortened the sequence some. In this thread's reprisal, we actually went back to Nixon's era and the abandonment of the gold standard, forced by accumulated international debt buildup prior to that and the insistence by France and England on settling the resulting deficit with our gold reserves instead of fiat currency. That was all over money, how they wanted it, and how we could hold onto it. We could print all the fiat currency we wanted, but we couldn't mine gold fast enough to satisfy their demands.
To be sure, what happened after the high inflation rates in place when Volcker stepped in and raised interest rates to 20%+ seemed to be a start, but it was truly a continuation. To find the start, you can travel all the way back to the Lend-Lease program of WWII and the inability, or unwillingness of our friends and allies to settle the deficits they built up when we were the only arsenal of the free world. Only one nation, count them, ONE!, settled their obligation resulting from that round of credit extension. That, despite the fact that inflation had devalued the dollar to the point where debtor nations could have paid off at a reduced rate and still shown a gain. They preferred not to pay and there was no court in which to pursue the issue had we wanted to.
The other substantial factor in our becoming a deficit-dominated nation was taking on the responsibility of supplying the global reserve currency following the war. Result for serving in that capacity, which no one else was equipped to assume at that time or for decades following, was guaranteed deficits. All of which was hastened by the emergence of third world countries onto the global market and the unexpected multiplied demand for more and more currency to conduct global commerce. That emergence was speeded up by the wondrous involvement of our youth, among others of the world, (Peace Corps, etc.) in awakening the "backward" nations to the potential found in the international market place. So, instead of just offering one product (which was the norm for third world countries) to the world, they offered two or three which had its effect on balance or lack thereof.
Debt finally gained the upper hand in the sixties when, during Nixon's reign, we became a recognized net debtor nation, with no hope of ever improving our position.
Take a look back around message #157, #207, etc. for a recount of some of this. (There are other times discussions of this issue has been continued, i.e., the birth and development of derivatives, etc.). It's all a matter of a single, extended episode in the history of commerce, currency, banking and banking ploys for the sake of resolving incompatibilities which were all not surprising and completely predictable. One phase cannot be extrapolated and referred to in a way that simplifies it, providing evidentiary treatment as cause and effect with shortened explanations as if the start and end of any of the continuing saga of currency and commerce can be compressed and explained simply.
Economists continue to look for equilibrium and stability, when there never was such a thing in the real world. A mathematical equation can portray either or both of these perfectly, but, it won't be found in reality. That's why economists like Milton Friedman comes along with equations that dazzle temporarily, but when put to the test, his equations and his eminence loose luster.



Old and gray
Message #918 - 01/20/10 10:43 PM
Stability is when a housewife can go out into the shopping world in the morning, knowing she'll pay $5 for a hat, 17 cents for a bag of pretzels, $3 for a kitchen towel and $2.75 for a pound of pork chops because that's what she paid last week and that's what she expects to pay three weeks from now. She may be the one contributing to the instability of prices when she approaches a vendor and pleads that she only has $4.25 to pay for the hat and he agrees to sell for that price. She is promoting instability! Now, where will the vendor get the extra 75 cents he was counting on for purchasing potatoes on the way home? Or, does he and his family go hungry? Not only does that promote instability, but the cascading effect carries on through millions of transactions until we have disequilibrium.
Individuals in Commerce constantly fight events which bring on instability and disequilibrium. Not to satisfy a great surge of magnanimity, but to fill their own pockets so they can ease their way through life without being subject to the effects of the unavoidable destabilization or disequilibrium themselves. Banks are in a better position to buffer themselves than others, because under the current system, they can fabricate money in its many shapes and forms, the bankers take their share from the proceeds and to the devil with the rest. In the Central Banking system which they control, the process has been simplified. If they miscalculate, they turn to their friend Ben and ask for another billion to tide them over until an expected loan comes due next Thursday and he obliges. The hope has always been that the bankers would behave in an ethical, moral fashion. Too often their compliance is brought on by social pressure, and sometimes by legal or punitive pressure. That's the way of the world.
Every time they reach out for a little extra, they are at least as guilty as the poor hausfrau who's looking for a break on that new summer bonnet. Where hers is a modest want that may be satisfied, the bankers appetite may be too enormous to sate. When she triumphs, the vendor has no potato for one evening; when the banker triumphs, he may be putting an enterprise out of business, or compromising a country. The other difference may be that she is using her own money, the banker may be using no money at all.
All the above is common everyday occurrence. The continuing saga of commerce and transactions. And, each day, just like each era, the influences and magnitudes differ and the results may fluctuate in intensity from unnoticeable to catastrophic. The banker makes more fake money to indulge his appetite and the hausfrau's source is more and more constrained. What she doesn't realize and what the banker does not care, is that he is stealing her money's value from her. . along with that of all her friends and acquaintances!
Now, I would ask Tommy, to explain when did this cycle start and when will it stop? (Just having a little fun with him. I know he knows the difference.)
None of the development was as clean and calculated as Tommy's reconstruction would have you believe. But, the effort is interesting. We've covered most of that here; so, the reference belongs.



reverendbarb
Message #919 - 01/21/10 01:57 PM
Thank you for your thoughts on that O&G. Your knowledge and opinions are greatly appreciated!



Old and gray
Message #920 - 01/21/10 02:21 PM
I was prepared to compose the report card on the Dodd Proposal, but I can't do it, even though my notes are complete and I'm 100% organized on the matter.
Nothing gives me greater pleasure than to see President Obama demonstrate his presidential timber in the announcement today. Flanked by a giant and three political realists, the President acknowledged the clamor of the electorate and took the best path (likely, not the easiest) leading to resolve the crisis.
Now the fight begins. Goldman, Sachs already announced they are unwilling to return to the days of Glass Steagal. First, how do they propose to compromise? Against the best interests of the country? And, secondly, do they believe they can find the support they need to resist the rollback, which however it is resolved can never really be as it was 20 years ago. It will come down to a confrontation between the majority of Americans, including business men who can see the urgency and determination behind the movement from the perspective of their own business needs, versus a minority composed of bankers and financiers. There should be no objection, because if banks themselves get back to the business of banking, the growth of international commerce is poised to embark on the greatest breakthrough to a period of growth second to none the world has ever experienced. As stand alone banks, their future is unlimited. Tend to banking principles and conform to what is expected of them and growth itself will be unlimited. If they can't see this, they don't belong where they are. By the same token, if current bankers are incapable handling near-unlimited banking growth, then they should move off into something more suitable to their limited talent and make room for their replacements.
Those who'd deny the existence of that political majority mentioned above, better ask themselves what the Massachusetts vote was about! It was heard and felt in the White House. When my sister's children swore to cast protest votes, I know it cost them a great deal. But, they had just one thought in mind, getting the message across. They claimed at the time they were not alone. I'm not sure I was convinced in October, not believing they'd follow through. But, bless them, they held fast. They felt deeply that too much was at stake not to resist. The pride is truly overwhelming.
Other indicators should have been as persuasive, among them Sweden's early notable shredding of their $9 tn of derivatives, and India's recent actions in shutting down Barclays and Societe Generale derivatives' activities in India. And the overall indecisiveness of American business in general, not convinced we were headed in the right direction with the inadequate program, at least the third start on the way to a solution.
False starts out of the way and now we're on our way.
Every once in while the President must take a hard stand and perform. The prototypical act in my own memory was the shocking picture of the ousting of Montgomery Ward's CEO by President Truman. . . Executive Office chair and all. . bodily carried from the building for having disregarded Presidential dicta and arrogantly standing against his own country's best interests. The President then took dramatic action to demonstrate his own resolve for superior reasons. That one act, despite there being so many others, typified the strength and character of the Little man from Missouri. One of a handful of men who occupied the chair of authority and added to its honor with the rare attributes of principle and conviction. Too many take the easier, undistinguished route.
Now we have President Obama. . . This is the Change we can live with, the one I expected. The battle is far from over, but we're beyond the starting line. Backbone is a blessing. . . All you have to do is find it. If you want convenience and an easy life, it shouldn't be found in the White House.
The NYTimes article is reached here -
www.nytimes.com/2010/01/22/business/22banks.html?hp
The White House also released a PR sheet.



Indiantoo
Message #921 - 01/21/10 02:37 PM
Yeah, we're getting into that Derivatives Bubble I was warning about, months ago. Should be one of the more exciting times of this depression. Ain't going to be good, that's for sure. We'll probably see turning points in March and around July but who knows which way things will turn ... doesn't matter really because Derivatives create too much momentum to turn this thing around. And to think, Bernanke got "Man of The Year." Go figure.

