An Evening (Weekend) Wasted with Tom Lehrer April 16-18, 2010

[Demeter]

Is Monday a holiday? It was in Massachusetts....and the Teabaggers would have it so. Well, if the market doesn't open, this thread will stay on.

In order to balance the insanities of the Market this week and especially this morning, we will refresh ourselves periodically with the witty insanities of:

Thomas Andrew "Tom" Lehrer (born April 9, 1928), an American singer-songwriter, satirist, pianist, and mathematician. He has lectured on mathematics and musical theater. Lehrer is best known for the pithy, humorous songs he recorded in the 1950s and 1960s.

http://en.wikipedia.org/wiki/Tom_Lehrer

Remember the 50's and 60's, in this life or perhaps the previous? Air-raid drills in elementary school, Commie hunting Joe McCarthy, nuclear proliferation-- people actually worried about these things. Now we worry if all the best overpasses will be occupied by the time we are reduced to camping. There's still the purists who maintain that camping will be no hardship because it will be too hot to ever snow again...I'm not betting one way or the other. I am enjoying the spring.

The dandelions came out in force today--swaths of grass are glowing with those sunny yellow heads. So let's hear what Tom has to say about Nature:

http://www.youtube.com/watch?v=yhuMLpdnOjY&feature=related

So hold onto a dandelion and/or a stiff drink while we peruse the economic events of the moment....and for the youngsters:

http://www.youtube.com/watch?v=yhuMLpdnOjY&feature=related

[NoNothing]

1. Love Tom Lehrer

I just quoted him earlier today in a thread about the space program. I'll let you guess which song.

[Demeter]

2. Michigan Is Honored with the First Bank Failure of the Evening

The Federal Deposit Insurance Corporation (FDIC) approved the payout of the insured deposits of Lakeside Community Bank, Sterling Heights, Michigan. The bank was closed today by the Michigan Office of Financial and Insurance Regulation, which appointed the FDIC as receiver.

The FDIC entered into an agreement with First Michigan Bank, Troy Michigan, to accept the failed bank's direct deposits from the federal government, such as Social Security and Veterans' payments.

The FDIC was unable to find another financial institution to take over the banking operations of Lakeside Community Bank. As a result, checks to depositors for their insured funds will be mailed on Monday, April 19th. Brokered deposits will be wired once brokers provide the FDIC with the necessary documents to determine if any of their clients exceed the insurance limits. Customers who placed money with brokers should contact them directly for more information about the status of their funds.

As of December 31, 2009, Lakeside Community Bank had approximately $53.0 million in total assets and $52.3 million in total deposits.

...Beginning on Monday, customers of Lakeside Community Bank with deposits exceeding $250,000 at the bank may visit the FDIC's Web page "Is My Account Fully Insured?" at https://www2.fdic.gov/drrip/afi/index.asp.

Lakeside Community Bank is the 43rd FDIC-insured institution to fail this year, and the first in Michigan. The last institution closed in the state was Citizens State Bank, New Baltimore, on December 18, 2009. The FDIC estimates the cost of the failure to its Deposit Insurance Fund to be approximately $11.2 million.

Sterling Heights--my dad once worked for Borroughs there...please don't ask what Borroughs was--it died in 1986.

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10. Followed by a Three for One Deal in Florida, and another bank from Lowell MA.

TD Bank, National Association (N.A.), Wilmington, Delaware, acquired the banking operations, including all the deposits, of three Florida-based institutions. To protect depositors, the Federal Deposit Insurance Corporation (FDIC) entered into a purchase and assumption agreement with TD Bank, N.A.

The institutions were closed by their respective chartering authority, and the FDIC was named receiver for each institution. AmericanFirst Bank, Clermont, was closed by the Florida Office of Financial Regulation; First Federal Bank of North Florida, Palatka, was closed by the Office of Thrift Supervision; and Riverside National Bank of Florida, Fort Pierce, was closed by the Office of the Comptroller of the Currency. The three failed institutions were not affiliated with one another.

