4/29/09

4/25/09

The Devil Really Did Make Ken Lewis Do It

Thursday, the Attorney General of New York released a letter summarizing the testimony (provided below) of Ken Lewis, Bank of America's CEO, regarding the acquisition of Merrill Lynch. Lewis's testimony describes the strong arm tactics used by Paulson, Bernanke, and federal regulators to continue the acquisition despite the fact that BAC's due diligence determined that Merrill was likely to realize a $14 billion loss for the 4th quarter of 2008. The extent of Merrill's deterioration was revealed to Lewis on 12/14/08 and he subsequently contacted then Treasury Secretary Paulson to indicate BAC's intent to invoke the Material Events Change (MAC) clause in the acquisition contract to void the deal. What followed was a series of threats by Paulson and Bernanke to fire Lewis and the board of directors, if the merger didn't proceed as planned.

We know that the board was aware of the threats by the meeting minutes attached as
Exhibits B and C. Paulson and Bernanke made verbal assurances to Lewis that the resulting losses from Merrill would be covered by future bailout disbursements, but they refused to give a written assurance for fear of disclosure (Exhibits C and D). As you probably know, the merger was completed and BAC reported over $15B in losses directly attributable to Merrill in the 4th quarter. Clearly, Lewis and BAC's board was derelict in its duty to shareholders. In fact, it can be argued (and it should be in court) that shareholders were deceived by senior BAC management so that said management could retain their lucrative positions. Who did Paulson, Bernanke, and BAC leave holding the bag? The usual suspects; Fidelity, Vanguard, State Street, T Rowe Price, and other retirement fund managers. In other words, us. Again.

As we're in the midst of the Crap Rally That Will Not Die, I can only wonder who else the Fed and Treasury have put the boots to. Their actions with BAC were blatantly illegal, so it's hard to remove much from consideration. I have grave doubts about shadowy Fed-surrogates, behind grassy knolls, buying S&P500 futures, since this could be detected in historical volume data. Perhaps, Tyler Durden of Zero Hedge has it right when he says that hedge funds and GS are the real Plunge Protection Team, flitting in and out of low volume markets to manipulate prices. However, Occam's Razor rarely disappoints, so I'm inclined to look towards the $3.5T slush fund that is perfect for this very thing. This slush fund contains the dumbest money ever, has little transparency, won't stand the test of redemption for years, and is controlled by few, some of whom are even TARP recipients.

Most equity retirement (401(k)/IRA) mutual funds claim a maximum stock allocation of 80%, but I'd wager that they are quite a bit north of that. In fact, I wouldn't be shocked to find that some of the $3.8T of money market funding hadn't slipped the leash and found its way into the equity markets. Lewis testified and Paulson corroborated that the government verbally promised to "fill the holes," so I don't think my tin foil hat is terribly shiny here. Nevertheless, this is purely speculation from an entirely unqualified observer, so I encourage you to peruse the Investment Company Institute's archive of mutual fund data and annual Factbook, the EBRI's Databook, and Federal Reserve Board's Flow of Funds Z.1 and see what's what.