[olderstill]

Duffminster
Message #922 - 01/21/10 04:53 PM
Nothing gives me greater pleasure than to see President Obama demonstrate his presidential timber in the announcement today. Flanked by a giant and three political realists, the President acknowledged the clamor of the electorate and took the best path (likely, not the easiest) leading to resolve the crisis.

On the same day the Supreme court unleashed the caps on Corporate campaign contributions. You can bet that the Goldman's of the world will be spending whatever they want now to defeat any such regulation. Perhaps it can be done through executive order. The Supreme Court is far out of touch with the needs of this sick political system in my opinion.
Here is one lucid view on the subject:
From Democracy Now:
"...
What this decision could do, according to the way the Supreme Court is moving it forward, is it could involve overturning a century-old precedent that prohibits corporate money in our elections and would essentially allow corporations to spend billions and billions of dollars of their general treasury funds in our campaigns, drowning out political voices, ordinary citizens’ political voices. And that is a complete danger to our democracy. It ought to be seen as a direct threat.
And obviously, the hope is that the Court will not go all that way. But if they do, organizations like Voter Action, where I serve as legal director, and others will be leading the charge to say we’ve got to stop treating corporations as persons under the First Amendment. And we certainly make sure that corporations not have free speech rights in the political process. So voteraction.org is a place people should go to hear about the response.
AMY GOODMAN: John Bonifaz, let’s relate the issue of campaign finance back to what happened in Massachusetts and to the whole country. Talk about what happens now with the—well, the number sixty, that golden number the Democrats no longer have, and where campaign finance—how you see the industries that have—President Obama has cloaked himself with, from the insurance industry that would profit so much from the plan he wants to put forward to Wall Street, determining what is taking place, and perhaps this loss for the Democrats in Massachusetts.
JOHN BONIFAZ: Well, absolutely. The fact is, is that we’ve got to return to people-centered politics, where people control the process, not corporations. And when you have money-drenched interests controlling the politics in Washington, you lose people at the grassroots level. You lose people on Main Street, who were suffering, who are losing their jobs, who don’t have real healthcare. And so, you know, having Wall Street control the way we define our politics in Washington, I think, really makes it difficult for people like Martha Coakley running as a Democrat here in Massachusetts to prevail.
No one should be looking at this as solely a race in which the candidate on the Democratic side made mistakes. There’s no question she did. But the blame has to be shared with Democratic leadership in Washington, that has not stood up on populist principles to stand up to corporate America.
So from a campaign finance perspective, we’ve got to deal with how do we change our politics. And one major way we do that is shifting from a control of corporate-dominated interest to one in which we the people rule the process. And that’s through public funding of elections, and it’s also ultimately through challenging corporations being treated as persons under the First Amendment. ..."



Veteran_Lender
Message #923 - 01/21/10 05:02 PM
Now the fight begins. Goldman, Sachs already announced they are unwilling to return to the days of Glass Steagal.
The fight will be on an interesting playing field because we know who we are but in order to stand up for the cause of unfair money control, GS will need soldiers and snipers won't do. Likely we will know a lot more of who the enemy truly is and my guess is-- they are a lot more wimpy and a lot less scary than they appear to be operating solely from those ivory towers.
They whined today about sending banking back to the 1930s. So? If that's how far we retrace to get to a viable plateau for balancing business, finance and society... make it quick.



neohguy
Message #924 - 01/21/10 05:17 PM
On the same day the Supreme court unleashed the caps on Corporate campaign contributions. You can bet that the Goldman's of the world will be spending whatever they want now to defeat any such regulation. Perhaps it can be done through executive order. The Supreme Court is far out of touch with the needs of this sick political system in my opinion.
I'm with Duffminster on this. I think the court decision was far bigger news than the presidents announcement. It has been mentioned many times in this thread that massive political contributions and lobbyists surround our "leaders" and convince them why their industry interest is the national interest.
I hope you are correct Old and gray but I think money talks. I'm expecting the financials to offer up some of their own as human sacrifices so as to distract the population into thinking the problems are solved. I'll be happy as hell if I'm proved wrong.



Falling Sky - Not
Message #925 - 01/21/10 05:22 PM
Now the fight begins. Goldman, Sachs already announced they are unwilling to return to the days of Glass Steagal.
Seems to me that Goldman Sachs seems to think they control the United States! Perhaps they should break up this giant into small factions like they did with AT&T while returning to Glass - Steagal and the Usury Laws.
They whined today about sending banking back to the 1930s.
Just maybe that's where we need to be. Sometimes when a child can't control or refuses to control their bad behavior the parent has to step in and take control.




Old and gray
Message #926 - 01/21/10 09:17 PM
The bankers and their friends brought out their first response to team Obama's announcement: divesting banks of all the assets tied up in hedges, proprietary trading, etc. will cause a fire sale, meaning all prices will be undermined, fantastic losses will occur, and we'll end up in unmanageable circumstances. (As if we were not already in dire straights.) This may be the first substantiation of V_L's claim that ". . . they are a lot more wimpy and a lot less scary than they appear to be. . .". First line of attack is to scream fire and try to frighten the wits out of everyone. Promote panic and you'll prevail.
There's no reason that divestiture or dismantling the TBTF enterprises should be anyone's loss if they're willing to split the profits. If four of us were in business with assets amounting to a given amount and we decide to split and go our separate ways, we'd throw everything on the table, take what we believe to be a share of equal value, shake hands and set off for the four different points of the compass. Why are the BHCs or FHCs any different? If someone would be dissatisfied with the amount passed on to one or the other spin-off, he/she is not obligated to follow that route. Pick the one that supplies the most gratification. As a matter of fact considering how much damage they've done to the world's banking system, I would prefer that certain personnel carefully, thoughtfully and graciously consider another line of work other than banking.
We're coming onto Phase Number One of the break-up, I'd suppose, in which the objectors attach to every incidental reason to prove the idea of change is unworkable. They'll start a never-ending string of reasons why the whole thing is impossibly complicated. I'm not surprised to see Barney Frank step out and declare himself openly. In favor of the proposal but not for three or five years? Preposterous! Why not start setting up the process tomorrow?
How many of the world's largest enterprises began as combined effort of two or more people who discovered they had differing goals or ideas of how a business should function or how or who they should serve, split up, and each became successful in his turn? I had one of those for a client. It started out with two names and even after the one brother left, the name continued on while the other began his second enterprise with a single name. Both were enormously successful and still function solidly after having passed through all kinds of problem eras. Who hasn't heard of Johnson & Johnson? . . . And, (Mead) Johnson and Company. Maybe the difference between the successful split-ups and those frightened to death of the prospect is that one group knows they have something to offer and the other is equally certain they lack the talent to survive on their own. How many businesses are prevented from allying themselves because of obvious conflicts of interests? What makes this conglomerate special? Their interests are diametrically opposed to each other in every aspect, goals, mode of operation, their clientele, their laws, absolutely every aspect. They simply knew they were weak individually, were entering into a catastrophic period and banded together hoping the union promised enough support to get them through the tough times. Well, they were right, if you add in the leeching dependence they exerted on the taxpayer.
We may be setting out on the path to discovering the true whiners.
The smart set, I believe, will be those who willingly kiss off all the other ventures with their suspect assets, toxic paper and future riding on a toss of the dice and stick to banking which is on the threshold of a fantastic spurt of growth just in pure banking business alone. I envy those with the vision to follow that trail. Oh, how I wish I were young enough to hop onto that carrousel! It'll be dizzying and exhilarating. You can have all the rest of the speculative enterprises and disappear, just let me be the banker of tomorrow.



neohguy
Message #927 - 01/22/10 07:22 AM
From the Wall Street Journal, January 21, 1931:
newsfrom1930.blogspot.com/
Glass committee seen aiming strongly at regulation of security (investing) affiliates of large national banks. In the hearing yesterday, it was suggested to Currency Comptroller Pole that these affiliates be separated from the parent bank; he was non-commital in response. Panel is mostly composed of conservative Senators, and questioning so far has been friendly rather than using "the badgering tactics often employed by Senate committees." NY Fed Gov. Harrison testified, disagreed with Glass plan to prevent discounting member banks from lending for speculation.