The branches of the three closed institutions will reopen as branches of TD Bank, N.A. under their normal business hours, including those with Saturday hours. Depositors will automatically become depositors of TD Bank, N.A. Deposits will continue to be insured by the FDIC, so there is no need for customers to change their banking relationship to retain their deposit insurance coverage. AmericanFirst Bank has three branches in Florida; First Federal Bank of North Florida has eight branches in Florida; and Riverside National Bank of Florida has 58 branches in Florida.

As of December 31, 2009, AmericanFirst Bank had total assets of $90.5 million and total deposits of $81.9 million; First Federal Bank of North Florida had total assets of $393.3 million and total deposits of $324.2 million; and Riverside National Bank of Florida had total assets of $3.42 billion and total deposits of $2.76 billion. Besides assuming all the deposits from the three Florida institutions, TD Bank, N.A. will purchase virtually all their assets.

The FDIC and TD Bank, N.A. entered into a loss-share transaction on $2.20 billion of the failed institutions' assets. Initially, TD Bank, N.A. and the FDIC will share in the losses on assets on a 50% - 50% basis....The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) for AmericanFirst Bank will be $10.5 million; for First Federal Bank of North Florida, $6.0 million; and for Riverside National Bank of Florida, $91.8 million. TD Bank, N.A.'s acquisition of all the deposits of the three institutions was the "least costly" option for the FDIC's DIF compared to alternatives.

These were the 44th, 45th, and 46th banks to fail in the nation this year, and the seventh, eighth, and ninth banks to close in Florida. Prior to these failures, the last bank closed in the state was Key West Bank, Key West, on March 26, 2010.

Butler Bank, Lowell, Massachusetts, was closed today by the Massachusetts Division of Banks, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with People's United Bank, Bridgeport, Connecticut, to assume all of the deposits of Butler Bank.

The four branches of Butler Bank will reopen during normal business hours beginning Saturday as branches of People's United Bank...As of December 31, 2009, Butler Bank had approximately $268.0 million in total assets and $233.2 million in total deposits. People's United Bank did not pay the FDIC a premium to assume all of the deposits of Butler Bank. In addition to assuming all of the deposits, People's United Bank agreed to purchase essentially all of the failed bank's assets...The FDIC and People's United Bank entered into a loss-share transaction on $206.1 million of Butler Bank's assets. People's United Bank will share in the losses on the asset pools covered under the loss-share agreement...The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $22.9 million. People's United Bank's acquisition of all the deposits was the "least costly" resolution for the FDIC's DIF compared to all alternatives. Butler Bank is the 47th FDIC-insured institution to fail in the nation this year, and the first in Massachusetts. The last FDIC-insured institution closed in the state was Ludlow Savings Bank, Ludlow, October 21, 1994.

Butler Bank is new to me. I once lived in Lowell--the armpit of the Universe.

[Demeter]

96. Live and Learn--Canadian Bankholding Co. Bought the Florida Triplets

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=102x4346989

[Dr.Phool]

3. Got our first bank already.

On Friday, April 16, 2010, Lakeside Community Bank, Sterling Heights, MI was closed by the Michigan Office of Financial and Insurance Regulation, and the FDIC was named Receiver. No advance notice is given to the public when a financial institution is closed.

The FDIC has assembled useful information regarding your relationship with this institution. Besides a checking account, you may have Certificates of Deposit, a car loan, a business checking account, a commercial loan, a Social Security direct deposit, and other relationships with the institution. The FDIC has compiled the following information, which should answer many of your questions.

(snip)

IV. Acquiring Financial Institution
An acquiring institution could not be located; therefore, the FDIC will fulfill its obligation to insured depositors by mailing checks for their insured amounts.


That place must really suck if they couldn't even give it away!

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6. Sterling Heights Is REALLY Depressed

and has been for decades. Too close to Detroit.