Ken Lewis Testimony_BAC_AGNY

STATE OF NEW YORK OFFICE OF THE ATTORNEY GENERAL 120 Broadway New York, NY 10271 ANDREW M. CUOMO Attorney General (212) 416-8050 April 23, 2009 The Honorable Christopher 1. Dodd, Chairman u.s. Senate Committee on Banking, Housing, and Urban Affairs 534 Dirksen Senate Office Building Washington, DC 20510 The Honorable Barney Frank, Chairman House Financial Services Committee Democratic Staff 2129 Rayburn House Office Building Washington, DC 20515 Re: Mary L. Schapiro, Chairman U.S. Securities and Exchange Commission Office of the Chairman 100 F Street, NE Washington, DC 20549 Ms. Elizabeth Warren, Chair Congressional Oversight Panel 732 North Capitol Street, NW Rooms C-320 and C-617 Mailstop: COP Washington, DC 20401 Bank of America - Merrill Lynch Merger Investigation Dear Chairpersons Dodd, Frank, Schapiro and Warren: I am writing regarding our investigation of the events surrounding Bank of America's merger with Merrill Lynch late last year. Because you are the overseers and regulators of the Troubled Asset Relief Program ("TARP"), the banking industry, and the Treasury Department, we are informing you of certain results of our investigation. As you will see, while the investigation initially focused on huge fourth quarter bonus payouts, we have uncovered facts that raise questions about the transparency of the TARP program, as well as about corporate governance and disclosure practices at Bank of America. Because some matters relating to our investigation involve federal agencies and high-ranking federal officials charged with managing the TARP program, we believe it is important to inform the relevant federal bodies of our current findings. We have attached relevant documents to this letter for your review. On September 15,2008, Merrill Lynch entered into a merger agreement with Bank of America. The merger was negotiated and due diligence was conducted over the course of a tumultuous September 13-14 weekend. Time was of the essence for Merrill Lynch, as the company was not likely to survive the following week without a merger. The merger was approved by shareholders on December 5, 2008, and became effective on January 1,2009. The week after the shareholder vote - and days after Merrill Lynch set its bonuses ­ Merrill Lynch quickly and quietly booked billions of dollars of additional losses. Merrill Lynch's fourth quarter 2008 losses turned out to be $7 billion worse than it had projected prior to the merger vote and finalizing its bonuses. These additional losses, some of which had become known to Bank of America executives prior to the merger vote, were not disclosed to shareholders until mid-January 2009, two weeks after the merger had closed on January 1,2009. On Sunday, December 14,2008, Bank of America's CFO advised Ken Lewis, Bank of America's CEO, that Merrill Lynch's financial condition had seriously deteriorated at an alarming rate. Indeed, Lewis was advised that Merrill Lynch had lost several billion dollars since December 8, 2008. In six days, Merrill Lynch's projected fourth quarter losses skyrocketed from $9 billion to $12 billion, and fourth quarter losses ultimately exceeded $15 billion. Immediately after learning on December 14,2008 of what Lewis described as the "staggering amount of deterioration" at Merrill Lynch, Lewis conferred with counsel to determine if Bank of America had grounds to rescind the merger agreement by using a clause that allowed Bank of America to exit the deal if a material adverse event ("MAC") occurred. After a series of internal consultations and consultations with counsel, on December 17,2008, Lewis informed then-Treasury Secretary Henry Paulson that Bank of America was seriously considering invoking the MAC clause. Paulson asked Lewis to come to Washington that evening to discuss the matter. At a meeting that evening Secretary Paulson, Federal Reserve Chairman Ben Bernanke, Lewis, Bank of America's CFO, and other officials discussed the issues surrounding invocation of the MAC clause by Bank of America. The Federal officials asked Bank of America not to invoke the MAC until there was further consultation. There were follow-up calls with various Treasury and Federal Reserve officials, including with Treasury Secretary Paulson and Chairman Bernanke. During those meetings, the federal government officials pressured Bank of America not to seek to rescind the merger agreement. We do not yet have a complete picture of the Federal Reserve's role in these matters because the Federal Reserve has invoked the bank examination privilege. Bank of America's attempt to exit the merger came to a halt on December 21, 2008. That day, Lewis informed Secretary Paulson that Bank of America still wanted to exit the merger agreement. According to Lewis, Secretary Paulson then advised Lewis that, if Bank of America invoked the MAC, its management and Board would be replaced: [W]e wanted to follow up and he said, 'I'm going to be very blunt, we're very supportive on Bank of America and we want to be of help, but' -- as I recall him saying "the government," but that mayor may not be the case - "does not feel it's in your best interest for you to call a MAC, and that we feel so strongly," -- I can't recall ifhe said "we would remove the board and management if you called it" or ifhe said "we would do it if you intended to." I don't remember which one it was, before or after, and I said, "Hank, let's deescalate this for a while. Let me 2 talk to our board." And the board's reaction was of "That threat, okay, do it. That would be systemic risk." In an interview with this Office, Secretary Paulson [argely corroborated Lewis's account. On the issue of terminating management and the Board, Secretary Paulson indicated that he told Lewis that if Bank of America were to back out of the Merrill Lynch deal, the government either could or would remove the Board and management. Secretary Paulson told Lewis a series of concerns, including that Bank of America's invocation of the MAC would create systemic risk and that Bank of America did not have a legal basis to invoke the MAC (though Secretary Paulson's basis for the opinion was e,ntirely based on what he was told by Federal Reserve officials). Secretary Paulson's threat swayed Lewis. According to Secretary Paulson, after he stated that the management and the Board could be removed, Lewis replied, "that makes it simple. Let's deescalate." Lewis admits that Secretary Paulson's threat changed his mind about invoking that MAC clause and terminating the deal. Secretary Paulson has informed us that he made the threat at the request of Chairman Bernanke. After the threat, the