Old and gray
Message #928 - 01/22/10 09:41 AM
Sen. Carter Glass had a love-hate relationship with the Federal Reserve system since its introduction and lead-up to the 1914 birth of the Fed system through to the end of his legislative career. He was a Representative from Virginia at the earlier time and he was fighting for a free-swinging system of many regional banks (up to 20!) with little central control over their operation. Then, when a strong head of the NY Fed appeared in the person of Benjamin Strong and he began operating independently to the extent that European bankers considered the NY Fed, of which he was president, the equivalent of a "Central Bank of the US", Glass was upset that one bank (or banker) could be so arrogantly independent. Of course this was 12-16 years later and a lot happened between the foundation of the system and the evolution of banking in the post WWI era. What was originally described as varying degrees of support for the concept of a Federal banking system, support for which ranged over the spectrum of total, unconditional support to total, unyielding opposition for any conceivable reason, had eventually resolved itself into a political division along party lines, very much in line with what exists today, Republicans for free banking, no government intervention or controls and the Democrats with varying degrees of insistence on more government and /or central control.
There were all kinds of contradictions throughout this period. For one thing, Strong being accused and/or treated as being too strictly devoted to developing or taking over the NY Fed as the "central bank", was initially opposed to the Federal Reserve Act in 1913. He gradually reversed himself after the taste of power, and was so defiantly in control of the bank that although he died in 1928, Carter Glass, then a Senator from Virginia was still fighting his ghost when the Glass-Steagall bill was passed in the mid-thirties. BTW, if you want to blame someone for the involvement of foreign banks in the system which ended up with that bogus, outdated list that continues to circulate with the Rothschilds and other European bankers listed, it was Strong who invited them over for conferences by strength of his position as a representative of the NY Fed and in return visited them frequently. They were glad to cultivate the appearance that they controlled the US banking system.
But, it was the ongoing conflicts between Glass and Strong that caused Glass's attitude to spin around 180 degrees toward the position that the Fed System should be under more control. So, it was from personal experience as much as the events of the Depression that Glass turned around from favoring a free-form of banking to eventually separating speculative investments from banking and the controls imposed by the Glass-Steagall Bill.
You might be able to characterize his personal evolution as having experienced the good and the bad of central banking, he finally ended up at a point he thought served the nation best. Hard to say whether he compromised his own ideals out of spite or necessity. It was during that time and under just such stress as might be generated by the passion of the times, and with (I assume) Glass's support that the Board of Governors acquired more of a central and controlling position in relation to the twelve Regional banks.
The whole point is that a believer in unfettered banking eventually conceded after long-running experience that banks served the nation better by being restrained from engaging in inappropriate speculation or financial support of speculation, probably, and ironically, by an Uncle Ben of another age. We're about to learn (if we haven't already) something of an unsatisfying nature ourselves from inappropriate banking activities of another sort (or is it the same arrogance) that'll spin some of us on our ears.

[olderstill]

Old and gray
Message #929 - 01/22/10 10:01 AM
Also, after a good night's sleep and calmer deliberation, the proposals of Pres. Obama's "Volcker Rule" seem a little clearer and a lot less dictatorial this morning.
The intent is not to separate the various activities, banking, insurance and brokering from the parent company, although that might be the net (and preferred) result. Obama may be aiming more at the compromise position of simply restricting Commercial banks from engaging in investments or speculation for their own profit. This is usually referred to as "narrow-banking", banks for the purpose of normal "intermediation", or back to the "relationship banking" concept.
Although this would put a crimp in the current operative strategies of the LCFIs, to my understanding, neither Obama nor Volcker has declared that holding companies categorically must strip themselves of the subsidiaries or sectors of the conglomerate in order to enforce the condition, which, from my viewpoint would seem the best path. But, there is room for negotiation, I believe. The attitude and convictions of the bankers themselves would eventually determine that as well as the stipulations of the legislation. . . if the proposal were to become law or this could be actuated through rules and regulations without resorting to legislation.



Scared_Shirtless
Message #930 - 01/22/10 10:14 AM
Thanks O & G;
This still remains the best thread ever...
This may not belong here but wanted to throw it out. Could it be that we're seeing the lie of "bank earnings" and Project MOPE beginning to hit the wall of reality?
blogs.wsj.com/marketbeat/2010/01/20/direct-bids-creep-in-to-4-week-treasury-auction/
Might somebody be seeing this? I bet Bi Metal would have an opinion.
2010 is off to a very interesting start and BTW - I am deeply thankful to the voters in Massachusetts - home of the Tea Party!
You GO guys!
Wishing everyone the very best.


Old and gray
Message #931 - 01/22/10 04:07 PM
Before the middle of November of last year, (11/10/09) Duff introduced us to the Discussion Draft from Sen. Dodd's Committee. A lot has happened since then. Whether the folks embroiled in or responsible for the mess are still concerned or not, and whether the Senate Committee intends to continue on the trail those proposals lead may be questionable. The House has already passed the bill proposed by Barney Franks (who, BTW, I'm told is being watched carefully by the modern century resurrection of the New England Tea Party-goers, which may be of no concern to Mr. Franks inasmuch as his future is well-heeled with a comfortable pension plan and gilt-edged health insurance). He behaves these days as if he's tired, aggravated and bored beyond belief in his struggle to be understood by those beneath his feet. Still, the Senate lumbers on.
There's a certain amount of guilt on this side, since we've dragged our feet quite a bit through the distractions of the holidays and the priceless, wonderful family visits, an attack of some kind of ailment visited on me by a traveler from a distant land, which was a gift beyond description (the visit, not the imported ailment!). We spent so much time discussing what's been posted here and the far-reaching consequences that it made me feel everything put into this was worth the smallest as well as the largest effort exerted. His input would be of tremendous interest to not only those visiting this site but pretty much most of the civilized world. How fortunate can one man be to have such friends? I'll never understand the good fortune I've stumbled across in this gift of life.
Well, I think we're coming up to satisfying Duff's request for a review. Good thing, since we still have enough energy to follow a couple of more steps down the trail.

I've worked up a report card! Many of you have busy days and don't have the time to read through text. This will serve to shorten your day's commitment.
The report card is based on page one of the summary first posted by Duff back in message # 700 on November 10th. Very specifically it pertains to the "Highlights of the Committee Print" which was produced nearly entirely by Duff in that first post. I'll reproduce that in full, give you my report card with an explanation of the significance of the grading system. In this manner, we've reduced the 1136 pages of the Dodd proposals and the 12 pages of the Summary as well as the 50 or seventy pages of my evaluations down to 4 or 5 pages. which may be 3 or 4 pages too many. That's up to you to decide.
BTW, none of the marks below are meant to change, alter, or soften any of the opinons expressed in the previous detailed text reviewing the Dodd Proposals.



Old and gray
Message #932 - 01/22/10 04:17 PM

HIGHLIGHTS OF THE COMMITTEE PRINT
Consumer Financial Protection Agency: Creates an independent watchdog to ensure American consumers get the clear, accurate information they need to shop for mortgages, credit cards, and other financial products, while prohibiting hidden fees, abusive terms, and deceptive practices.
Ends Too Big to Fail: Prevents excessively large or complex financial companies from bringing down the economy by: creating a safe way to shut them down if they fail; imposing tough new capital and leverage requirements and requiring they write their own “funeral plans”; requiring industry to provide their own capital injections; updating the Fed’s lender of last resort authority to allow system-wide support but not prop up individual institutions; and establishing rigorous standards and supervision to protect the economy and American consumers, investors and businesses.
Protects Against Systemic Risks: Creates an independent agency with a board of regulators to identify and address systemic risks posed by large, complex companies, products, and activities before they threaten the stability of the financial system. The agency could require companies that threaten the economy to divest some of their holdings.
Single Federal Bank Regulator: Eliminates the convoluted system of multiple federal bank regulators to increase accountability and end unnecessary overlap, conflicting regulation, and “charter shopping;” keeps in place the healthy dual banking system that governs community banks.
Executive Compensation and Corporate Governance: Provides shareholders with a say on pay and corporate affairs with a non-binding vote on executive compensation and director nominations.
Closes Loopholes in Regulation: Eliminates loopholes that allow risky and abusive practices to go on unnoticed and unregulated - including loopholes for over-the-counter derivatives, asset-backed securities, hedge funds, mortgage brokers and payday lenders.
Protects Investors: Provides tough new rules for transparency and accountability from investment advisors, financial brokers and credit rating agencies to protect investors and businesses.
Enforces Regulations on the Books: Strengthens oversight and empowers regulators to aggressively pursue financial fraud, conflicts of interest and manipulation of the system that benefit special interests at the expense of American families and businesses.

[olderstill]

Message #933 has been deleted.


Message #934 has been deleted.


Old and gray
Message #935 - 01/22/10 04:27 PM

Report Card for Elements of Dodd Discussion Draft Proposals
(See below for explanation of grades)

Highlights of the Committee Print

Consumer Financial Protection Agency: A-

Ends Too Big to Fail B-

Protects against Systemic Risk A-

Single Federal Bank Regulator B+

Executive Compensation and Corporate Governance C

Closes loopholes in Regulation: C+

Protects Investors: B-

Enforces Regulations on the Books B

OVERALL EFFORT: B

General Comment:
In view of the latest developments (Obama's proposal of 1/21/10), some marks above are subject to review. None of his promises are home free at this moment.