conversation between Secretary Paulson and Lewis turned to receiving additional government assistance in light of the staggering Merrill Lynch losses. Lewis spoke with individual Board members after his conversation with Secretary Paulson. The next day, December 22,2008, the Board met and was advised of Lewis's decision not to invoke the MAC. The minutes of that meeting listed the key points of Lewis's calls with Secretary Paulson and Chairman Bemanke: (i) first and foremost, the Treasury and Fed are unified in their view that the failure of the Corporation to complete the acquisition of Merrill Lynch would result in systemic risk to the financial system in America and would have adverse consequences for the Corporation; (ii) second, the Treasury and Fed state strongly that were the Corporation to invoke the material adverse change ("MAC") clause in the merger agreement with Merrill Lynch and fail to close the transaction, the Treasury and Fed would remove the Board and management of the Corporation; (iii) third, the Treasury and Fed have confirmed that they. will provide assistance to the Corporation to restore capital and to protect the Corporation against the adverse impact of certain Merrill Lynch assets: and (iv) fourth, the Fed and Treasury stated that the investment and asset protection promised could not be provided or completed by the scheduled closing date of the merger, January 1, 2009; that the merger should close as schedu[ed, and that the Corporation can rely on the Fed and Treasury to complete and deliver the promised support by January 20, 2009, the date scheduled for the release of earnings by the Corporation. The Board Minutes further state that the "Board clarify[ied] that is [sic] was not persuaded or influenced by the statement by the federal regulators that the Board and management would be 3 removed by the federal regulators if the Corporation were to exercise the MAC clause and failed to complete the acquisition of Merrill Lynch." Another Board meeting was held on December 30,2008. The minutes of that meeting stated that "Mr. Lewis reported that in his conversations with the federal regulators regarding the Corporation's pending acquisition of Merrill Lynch, he had stated that, were it not for the serious concerns regarding the status of the United States financial services system and the adverse consequences of that situation to the Corporation articulated by the federal regulators (the "adverse situation"), the Corporation would, in light of the deterioration of the operating results and capital position of Merrill Lynch, assert the material adverse change clause in its merger agreement with Merrill Lynch and would seek to renegotiate the transaction." Despite the fact that Bank of America had determined that Merrill Lynch's financial condition was so grave that it justified termination of the deal pursuant to the MAC clause, Bank of America did not publicly disclose Merrill Lynch's devastating losses or the impact it would have on the merger. Nor did Bank of America disclose that it had been prepared to invoke the MAC clause and would have done so but for the intervention of the Treasury Department and the Federal Reserve. Lewis testified that the question of disclosure was not up to him and that his decision not to disclose was based on direction from Paulson and Bernanke: "I was instructed that 'We do not want a public disclosure. '" Secretary Paulson, however, informed this Office that his discussions with Lewis regarding disclosure concerned the Treasury Department's own disclosure obligations. Prior to the closing of the deal, Lewis had requested that the government provide a written agreement to provide additional TARP funding before the close of the Merrill Lynch/Bank of America merger. Secretary Paulson advised Lewis that a written agreement could not be provided without disclosure. Lewis testified that there was no discussion with the Board about disclosure to shareholders. However, on the night of December 22, 2008, Lewis emailed the Board, "I just talked with Hank Paulson. He said that there was no way the Federal Reserve and the Treasury could send us a letter of any substance without public disclosure which, of course, we do not want." The December 30 Board meeting minutes further reflect that Bank of America was trying to time its disclosure of Merrill Lynch's losses to coincide with the announcement of its earnings in January and the receipt of additional TARP funds: "Mr. Lewis concluded his remarks by stating that management will continue to work with the federal regulators to transform the principles that have been discussed into an appropriately documented commitment to be codified and implemented in conjunction with the Corporation's earning [sic] release on January 20, 2009." It also bears noting that while no public disclosures were made by Bank of America, Lewis admitted that Bank of America's decision not to invoke the MAC clause harmed any shareholder with less than a three year time-horizon: 4 Q. Wasn't Mr. Paulson, by his instruction, really asking Bank of America shareholders to take a good part of the hit of the Merrill losses? What he was doing was trying to stem a financial disaster in the financial markets, from his perspective. From your perspective, wasn't that one of the effects of what he was doing? Over the short term, yes, but we still thought we had an entity that filled two big strategic holes for us and over long term would still be an interest to the shareholders. What do you mean by "short-term"? Two to three years. A. Q. A. Q. A. Notably, during Bank of America's important communications with federal banking officials in late December 2008, the lone federal agency charged with protecting investor interests, the Securities and Exchange Commission, appears to have been kept in the dark. Indeed, Secretary Paulson informed this Office that he did not keep the SEC Chairman in the loop during the discussions and negotiations with Bank of America in December 2008. As this crucial recovery process continues, it is important that taxpayers have transparency into decision-making. It is equally important that investor interests are protected and respected. We hope the information herein is useful to you in your federal regulatory and oversight capacities and we remain ready to assist further in any way. We also note that we have been coordinating our inquiry with the Special Inspector General for the Troubled Asset Relief Program, whose investigation also remains open. Andrew M. Cuomo Attorney General of the State of New York cc: Neil Barofsky Special Inspector General Troubled Asset Relief Program 5

4/19/09

The International Brotherhood of Bogeymen

I can't remember when I've read anything positive regarding organized labor. Lately, I've noticed a strong correlation between those who proclaim the inherent evil of labor unions and a marked lack of understanding of the subject. In particular, Mish Shedlock, author of MISH'S Global Economic Trend Analysis, cited a NY Times article about the United Steelworkers outrage over the use of imported, Indian steel in a Granite City, IL pipeline project. Granite City is home to US Steel's Granite City Works, which is an integrated steel plant employing 2000, that has been idle since December 2008. As a result, the local union members have staged vocal protests to draw attention to the situation. Shedlock is decidedly not a fan of organized labor and used the NY Times article as a platform to speak authoritatively on a subject that he doesn't seem to fathom:
Here's the deal. Like it or not, and union workers clearly don't, this is a global economy.
Companies cannot afford to pay high prices steel or they will not have any profits to share. Union wages and benefits are simply higher than the market can bear and there is no good solution other than what unions do not want to hear.

What Shedlock fails to mention is that the US steel industry is mostly idle due to a record decline in demand. The resulting collapse in steel prices was not followed by a corresponding collapse in raw material costs, with the exception of scrap. Thus, many integrated steel companies have chosen to pass on producing at a loss, leaving the market to low cost producers, like Nucor. At this point, you may be saying, "Hold on there, Little Lenin. Nucor is adamantly non-union." While this is true, Nucor's cost advantage is due to the fact that it uses scrap as a precursor, not iron ore. Truth be told, the primary expenses in the steel production are raw materials and energy, not labor. This is common knowledge amongst steel investors, but the concept seems to conveniently elude Shedlock. In fact, Shedlock goes on to declare unionization dead due to the uncompetively high wages required:
This is not just a steel issue. I am talking about flat panel TVs, steel, copper pipe, appliances, cars, electronics, underwear and damn near anything one can make. The days are gone where someone can be paid $40 an hour, $30 and hour, or even $20 an hour with enormous pension benefits at retirement.

In the US, the USWA negotiates using a pattern bargaining strategy, which amounts to a national master contract that is customized as needed at the lower levels. Thus, a US Steel contract will look very much like an AK Steel contract. Below are the basic pay rates from the current USWA/ArcelorMittal contract, effective 9/1/2008:


If we take Labor Grade 3 as the median, the 2008 base rate is $20.94/hour or $43,555/yr. To be fair, with production incentives, steelworkers will average 120% of their base yielding $52,266, which seems reasonable, considering the nature of the work. Pension liabilities will prove to be a significant profit drain in the future, but these are legacy costs. If the USWA disappeared tomorrow, the pension liabilities would still have validity. Typically, steel producers are replacing pension plans with defined contribution (401Ks), which don't resemble Shedlock's "enormous pension benefits" whatsoever.

For the record, let me state that I am not now, nor have I ever been, a union member. Nevertheless, I found the media's virtual criminalization of collective bargaining sufficiently suspicious to check it out for myself. The obvious question is, if unions are so unsustainable, how were they able to exist and the country thrive for 40 years? I haven't read that explanation, nor will I ever, I expect. It's my opinion that this economic crisis will provide fertile ground for companies to accelerate take-backs from their employees. In fact, we are already seeing this, in the form of 401(k) matching elimination and salary reductions. Wall Street and their legislative sycophants recognize the danger that unions could potentially represent to future profits, in the face of a massive middle class standard of living reduction, and have reacted accordingly. Ironically, major unions like the USWA and UAW don't seem to recognize their growth potential and choose to myopically focus on reducing take-backs in existing union shops. Regardless of your feelings about organized labor, I think that I've clearly demonstrated some of the hazards of outsourcing one's brain to pundits and experts.