Old and gray
Message #936 - 01/22/10 04:48 PM
Grades are awarded to satisfy the following observations:
A+
Totally unexpected, Superior, Penetrating, Long lasting solutions to provide solid foundation for future, long term economic health.
A
Superior, professional meld of reality and theory which allows for workable solutions which could yield gratifying improvements, long term.
A-
Solid, professional, practical solutions which could yield gratifying improvements long term.
B+
Evidence of consideration for several community sectors which, if brought together with diplomacy, may provide comfortable progress, Medium term.
B
Demonstrates strong potential for compatibility for all sectors if they are willing to surrender some personal rights or advantages for the common good of the nation. Mid term solution. Duration: Unpredictable.
B-
Can be negotiated between the nation's Economic Strata (business, financial, community interests) with proper non-political approach to ease us back onto a longer-than-normal road to recovery. Mid to short term.
C+
Quasi-sincere. Needs work. Negotiations required along with political concessions given up by segments (Political, Economic, Financial) May yield benefits short term.
C
"Look we put something together. If you have a better idea, which we doubt, let's hear it." (Otherwise labeled normal mode of operation.). Worn out prior rejects that didn't work then.
D+
"Here's what we managed to slap together since lunch. Now do we go with this or not? Hurry up! I have a dinner date with the lobbyist."
From this point on, nothing but dust collectors.
D
"Well, what do you expect? You don't even have an attache case!"
D-
"Did you say something?"
Other
"Don't bother me! I've got important things to do!"

[olderstill]

Old and gray
Message #937 - 01/24/10 09:11 PM
V_L
They whined today about sending banking back to the 1930s. So? If that's how far we retrace to get to a viable plateau for balancing business, finance and society... make it quick.

You wouldn't want Goldman, Sachs to do what they did back in the thirties. . . Although, they could be accused of having the same destructive effect with their current activity.

John Kenneth Galbraith reported in "The Great Crash 1929", in Chapter III, entitled "In Goldman, Sachs We Trust", that corporations merged for the sake of forming holding companies, many of which had no assets worth evaluating. They then sold stock through these near worthless new creations at greatly inflated prices. They called these swindlers, investment trusts, which JKG reported, "did not promote new enterprises, or enlarge old ones. It merely arranged that people could own stock in old companies through the medium of new ones."

Goldman, Sachs created the Goldman, Sachs Trading Corporation as its first investment company venture. JKG reports, "The initial issue of stock in the Trading Corp. was a million shares, all of which was bought by Goldman, Sachs and Co. at $100 a share for a total of $100,000,000. Ninety percent was then sold to the public at $104." Two months later it sold more stocks, then merged with another investment trust, The Financial and Industrial Securities Corporation. "The assets of the resulting corporation were valued at $235 mn. reflecting a gain of well over 100% in under three months. By Feb. 2, roughly three weeks before the merger, the stock for which the original investors had paid $104 was selling for $136.50. Five days later, on Feb 7, it reached $222.50. At this latter figure it had a value approximately twice that of the current worth of the securities, cash, and other assets owned by the trading Corporation."

That was the start. Goldman, Sachs continued operating in the same mode with even more leveraging through to the fateful collapse in 1929, and never suffered for it. By the time the bubble burst then, they probably had multiplied their original investment to the point where they couldn't care if the entire financial universe exploded, they had all the profit they could handle.

Today, they have again accumulated so much they are preparing to distribute bonuses totaling something like $16.5 bn?!! Who needs the twenties?

Goldman Sachs would love to be doing that again, and I'm sure they are. Considering the leverage applied to the funds supporting the tranches and SIVs, they are back at the same game indulged in during 1928, leading up to the great crash of 1929. They were able to do so back then because market participants in their frenzy were reacting to the obsessive fear that the market was running out of shares to peddle and the anxious money was in search of somewhere to land. Any promise looked good. So, when G,S was able to kite the values of the investment trusts all out of proportion to true value, people jumped at the opportunity, probably believing there was always up but never down.

Consider the situation in current terms. What are derivatives, CDOs, swaps but the same kind of leveraged glowing promises of an entry ticket to the land of OZ, where everything is made of gold and all the gold you can touch is yours for the taking. And, who else comes out of this current debacle smelling like money?
Care to bet who will be doing the same thing 5-10-25 years from now when those successive balloons burst?

There was no viable plateau back then, and, given the toothless approaches being hawked today, there is not liable to be viable plateaus in the near future. Goldman, Sachs and its cohorts are able to do what they do over the decades because participants galore with shining eyes and outstretched hands are willing to put their money on the line, hoping to join in the "cooperative" effort, and not caring that only one party can walk away with a pocketful.

It's the empty promise the all-too-willing buy.



BiMetalAUPT
Message #938 - 01/24/10 10:54 PM

O&G,

MY GRANDFATHER HAD A STORY ABOUT DRUG,INC. They bought Bristal-Myers for Trust stock. It was worth about 10 cents on the dollar in Sept 1929. Good deal but the trust was busted by FDR.. They found little but paper and a little cash flow,and a lot of retail stores. Drug,Inc did not want the Rx part so it was sold to AHP under the Deshall Label for cash. The president of AHP, Mr AGEE had a MBA from Warton and was always buying a firm for the sales and selling all the assets exept the brands that he got made by other people. Well he would buy the business and sell the asset.. An almost all cash firm. Overhead almost nothing with all production equipment on other books.

Just a thought,
Bi Metal Au Pt




Old and gray
Message #939 - 01/25/10 04:17 PM
Just saw Bove on CNBC stating without equivocation that if we reject Bernanke and go ahead and adopt the Volcker rule, everything will crash.
MY, MY! Who paid for that interview?
He insisted that the interviewer focus on the main point, that banks must be permitted to grow. If they cannot grow, everything will be stunted [my choice of words] and we'll have no future [my characterization]. Who ever implied that banks couldn't grow? It's how they grow that caused the objections. Banks should be banks, not sponsors of floating crap games and Las Vegas spinning wheels.
No one in their right mind should object to rejecting a program that delivered us to the degree of instability we just suffered. Also, no one in their right mind should contend that the Volcker Rule will limit bank growth. I believe this is forcing me to discuss what's lying out there in the future and what is needed for banks to adjust to what I see as a great and glorious new world of banking, IF BANKERS CHOOSE TO DO A LITTLE WORK. If they want the world on a silver platter, that's another matter. But no one with any seriousness should step up and give the store away in one fell swoop!
There are issues, of course. There's a crying need for resolving problems visited on us by developments, some natural and some fabricated by over-zealous over-achievers: the emerging countries, the blossoming financial world and the need to direct funds in a timely and appropriate manner to where they are needed to support global commerce, the inadequacy of the current reserve currency situation, and the list goes on. If bankers cannot see the opportunities and advantages shining through the mist, they haven't the vision or capacity to serve as global bankers and better consider a move back down to the community bank level where they belong. One deposit at a time, one check processed at a time so as not to tax their limitations.
I sense a challenge has been issued to address the future of commercial banking. We'll accept that challenge, organize our thoughts and respond. Hopefully this may start another round of intellectual effort that will light the way out of the darkness. . . . if the spirit can tolerate the effort.


saldeck
Message #940 - 01/28/10 06:02 AM
It is really time for an emergency jobs program. Finally Obama woke from his torpor after Massachusetts failure. He says jobs program will be a top policy priority. oh, finally! The world looks to Washington...you can!! Am I too trusting?

[Virgil Showlion]

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VirgilBot TP v0.01 Started Thread Port on 12/22/2010

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Veteran_Lender
Message #941 - 01/28/10 12:40 PM

Am I too trusting?

No. Just hopeful like many of us.

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Old and gray
Message #942 - 01/28/10 05:54 PM



So, what should we be looking for. . or hoping for. . . to bring some sense to the still fluttering world economy. Stock market up, pundits are hailing the way we pulled out of the threatened tailspin into Depression, Bernanke and the Fed board of Governors are certain they have a good grip on the controls, we haven't heard anything from the G20 lately and recently China has receded into relative silence. This should all be good news, right? Then why are all the people being interviewed on TV claiming that there is still cause for unrest in the underlying weakness in the banking industry?

Just within the past week, an acquaintance stopped by to say hello and started off the conversation by asking, "How are we facing up to this transition period?"

Are we? . Or, better yet, can we be in transition in an economic or financial system? The inference is that there are two extremes to a scale of some sort and we slide from one end to the other depending on what influences are at work. If that scale is anchored on the one end with the ideal situation (meaning stability) and on the other by total chaos (which some might argue we've very nearly reached that again) transition might be a fair description of our condition. I've already attacked the one end of that scale by claiming every time someone tries to make a profit or show a gain at someone else's expense, they are messing with stability or equilibrium, promoting disequilibrium or instability.