4/17/09

Punditry

CNN ran an article last week discussing the increase in popularity of financial and economic blogs, due to the economic crisis. The article noted that several renowned economists, such as Roubini and Krugman, are also bloggers, lending credibility to the practice. I'm not certain that I agree with this conclusion, but let me take this opportunity to point out my complete lack of economic and financial credibility. I don't consider this an economic, financial, or political blog, but merely the blog of someone who is very interested in the financial and political events that are unfolding. Regardless, the cliche that you get what you pay for is always applicable.

The author cited Big Picture author, Barry Ritholtz:
"Bloggers, or independent voices, are helping to define the debate about what's taking place in the economy and with policymakers in D.C.," he says. "The secret to reading anything is knowing who knows what they're talking about and who not to bother with."

Per the article, President Obama didn't see it that way:
President Barack Obama, who has a staff-written blog on WhiteHouse.gov, has even acknowledged the presence of financial blogs, although he didn't offer a particularly flattering review, as he told the New York Times last month that he didn't find blogs to be reliable, specifically citing the economy as an example.

Obama's response isn't too surprising, considering that his economic policies haven't been well received on the internet. Nevertheless, let's not forget that 99.9999% of economists, pundits, and financial experts missed this meltdown. There are some exceptions (Roubini, Schiff, Todd Harrison and his Minyans), but not enough to vindicate the industry. It has been argued that the entire discipline can't be judged by on a single failing, but I disagree. If the surgeon conducting your kidney transplant installed a carburetor, would another bite of the apple would be necessary? Regardless, this crisis was spawned from a chain of events, spanning a decade, that should have been discernible, particularly from 2005 on, to anyone purporting themselves to be a financial expert. While some of these people have sincerely apologized, a thousand mea culpas doesn't yield a single QED.

I have to admit that my personal animosity towards economists and finance experts has grown exponentially over the last 6 months. As I delve more deeply into the causes and assumptions that lead to the crash, I find it analogous to peeling an onion, except each layer is made of stale excrement. The recurring theme is the confident assertion that a complex process (derivative pricing, MBS risk, etc) could be accurately modeled without accounting for all inputs. Intuitively, we know this is to be false, since weather forecasts aren't useful more than a few days out. Yet, the finance industry used this reasoning to justify huge risks by proclaiming that trees could, indeed, grow to the sky.

Now, after the gravy train has derailed, we are told that there is a pundit meritocracy that must be navigated in order to hear financial truth. To which, I call bullshit: the baby and the bath water are equally offensive. These clowns have profited from leading us down the garden path twice, now. (Remember the New Economy and the viability of profitless companies claptrap they fed us during the tech bubble?) If we were to send Paul Krugman to truck driving school, the impairment to the common good isn't so apparent. Would society be that much worse off by exiling the source of The Theory of Interstellar Trade and his kind to the open road? Perhaps logistically, but I'm willing to take the hit.

4/13/09

Default Proof Debt

Karmic accounts are always settled, in what is likely to be the only truly efficient marketplace.

4/9/09

Updated 4/9/09: Neo-Marxism, Conor Clarke, and High Assholery

4/9/09: Conor Clarke e-mailed a reply to this post in which he stated that he didn't personally ban me or delete the post. He speculated that another reader probably did so, due to the profane references. This sounds reasonable, so I've made the appropriate edits. I believe that we've agreed to disagree, although I feel obligated to point out that these matters would become infinitely easier if all of you would simply think like me.

The record will clearly indicate that I am a staunch Marxist with respect to group membership. Much like Groucho, I'm not interested in belonging to any group that would have me as a member. Fortunately, I can decrement the list, as I've been officially banned from the Atlantic's website for criticizing Conor Clarke. On April 4th, in response to the WSJ's article regarding Larry Summers' financial disclosure, Clarke wrote an article titled "Who Cares About Larry Summers' Income?" Clarke's article was a well worded, yet logically bankrupt essay that argued that the Summers' financial disclosure was irrelevant to the assessment of corruption inherent in the bailout subsidies. As a paying Atlantic subscriber, it turned out that I cared, so I responded accordingly in the comment section:

Bold=Excerpt from Clarke's article
Non-Bold=My reply

But I don't know why the "conflict of interest" is worse for Summers than it is for any publication that earns advertising revenue.
Have you bumped your head? Publications aren't formulating the economic policy that may well bankrupt the nation.