So, my response had to be that if you consider an economic system in perpetual transition, Yes, we are in transition. Raised eyebrows and a lack of comprehension and within a few minutes the conversation went elsewhere.

Ironically, I believe, our economic system, in responding to all the different demands pulling in opposite directions, is something like those little games under glass with the four little steel balls and the four shallow holes on a flat surface, the object being to maneuver the steel balls to settle in the holes by tilting the little device one way or another and you've won the game. But, in equating the game with economics, we've been dealt a bummer! The best way to beat the game is to have the four holes in the center of a concave surface so the balls naturally gravitate into the little holes. A flat surface makes it more challenging. But, what we have in economics and finances is a convex surface so the balls are constantly running to the edge of the enclosure instead of where the holes are located and there is no hope in creation of ever getting the four balls to their hoped for resting place. The gravitational pull in the case of the games of finance and economics are provided by the whims and wants of the players. You might go a little a little further and say the general population are the four or five balls and we're destined forever to be rolled around against our will, pawns in the game held in the hands of the big players.

Upshot: there is no transition in economics, just a constant state of flux. Economists may claim to be looking for a "return to stability" but in fact are looking for little more than less chaos. . . or, less unsettling circumstances. Despite all the fanciful explanations, we don't yet know how everything works.

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Old and gray
Message #943 - 01/28/10 05:55 PM



Back a ways I referred to Ricardian economics and said that some consider us to be working within a Ricardian system (David Ricardo 1772-1823). Smart and practical, he made a fortune on the exchange and retired at the age of 42. Took up political economics after reading Wealth of Nations at the age of 27, thought about it extensively and wrote his first economics article 10 years later. That's a smart economist who thought about something for ten years before writing about it. Nowadays, they come away with their master's thesis a few years after learning how to read and believe that the one work they created will change the path of the world. Ricardo advanced such concepts as value theory (in markets and pricing), comparative advantage (in free competition trade), and Natural Prices (at subsistence level for laborers, with improving economic conditions providing for wages above subsistence level).

His ideas might have been questioned by a few intervening economists but not seriously challenged until Knut Wicksell (1851-1926). Wicksell's contributions were many, but interest rates, both of the "market" and the "Natural" kind, and clarifying the effect of government involvement in setting interest rates was a significant contribution on his part. His most comprehensive work was Lectures on Political Economy divided into two volumes, the second being entitled simply Money.

The humor in the differences between the two economists' theories is that they can be looked on as falling in or out of favor all depending on whether a system happens to be in a boom or bust phase of a business cycle. The only summary of their efforts would then have to be that they were both half-right. However, I believe they were both well worth reading. The study of economics, like any other serious subject, bestows benefits best the more the scholar reads.

Achievements beyond these two were important only insofar as mathematics (except in the case of Von Mises) was employed in the explanations. Here and there throughout the subsequent economic history a voice of reason strains to be heard, but the magic clamor of math quells or at least minimizes the disturbing intrusion. (In the case of Von Mises it was his ineffective prescription to solve the difficulties of the depression that undermined his standing, but couldn't and hasn't minimized his monumental The Theory of Money and Credit.) Meanwhile the mathematicians' theories come and go.

What will not go away is the fickle boom-bust cycles that alternately entice and reject us. When one or the other occurs we try to fine-tune the engine with little consistent effect. We do less work when the boom cycle is in effect, though if we knew how to handle it, curbing some of that "rational exuberance", might minimize the bad effects of the bust phase. The work we do in the bust phase, is after-the-fact and usually not as effective as we would like but we generously credit ourselves with more than we deserve in the correction. When we pull out and get back into the growth phase, a pat on the back and assurance that from now on, that's what we have to do makes us feel better, but we don't understand any more about how to prevent the next bust.

So, here we are, somewhere between "functional" and "dysfunctional", not knowing which economist to believe or follow, each party to the dysfunctional state of events taking a stance to protect its own future irrespective of the general good, and even those in the know admitting that the underpinnings of the financial system are weak and need attention.

What to do?

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Old and gray
Message #944 - 01/28/10 05:57 PM



A way out may be provided in what has been contributed here by the community. If we believe in central banking having merit, we could champion an international central banking system. We could do worse than depend on a unified, cooperating system with all the world's nations investing in the system proportional to their measured contributions, perhaps using their GDP against the world's estimated total GDP. Each nation's central bank could then be the equivalent of our district banks. Ours is not a novel system. Other nations have central banking systems with the one main institution and satellite institutions participating. The European Union has a central bank with national banks branching out to complete the structure. We might throw in a few other items mentioned here. . . But, before we do all this what are we dealing with? Why should we be considering such changes?

. . . . Because change is here, now, and emerging with more forceful reality each year!

We've already addressed real issues in international commerce above: in message #856, international currency was discussed; in #857, international commerce; also, #857, the limitations the US dollar faces if it continues in an attempt to serve as the world's principal reserve currency. They all come together in the overall picture banking faces. Depending on which perspective you choose to use, the picture could be bleak and overpowering, or it could the first glimpse of a golden opportunity. In order to see it as the latter, our banks would have to be in good working order at this time. They clearly are not. This is due to their lack of vision and dedication to working the scam against the rest of the world. This has two effects: first, it weakened the banks to the point they would not be able to serve if called on; and, two, they've violated trust and in that, have lost a good part of the international support they would have needed to set themselves up as the undisputed world leader in the expanded world banking system. A side effect is the taxing demand it presented to the US government, bringing the country to the brink of failure and delivering us to an over-indebted burden that causes serious thought as to whether the nation is in any shape to support the banks when needed.

The third world countries are emerging at a rapid rate. When US capitalists decided they would no longer support a domestic capitalist structure, and became involved in off-shore investment, importing products instead of producing them at home, and supporting international commerce while neglecting our own prospects, it opened the world for the smaller countries which once struggled for market share. Ben Bernanke alluded to the results of this successful expansion of trade when he voiced the idea (not his own) that these once "third world countries" were saving money that jeopardized our banking system, he was cleverly (or maybe not) side-stepping the issue of their building up capital to invest in their own growth and on a comparative basis out-performing us. The net effect was while the third world countries were emerging into the 21st century, the US was retrogressing back to 18th century mercantilism! One poster, I believe it was DQ, labeled it the "End of the Industrial Revolution"! Apparently, that is so for the US considering the big figures finance is posting in total GDP stats and the correspondingly dwindling figures of production and exportation over the long term.

Couple the emerging countries' propensity to save, which in effect is providing more capital for growth, with their increasing export, which in turn brought in additional profits in the form of trade surplus that could be converted to even more capital for the benefit of their further development, and they are growing into a force not reckoned with in any model banks were using to evaluate their situation. Too bad, because this trend will continue and the smaller nations will become even more of a force in international commerce and we will become less important.

[Virgil Showlion]

Old and gray
Message #945 - 01/28/10 05:59 PM



So, how do our banks recover to regain their prominence? With more sleight-of-hand banking? Peddling more toxic paper and scamming the rest of the world to finance the expansion of regular banking business? Who would believe them the second time around? Especially in view of their squirming and whining over being obligated to the government in the current TARP constraints. Certainly, the government will no longer be the source of expansion funds, now under the watchful eye of angry voters and taxpayers. Japan tried that with a compliant population and failed. That should be message enough for us. That leaves the American investor as the sole reservoir of capital. How far would they trust the banks? Banks have expended their political capital with their deception that bordered on treachery.

But, we can see where they need to go and the obstacles they've got to overcome to get there. Can current bank management see this and can they convince investors they are sincere in their effort to reach the goal?

In the offing is a central bank system. It's the method that we're familiar with, it's been working on a regional basis, been proven, and can be expanded with little alteration to structure or mechanism.

Also, working with the one-world central bank would be a one currency system. Conversion of the large number of different currencies is too cumbersome, too time-consuming. As the number of countries participating in the new international markets expands, it's too difficult to arrange the financing, insurance and complete transactions in a timely fashion using the different currencies of the world. Goods spoil, marketing advantages are lost, too much lag-time can create problems in the distribution of proceeds causing uneven financing for continued production. A single currency distributed through a central system can smooth all that out. Arrangements can be made to eliminate the political antagonism which might create an obstacle to the adoption of such a system.

If these two changes alone were put into effect, whoever runs it will be in an enormously advantageous and profitable seat. Yet, in addition to this are the regulatory and supervisory requirements. In all, considerable investment of political capital is involved, much profit is to be made . . . And, it's coming as sure as the sun rises in the future. We can't support the inefficiency of competing monetary systems and isolated banks straining to meet obligations and promises that would drain the profits in simple execution alone.