Trying to suss out whether Summers' position gestated under ethically troubling circumstances is a clever way of undermining the position without actually engaging it on the merits. Journalists should spend more time engaging things on the merits.
Amongst the non-lobotomized, it goes without saying that the economic policy of systemically subsidizing fraud is without merit. By ignoring the circumstances that cause the implementation of such corrupt policies, we would only be encouraging more of the same.

Stories about a conflict of interest or the appearance of impropriety always assume that closeness is a liability, not an asset. But it can be both, and Larry Summers can contain multitudes. Sure, extreme closeness can warp perspective. But closeness can also mean you have insight into a particular industry that others don't.
William Black had closeness to the financial industry. Larry Summers is an employee of the financial industry. The former has insight into an industry that others don't, the latter is an employee of the industry who masquerades as a public servant. See the difference? If not, let me suggest the following: http://www.theatlantic.com/doc/200905/imf-advice

I have to admit questioning the utility of protecting Summers from capture by Wall Street. After that raft of filthiness, I think that we may need to protect Wall Street from being captured by Larry Summers.

The last paragraph was an ill-advised, 2am, attempt at humor, which implied that as sleazy as Wall Street is, Summers may have them outsleazed. Regardless, I found an e-mailed reply in my inbox from Clarke requesting that we continue the conversation "inline because it's easier." I'd correctly assumed that he'd publicly replied at the Atlantic and was hoping that I wouldn't check.Here is what he posted:

Bold=Clarke's reply
Non-Bold=My reply

Have you bumped your head? Publications aren't formulating the economic policy that may well bankrupt the nation.

To the first point: Not recently. To the second point: sure, I agree that the stakes are higher in one case. But I'm referring to the ethical structure of the arrangement and not the stakes. It's a red herring to respond to the point by saying "but the stakes are really high here!"

Amongst the non-lobotomized, it goes without saying that the economic policy of systemically subsidizing fraud is without merit. By ignoring the circumstances that cause the implementation of such corrupt policies, we would only be encouraging more of the same.

Are you saying the merits of every larry summers position on financial regulation is so obviously wrong that you don't need to produce an argument against them? I might ask you to humor me and provide an actual argument. Things haven't been the same since my lobotomy...

William Black had closeness to the financial industry. Larry Summers is an employee of the financial industry. The former has insight into an industry that others don't, the latter is an employee of the industry who masquerades as a public servant. See the difference? [...] I have to admit questioning the utility of protecting Summers from capture by Wall Street. After that raft of filthiness, I think that we may need to protect Wall Street from being captured by Larry Summers.

Not totally sure what's going on here. Are you worried about Larry Summers being captured by Wall Street or vice versa?

I particularly enjoyed his last comment, "Not totally sure what's going on here." Clarke combined two of my paragraphs and eliminated a sentence (at the ellipsis) to render, as he deftly points out, an incomprehensible paragraph. I'm somewhat of an expert on being incomprehensible, so I the assistance wasn't appreciated. Regardless, here is my reply which he deleted:

This one of the sillier conversations I’ve had in awhile, but I’ll play anyway. The true red herring is “referring to the ethical structure of the arrangement and not the stakes.” It is a moot point if JP Morgan gives PeeWee Herman an exorbitant amount of money for doing little because PeeWee isn’t the architect of JP Morgan’s bailout. As I said before, ignoring the consequences will only beget more consequences.

The insinuation that Summers was “earning” $120k a pop, from corporations with significant capitalization impairments (AXP, JPM, GS), solely for producing noise from the hole in the front of his head is absurd. Those corporations were buying influence from a key advisor in the Obama campaign, plain and simple. There is no chronology problem since Summers was campaigning for Obama as early as 9/16/08 and the disclosure clearly indicates that Summers was taking compensation from Wall Street well after that. In fact, you could consider Summers’ 9/29/08 Washington Post commentary, “A Bailout Is Just a Start,” a solicitation for personal and campaign contributions. The fact that no cash was found in the freezer with Jamie Dimon’s prints on it is meaningless. [Clarke claimed in the comments that Summers was beyond reproach because he wasn't caught with cash stuffed in his freezer.] Given the choice, I’ll take a legalized bribe over an illegal one every day of the week. As the “ethical structure” has been clearly demonstrated to be anything but, let’s move on.