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reverendbarb
Message #947 - 01/29/10 02:05 PM

I hear ya djrick - I'm very sad for my country also.

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stonerdr
Message #948 - 01/31/10 05:26 PM



O&G

In looking through some of your old posts, I couldn't help but notice a couple of signposts you planted out there for all to see. A year ago, when you returned from a "sabbatical" on a "lumpy mattress", you predicted what was in store for us for 2009. "Boom or Bust?" was the thread, and on January 4, 2009 you had this to say for the year.

Whether there's cause for optimism in the second half of the year remains to be seen. I'm getting an unexpected boost of hope from some unlikely people discussing the coming change of faces in the White House with an attitude I interpret as encouraging.

Two things might cause a little concern. Along about a month or so before tax deadline, April 15th, there might be a little sell off to gather the cash for the taxes of those who made a tidy profit from the 2008 short sales. The only danger is that some might misinterpret the dips and sways and cause more of a ripple than justified. We still have skittish folks out there.

Well, take a look at the low point of the "ripple", folks, it's just about a month before April 15th we hit the low point and climbed quite a bit following that. There just may have been a few more "skittish" folks than we figured contributing to the nervousness.

Then, not too long ago, in Post # 784, you said something like your "doodling" indicated the Dow should be down at about 9500. BiMet then cited math which indicated the Dow should be around 14778, a couple of hundred higher than it then was. We have retreated about halfway back to 9500 since your observation and the market's highpoint on this swing! Looks like we're on our way to 9500, or the 9000-9500 range you thought would be more comfortable.

I also notice that you posted that you dropped out of market participation in August, 2007! In retrospect, not a bad move.

I have some questions:

1. What system do you use for your forecasts. And,

2. Is it available in literature? Or,

3. Do you have some inside source for info on market fluctuation? Friends? Contacts of some kind?

[Virgil Showlion]

Veteran_Lender
Message #949 - 01/31/10 08:24 PM

What system do you use for your forecasts.

I am certainly not speaking on behalf of O&G, but you should know that at least 50% of regulars here were out in later 2007, lost little to nothing in the interim and don't really regret missing the 2009 bull run. There doesn't have to be much more than common sense and a trust in thereof-- to beat most strategies.



For fun... the toilet paper aisle in your favorite grocery store is an incredible economic barometer. We all use it therefore it is a constant. When times are great, various brands deplete consistently or based on who has the cuter packaging. When we entered the recessionary period, that transitioned to the "sale" brand. As the economy continued to worsen, consumers read labels and discovered that Scott Tissue always was the best bargain (1000' rolls of single ply) by a long shot. When it went on sale- it sold out.

Thus... the worse the economy gets, the more Scott Tissue sells. The better it gets- the more people will be less inclined to shop, more inclined to be inconvenienced by the task and likely go for cuter packaging. We'll know we're recovering when Scott goes on sale and doesn't sell out immediately.



O&G... read your history lesson on GS (above). Ron Paul wants to audit the Fed. I have always felt that we should shutter the banks for the same reason. Such cloudy pasts need a new validated starting point and a firm regulatory foundation.

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Old and gray
Message #950 - 02/01/10 05:55 PM



stonerdr



I am certainly not as scientifically organized as V_L! I now have an alternate analytical mode to fall back on! I'll pay more attention in my strolls through the economic indicators down at the local supermarket.



One other illuminating point: I'll have to find a therapist to analyze just how I make my own selection down that aisle.



But, stonerdr, when I was younger, I might have thought of systems such as mine as blind luck or intuition or something like that. Now, I think of my system as a matter of observation, experience and either caution or boldness, depending on what I see in the general outlook.

Certainly, input from others is important. No matter what you do, having friends of like interest increases your chances of making smart, informed decisions. Sometimes they convey information they don't consider important themselves and don't act on what they know. In that case, you still get the benefit of their wisdom or exposure.

Talk, listen and read. That's all I can say that would make sense. I've been reading for over 80 years now and don't regret finishing a book, magazine or newspaper I didn't toss out of the room and across the hallway. If I start discussing my numbers, how they are derived and what they signify, it could be misleading. Then, too, expressing your opinion of what's about to happen can often be misleading to whomever you're addressing and they come back at you with accusations for suffering losses or little disasters as a result of doing things you never intended they do.



Also, you cite three positives, but neglect the hundred negatives anyone should be able to find in my rambling posts.



But, thanks for the compliments.

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ComoKate
Message #951 - 02/01/10 10:25 PM

The third world countries are emerging at a rapid rate. When US capitalists decided they would no longer support a domestic capitalist structure, and became involved in off-shore investment, importing products instead of producing them at home, and supporting international commerce while neglecting our own prospects, it opened the world for the smaller countries which once struggled for market share.

O & G ,

I completely agree with you, as is always the case. There is one aspect I would add to this in regards to the stagnation of wages that has plagued this country for decades. While Unions have been derided for becoming bloated, and in some cases actually corrupt, they did succeed in obtaining livable wages for their members. When you look at what companies have done to pension plans for employees, as well as massive lay-offs in order to make their companies appear more profitable, it is clear to see the American worker on his own is like a lamb in the woods.

The stagnation of wages has made it nearly impossible for Americans to buy goods made by other Americans...for instance, I do art work on the side. I've had people suggest I take some of my little sculptures and mass produce them for Christmas ornaments. That would be fabulous for me, however if I were to have them manufactured in the U.S. , few people would be interested in purchasing them due to the final cost, because I cannot compete with companies who have a foreign manufacturing labor pool that is willing to work for cents on the dollar. People not only want Wal-mart prices, with the stagnation of wages, in many cases they need them.

We need legislation, with teeth, enforced, to make sure foreign made goods can't be sold here at a cost less than what comparable domestically made products sell for. I also believe we need to find more balance between the average worker's wage and the outrageous compensation amounts of CEO's. No man ( or woman) is an island. If we choose to make a profit from the people of a society we live in, I believe we also have a moral obligation ( and apparently it needs to be made into law) that we give back to those people as well. To do anything else is to be a parasite. Being in healthcare, I can assure you , too many parasites can kill the host.

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Veteran_Lender
Message #952 - 02/02/10 02:23 AM

We need legislation, with teeth, enforced, to make sure foreign made goods can't be sold here at a cost less than what comparable domestically made products sell for. I also believe we need to find more balance between the average worker's wage and the outrageous compensation amounts of CEO's.

Sorry... no. CEOs want everything below them at poverty level wages while generating peak performance numbers. Nice dream, totally unrealistic. There is no need for legislation. The back draft from too much of it is what is ahead. We are experiencing some now. When industries fail, their own lobbying that created the glass ceiling to prevent competition also thwarts recovery. We can fund all the small businesses we want, but we will not see them thrive until civil reconstruction occurs first. If China fails or at least decides not to stock our lifestyles (read: no goods on shelves) we will become frantic but we cannot use good ol' American Ingenuity to escape the Fate. Laws prohibit it.

[Virgil Showlion]

Old and gray
Message #954 - 02/02/10 04:10 AM



Tried to post about fifteen times. Fifteen times I was kicked out. When I finally got back in securely, my post was obliterated.

Too frustrating to re-try from the beginning, message and all.

---

LongSam
Message #955 - 02/02/10 04:40 AM



Old and Grey, I'm sorry your post was ruined. The issue has been reported to the Microsoft techs. I know this will not make you feel better, but you are not alone in the frustration department.

Sam/MSN Money Moderator

---

Old and gray
Message #956 - 02/02/10 02:23 PM



LongSam



Thanks for your sympathetic response, but they've done me in.

If others are subject to similar experiences, someone is at work. Not something, or technical problems, but someone specifically. Hackers, hosts, "ghosts" private or public, whoever they are. They haven't penetrated my defenses, but, they've prevented expression of personal thoughts as well as destroyed my desire to participate here which is definitely more dangerous than technical glitches and bugs. This growing interference is not a glitch. Technical events and situations I can deal with; "ghosts", I cannot. Nowhere else on the net or with my PCs do I have the slightest hint of a problem. MSMoney is the one and only place. The significance of that observation should be clear.

I've served my country, my community, my family with what I hope was concern, dedication and dignity. How many times can you suffer rejection and still retain respect for yourself. It's not the first time I've concluded, Fine! If you're not wanted, go elsewhere, then exited.

Little more than two months from now, I intend to celebrate my 89th birthday. It will not be in a frustrated mood. I'll try to express myself in other media.

To all: It's been a fine journey. Keep up the effort, you DO serve a function whatever your views.



Even as I wrote this, an alert on my PC defense popped up, "Intrusion detected and blocked"! In my PC defense, that's a serious detection of an attempt at a security breach. That's also sophisticated, technically advanced and man made!