With respect to particular Summers’ masterstrokes, do we really need to spend much time debating whether the PPIP policy of subsidizing a 13:1 pot odds multiplier for private investors to induce overbetting on toxic assets with taxpayer funds solely for the benefit of the banks who spawned the toxicity is a good idea? Personally, I’d rather debate a topic with a less foregone conclusion; such as whether dangling my manhood in a Cuisinart is a viable, long term, weight loss strategy.

The bottom line is that this crisis was bought and paid for with corporate bribes that were euphemistically labeled contributions. The regulatory structure was parceled, and parceled cheaply, until the whole the thing imploded. To read your half-assed defense of this filth or the infinitely more criminal attempts to reinflate the Hindenburg on the taxpayer’s dime is disturbing. I sincerely hope you retained the receipt from your lobotomist because he clearly did you dirty. While his elimination of the critical thinking abilities was a resounding success, the communication skills still require his undivided attention.

So much for my aspirations to the coveted Groupie of the Month award.

4/4/09

Meet the Real New Boss

Just when I think that the level of federal corruption can't get any more blatant, our officials outdo themselves. Today, the Wall Street Journal published an article about Larry Summers, Director of the National Economic Council and Assistant to the President for Economic Policy, which provides a detailed account of how completely captured the government really is. The WSJ obtained a copy of Summers' SF278, which is the Executive Branch Personnel Public Financial Disclosure Report, that clearly demonstrates that Wall Street is dictating our economic policy. (As if more evidence was required.) The pdf can be dowloaded from the WSJ or from here. I think it is a fair statement to say that the US government has digressed to being the public relations and collections departments of Wall Street.

Summers SF278

4/2/09

Bottom Calling

The government and financial press are working overtime to sell the last market low as the bottom. As this is the third bottom that's been sold to us, you might want to wait before going all in on SPY or DIA. Yesterday, CNBC posted the Reuters wire report below. Thus, as the DJIA rallies another 250 points today and the financial press struggles with producing a plausible explanation, you may want to ponder who is doing all of this euphoric buying. As callous as it sounds, anybody that continues to lose money in 401(k) account mutual funds has nobody to blame but themselves.

Moody's downgraded $1.76 trln U.S. corp debt in Q1
NEW YORK, April 1 (Reuters) - Corporate America's credit quality collapsed in the first quarter, with Moody's Investors Service downgrading an estimated $1.76 trillion of debt, a record high, the rating agency said on Wednesday. The downgrades included a record number to the lowest rating categories, signaling the approach of the worst defaults since at least World War Two, Moody's chief economist John Lonski said in an interview. "These are numbers that just underscore how risky both the financial and economic environment remain," Lonski said. The downgrades reflect how badly corporate balance sheets have been hurt by the slump in consumer spending amid the deepest economic contraction since 1982. "Business sales and profits fell off the table in general during the final quarter of last year and have continued to deteriorate in the first quarter in 2009," Lonski said. U.S. corporate profits plunged a record $120.1 billion in the fourth quarter, depressed by tumbling consumer spending and exports. Downgrades of investment-grade companies shot up by 153 percent from the year-ago quarter to a record 96, while downgrades of junk-rated companies surged by 147 percent to 287. The rating downgrades were led by industries with exposure to the ailing housing industry, including homebuilders, mortgage insurers and major money center banks. Some 70 of the quarter's downgrades were housing related. "The most prominent new driving force behind credit rating reductions would be deterioration of commercial real estate," Lonski said. That is taking a toll on regional banks and companies that manufacture equipment and material used in construction, he said. The downgrades included one of the largest on record, $326 billion of bonds and preferred shares of General Electric Co and its units. Other major borrowers downgraded included Ford Motor Co, Citigroup and Bank of America. In addition to housing, sectors under rating pressure included automakers and auto parts suppliers, media companies, casinos and retailers. Among the downgrades were 22 fallen angels, or companies cut to junk status. In addition, 82 ratings were downgraded to the lowest categories, Caa3 or lower. That means that the U.S. high-yield default rate, which stood at 5.7 percent in February, is destined to climb sharply in short order, Lonski said. Moody's has forecast that the U.S. default rate will peak around 14.5 percent in November.