Goodbye, good luck to all. Serve your will . . your family. . . and your country. . . Not your banker or politician.

---

saldeck
Message #957 - 02/02/10 03:39 PM



Oh not adieu, Old and Gray, I will miss you!

I want to tank you for all your thoughts. They have been so important to me. I look ahead to the future with hopes and I wish to meet you again.

Advance Happy Birthday!

Regards,

Valentine

[Virgil Showlion]

ASK
Message #958 - 02/02/10 03:44 PM



O&G,



I am sorry this is happening to your posts. I don't blame you for being frustrated. Perhaps, a solution to not loosing your post could be to write it in "Microsoft Word" and then copy and paste it onto the board. At least then if your post fails you don't have to rewrite it. Just a suggestion to try to keep you posting. You will be missed O&G.

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neohguy
Message #959 - 02/02/10 05:57 PM

Thanks for everything Old and gray. I can't say that I blame you for giving up on MSN but we sure are going to miss you. I'm glad I've copied the entire thread because it would be a total shame if it disappeared.

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stonerdr
Message #960 - 02/02/10 06:11 PM



Well, first Jim Jubak leaves; then, Duffminster; then, MS creates a labyrinth to get to this sight; now, O&G is leaving?



Lucky for me, I decided to download this thread a while ago and keep the download updated. There's enough substance here to keep a person busy for the better part of his life.



If he is really gone, this site just dropped down several notches in quality. What's left to sustain it?

If O&G's suspicions are right, as a nation we're facing more than just some tough economic times. My impression: he knows what he's talking about. More and more economists and politicians are coming out of the shadows after discovering "the truth" and are now preaching the gospel O&G has been posting for the past couple of years.



My gratitude and best wishes, O&G. You're not O&G to me. You're forever young and dazzling brilliance. From my heart. . .

[Virgil Showlion]

HappyDaysareHere
Message #961 - 02/02/10 08:54 PM



I'd add my thanks, too. I'd like to think it's just a matter of frustration with the operating system, but, it may be more than that.



O&G, your leaving is a loss to this community, loss of a principal focal point. And, as stonerdr said, the site drops down in quality, an attribute we all need desperately nowadays.



I just came from the TV where Volcker is testifying to explain the precise reach of the "Volcker Rule". I know what I've read on this thread, and I know what I heard of the Volcker Rule, it's almost one and the same. O&G preached, "Too big to Fail is too big to manage, too big to exist." From the start, he and Duffminster had the gambling aspect of the derivatives pegged, and stood fast with the proposal that they were unhealthy to banking and should be purged. Through his links, I became addicted to VoxEU and CEPR, and discovered that more and more economists are coming out echoing the same thoughts O&G had.

He insisted he never led a parade in his life, but those economists now in the open must have been in a hidden, "shadow" parade somewhere off on the side, not to have been seen or heard clearly before.

I'm retired after a professional career which required an advanced degree, but I feel that my education in regard to the real world started here. I don't know who he was, but it was clear to me from the outset that he was an exceptional person.

I hope he comes back. I lost my headlights in this dark world.

All we have left now is the news media which in many aspects is a joke.

I just saw another one less than a half hour ago. . Maybe not a joke, maybe a serious attempt to control thought.

Plain as day, I heard Volcker testify in his opening remarks that some sort of resolution authority for large banks should be set up so that were they to get into speculation over their head, they be eased into a shut down. His concluding remark was that such failing banks should be led to "euthanasia, not a rescue." In the crawler at the bottom of the screen, CNBC reported him as saying that "Euthanasia is a not a rescue." I don't know if they were trying to influence my thought or not, but they certainly lost my respect on that issue alone.



Come back, O&G. I'll raise a toast in your honor. If you don't, I'll raise another in your honor.

---

Defining Quality
Message #962 - 02/02/10 11:03 PM



Old and Gray - Life passes faster and faster the closer you get to the end of the Journey.

I'm sorry to see you leave but I completely understand!

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Scared_Shirtless
Message #963 - 02/03/10 05:17 PM



O&G;



Thanks.



From too many levels to write about.



We can hope - but I've lost a dear friend on MSN.



If you ever need anything - please don't hesitate to ask.



A grateful reader/admirerer... still shirtless

---

ComoKate
Message #964 - 02/03/10 06:56 PM



O & G

Your wisdom is appreciated and admired, and you will be greatly missed by all. My PC had an attack as well to the point I had to wipe it clean down to the hardrive and reinstall the operating system. We do live in "interesting times". If there is a way to send my email address to you, let me know, I'd love to keep in touch. Have a wonderful and happy 89th-

[Virgil Showlion]

jwbrad88-ModE
Message #965 - 02/03/10 09:11 PM

O&G ... Come back anytime you are able. We need true wisdom and common sense that comes with age and experience. You will be missed.

---

Duffminster
Message #966 - 02/04/10 09:15 PM

You can post on my blog anytime Old and Gray. I've experienced similiar things posting before as well. Just cause its a conspiracy doesn't mean its not true.

I've been away with dealing with some personal issues myself. You have given much of your time and yourself to all of us and I for one am much better educated about how the financial industry has basically plundered this nation using so called financial engineering. More like they have engineered the world's greatest transfer of wealth from the poor to the rich and they have made the un-ethical, imorale and down right evil of guile, avrice and the sytematic destruction of our democracy and the health of our nation FULLY LEGAL. The laws has become worse than a mockery of justice, it has become a tool of injustice through the corruption of money.

If you post a temporary email or send me an email to the last address you have for me, I'll set you up as an author on my Blog, or if that is not suitable, I'll set up a blog dedicated to your topic and make you the editor.

May I suggest that the best approach is to simply have one of your youngsters set up a blog for you, I recommend getting your own domain name and using wordpress and then just send me an email with the blog site address and I'll put links from my blog to your blog. I'll also post your posts in mine.

The information you are providing is just to valuable to the world at this tipping point to be stifled this way in my opinion.

Contact me and I'll go into more detail.

Duffminster

---

Duffminster
Message #967 - 02/04/10 09:41 PM

Old and Gray,
Contact me at [e-mail]

First tell me here which email address you will be using to make contact so that I can verify its you.

Thanks,
Duffminster

"The conscious and intelligent manipulation of the organized habits and opinions of the masses is an important element in democratic society. Those who manipulate this unseen mechanism of society constitute an invisible government which is the true ruling power of our country." · Edward Bernays, Propaganda, P.37

---

Old and gray
Message #968 - 02/04/10 10:55 PM



I'll be in touch with you, Duff.

I've already posted two comments on your site using a psudonym with the OG initials. I'll contact you directly from that site.

Should that fail to get through, I'll use the gmail address above. I need a little time to regroup. Nothing serious.



And, to all my friends, thank you for the kind thoughts.

[Virgil Showlion]

Scared_Shirtless
Message #969 - 02/05/10 12:53 PM



O&G



I've been reading Duff's blog.



I saw it. I knew it - even before I came here.



And I posted too Duff.



"Awaiting moderation"



ALL the best to everyone!

---

mdiw
Message #970 - 02/05/10 03:08 PM

Duffminster, somehow I must have missed any announcement about your blog. I would love to visit and read your information as I have less than full faith in the MSM. How do I find it? Thank you for all of the information you have shared and made me aware of.

SLC

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neohguy
Message #971 - 02/05/10 03:22 PM

How do I find it?

[www.duffminster.com/SilverandGold/] www.duffminster.com/SilverandGold/

---

Old and gray
Message #972 - 02/05/10 04:19 PM



Duff



My eventual contact will be via ongops.

[Virgil Showlion]

Duffminster
Message #973 - 02/05/10 06:03 PM



I check that email every few days. I'll respond when I see it.



Be well until then.

---

BRENTEFS
Message #975 - 02/06/10 06:45 PM

Thanks for responding O&G. The knowledge that has been gained by so many from so few (you and Duff) should not just fade away. I was made aware of your sudden departure from this site by no less than 14 e-mails from people I had directed to the site to better educate them on the disaster that occurred on WS. Please continue the postings as soon as you cool down..B.L.

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neohguy
Message #976 - 02/08/10 06:10 PM



It would be nice (and respectful) to keep this pinned to the top. Old and gray put a whole lot of work into it.

---

ASK
Message #977 - 02/08/10 06:15 PM

I would like to see it pinned as well. This thread takes a long time to read and I haven't finished.

[Virgil Showlion]

Driftr
Message #978 - 02/08/10 06:21 PM



O&G - Thank you for everything you've shared while you were here.



Third vote to leave pinned (re-pin).

---

decoy409
Message #979 - 02/08/10 06:28 PM

If others are subject to similar experiences, someone is at work. Not something, or technical problems, but someone specifically. Hackers, hosts, "ghosts" private or public, whoever they are. They haven't penetrated my defenses, but, they've prevented expression of personal thoughts as well as destroyed my desire to participate here which is definitely more dangerous than technical glitches and bugs. This growing interference is not a glitch. Technical events and situations I can deal with; "ghosts", I cannot. Nowhere else on the net or with my PCs do I have the slightest hint of a problem. MSMoney is the one and only place. The significance of that observation should be clear.

O&G , I have been having the same issues for the past 5-6 days now and only here on MT. Why do you think I kept putting a x and nothing else. It was the only way to get a post to go.

O&G you are dam correct! And O&G I have very HIGH VALUED RESPECT for you. Not only did you teach me but you also confirmed much of what I have been following over the years. Thank you for that as you were one of the main reasons why I started posting here.

But as you say,if they do not want us here and rambling as we do,for now it may just be best to step back and let them have their space. It is up to people to educate ones self. You showed everyone EXACTLY what transpires and why. And may I add with a factual basis.

Enjoy your birthday O&G and 'HAPPY BIRTHDAY' as well!



You will be sadly missed here O&G. Now we can look forward to more lies and deceit from the dark side pumping sunshine and with out your credibility to be dismissing them.

Yes O&G this is getting really good now. O&G gone,V_L gone in a matter of days and 2 deaths my way in the past 2 weeks. Yeah this is getting really good.

---

Duffminster
Message #980 - 02/09/10 08:21 PM

The teachings of this thread will not pass from our understanding. They are a permanent legacy to the spirit of free and open intellectual interchange and wisdom and knowledge born of experience. To the eternal light of true democracy and freedom of speech!

---

namujuj
Message #981 - 02/09/10 08:58 PM



Absolutely correct. As a small business owner I am required to pay quarterly income taxes and at the end of the year I am obligated to submit a tax form disclosing all my financial dealings. It only seems reasonable to me that companies who sell shares to the public should not only report quarterly activities but also be audited quarterly by independent firms, yet as the Enron fiasco revealed, even these people can be bribed to cheat and lie. Transparency is vital for a free market to exist: How can I develop a reasonable course of action if the information I am getting is either lacking, flawed, or worse, fabricated out of thin air. I also think, as in the case of Mad-off, those who are involved in deceptive (ponzi) schemes should be treated as dope dealers who if caught have all their assets frozen/confiscated until they can prove what was legitimately gained and what wasn't. That can of worms could easily led to having all of their assets confiscated, including anyone one else who possibly benefitted from the formers illegal activities. Hit them (the greedy) where it hurts. Jail time and fines are essentially nonsense in nature because a man like Mad-off has done his job: Made his family wealthy. He will do his time and pay a fine that is a fraction of what he stole. Instead, he and his family should be striped of all their wealth, after all, wasn't his forgotten wealth used to make legitimate investments (money laundering)



When did honesty turn into some socialistic/communistic idea. Capitalism needs/desrves honesty to be of the highest principal it holds dear to its survival, and ours.

[Virgil Showlion]

Duffminster
Message #982 - 02/09/10 09:05 PM

Madoff is small time compared to the criminals who steal money legally and who pick up the phone and tell government what new laws they need and which banks they want to take over during the next crisis they manufacture.

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stonerdr
Message #983 - 02/09/10 09:18 PM

Another vote for pinning this at the top.

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ComoKate
Message #984 - 02/09/10 10:36 PM

I would like to see it pinned as well. This thread takes a long time to read and I haven't finished.

[Virgil Showlion]

Veteran_Lender
Message #985 - 02/09/10 10:40 PM

Archie... I "stuck" this thread because it is literally worth its weight in gold and information. People trying to understand the course leading to today and relevant aspects can find them all here. Please consider putting it back where is truly, rightfully belongs (on top).

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BiMetalAUPT
Message #986 - 02/09/10 11:13 PM

V.L,
I agree with you.. It is worth time to read and re-read..Please RE-Pin.

Bi Metal Au Pt (bruce)

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saldeck
Message #987 - 02/10/10 11:49 AM



At the top of the list!

The financial tsunami is not over, on the contrary, the response to the tsunami has planted seed for two new tsunami: rising public debt and inflation.

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Falling Sky - Not
Message #988 - 02/10/10 12:24 PM

I join the the group - This thread should remained pinned - it is the most thought-out and informative thread on the financial crisis facing our country today! Keep this thread alive !

[Virgil Showlion]

Veteran_Lender
Message #989 - 02/10/10 12:34 PM

bump

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ARCHIEtheDRAGON
Message #990 - 02/10/10 01:20 PM

I'm a big fan of topping threads with new messages to keep them at the top of the message board. That said, it looks like there are quite a few who would like to see it pinned. Can we first try to keep the thread alive with new posts and see how that works? If it doesn't and the thread is falling back and people would still like to see if pinned, then I will pin it.

Is that cool?

ArchietheDragon - MSN Moderator

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neohguy
Message #991 - 02/10/10 01:31 PM

I'm a big fan of topping threads with new messages to keep them at the top of the message board. That said, it looks like there are quite a few who would like to see it pinned. Can we first try to keep the thread alive with new posts and see how that works? If it doesn't and the thread is falling back and people would still like to see if pinned, then I will pin it.

Thanks for considering Archie but I don't think it's the type of thread that was meant for daily participation. It's a major work of reference in my opinion. The thread provides clear definitions and history of many complex terms (for example, derivatives, CDS etc). The thread was mostly composed by a wise old man that actually lived during the time of the Great Depression. He was truly a gift to us because he is one of very few remaining that could compare the situation back then to now.

If you take the time to read it, I think you will find hundreds, if not thousands of hours, of thoughtful work.

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HappyDaysareHere
Message #992 - 02/10/10 02:15 PM



I second neohguy's motion. Pin it! At this time there are 35 posts which do not deal with the issues expressing interest, which come on like real concern for the thread. How many hits without posts since O&G opted out?



Depending on daily posts will only lead to a lot of little posts, which might be well-intentioned but might discourage some from sifting through looking for the hardcore truths and analysis.

Ask Dan Shirley and Rovo where that leads.

[Virgil Showlion]

ASK
Message #993 - 02/10/10 02:19 PM



Archie,



O&G is not contributing anymore. This truly was his thread. He was the teacher and we are the students. The teacher is gone but the class has not ended. Thank you for your consideration regarding re-pinning it. We don't want the thread to fall back so we keep posting but without O&G they are just posts to keep the thread from falling back. Please pin it. I said please.

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ARCHIEtheDRAGON
Message #994 - 02/10/10 02:23 PM

Is O&G duffminster?

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neohguy
Message #995 - 02/10/10 02:30 PM

Is O&G duffminster?

No. Duff composed the beginning of the thread with O&G quotes from other threads.

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ASK
Message #996 - 02/10/10 02:34 PM

I was remiss in not acknowledging Duff's contribution to the thread.

[Virgil Showlion]

neohguy
Message #997 - 02/10/10 02:38 PM

Virgil Syonid provides a partial table of contents (message #394).

---

ARCHIEtheDRAGON
Message #998 - 02/10/10 02:39 PM

It's all starting to come together now.

Anyway, this is your forum, and it looks like the consensus is to sticky this thread, so thy will be done.

Atd - MSN Mod

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decoy409
Message #999 - 02/10/10 02:40 PM

Archie , pin it please,this thread uncovers so much that has been very valuable in finding answers.

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neohguy
Message #1000 - 02/10/10 02:40 PM

Thank you.

[Virgil Showlion]

ASK
Message #1001 - 02/10/10 02:40 PM

Thank you.

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HappyDaysareHere
Message #1002 - 02/10/10 02:45 PM



Arch. . . You haven't read through this thread. One couldn't be the other! I did enough writing and criticism in my day to recognize two completely different writing styles and personalities behind the works.

Besides, O&G's re-telling of the historic development of the financial environment was a chronicle by someone who lived though it. Duffminster, for all his assets, is not that old. Also, I sense a twinkle in O&G's eye sometimes when he posts with a touch of humor or concern for others that never shows up in Duffminster's work.

Go back and read some of the older posts. . Try # 157 that O&G referenced above.



I really believe he HAS been reading (and living through it all) for over 80 years!! Not so for Duffminster.



(On re-reading this post, it doesn't sound fair to Duffminster. He's one of the White-Hat people. I have nothing but respect for Duffminster. I should have said that I believe he has a few years ahead of him before reaching 80.)

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HappyDaysareHere
Message #1003 - 02/10/10 02:47 PM

You've got some fans already, Archie!! Nice start!

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ComoKate
Message #1004 - 02/10/10 06:34 PM

Thanks Three Trillion...