[Dr.Phool]

8. Wow! Four more in minutes!

Riverside National Bank of Florida

Butler Bank of Lowell MA

AmericanFirst Bank of Clermont Fl.

First Federal Bank of North Florida Palatka FL.

[OhioChick]

25. Wow...5 so far...

http://www.fdic.gov/bank/individual/failed/banklist.html

[ozymandius]

35. Thinking about putting your money in the Posturepedic Bank of Phool, Dr. Phool?

Just curious. I have learned to appreciate the habit of my father, who was a teenager when the worst of the Great Depression hit full force. He always had a roll of cash nearby.

[Dr.Phool]

49. It's pretty much all in there right now. Safe deposit box.

My dad just closed on his house in SC yesterday, and opened an account at BB&T, because there's a branch across the street from the retirement community he's moving into down here. I double checked everything to make sure he wasn't going over the FDIC limits.

He had a fairly wealthy lady friend in SC. And she was showing him a bunch of CD's and bank accounts to the tune of nearly a million dollars. All in the same bank. Just different branches. I told her that she should split that up among different banks, that she wouldn't be covered for more than $250k if they failed. She said that they told her that if it was in different branches, she'd be fully covered. They flat out lied to her, and she still believes them.

[Demeter]

46. What Joy Unconfined--Three MORE Banks Bite the Dust

Innovative Bank, Oakland, California, was closed today by the California Department of Financial Institutions, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Center Bank, Los Angeles, California, to assume all of the deposits of Innovative Bank.

The four branches of Innovative Bank will reopen during normal business hours beginning Saturday as branches of Center Bank...As of December 31, 2009, Innovative Bank had approximately $268.9 million in total assets and $225.2 million in total deposits. Center Bank paid the FDIC a premium of 0.5 percent to assume all of the deposits of Innovative Bank. In addition to assuming all of the deposits, Center Bank agreed to purchase essentially all of the failed bank's assets.

The FDIC and Center Bank entered into a loss-share transaction on $178.1 million of Innovative Bank's assets. Center Bank will share in the losses on the asset pools covered under the loss-share agreement...As part of this transaction, the FDIC will acquire a value appreciation instrument. This instrument serves as additional consideration for the transaction.

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $37.8 million. Center Bank's acquisition of all the deposits was the "least costly" resolution for the FDIC's DIF compared to all alternatives. Innovative Bank is the 48th FDIC-insured institution to fail in the nation this year, and the 3rd in California. The last FDIC-insured institution closed in the state was La Jolla Bank, FSB, La Jolla, February 19, 2010.


Tamalpais Bank, San Rafael, California, was closed today by the California Department of Financial Institutions, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Union Bank, National Association, San Francisco, California, to assume all of the deposits of Tamalpais Bank.

The seven branches of Tamalpais Bank will reopen on Monday as branches of Union Bank, N.A....As of December 31, 2009, Tamalpais Bank had approximately $628.9 million in total assets and $487.6 million in total deposits. Union Bank, N.A. paid the FDIC a premium of 2.0 percent to assume all of the deposits of Tamalpais Bank. In addition to assuming all of the deposits, Union Bank, N.A. agreed to purchase essentially all of the failed bank's assets.

The FDIC and Union Bank, N.A. entered into a loss-share transaction on $522.3 million of Tamalpais Bank's assets. Union Bank, N.A. will share in the losses on the asset pools covered under the loss-share agreement...The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $81.1 million. Union Bank, N.A.'s acquisition of all the deposits was the "least costly" resolution for the FDIC's DIF compared to all alternatives. Tamalpais Bank is the 49th FDIC-insured institution to fail in the nation this year, and the third in California. The last FDIC-insured institution closed in the state was Innovative Bank, Oakland, earlier today.


City Bank, Lynnwood, Washington, was closed today by the Washington Department of Financial Institutions, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Whidbey Island Bank, Coupeville, Washington, to assume all of the deposits of City Bank.

The eight branches of City Bank will reopen during normal business hours beginning Saturday as branches of Whidbey Island Bank....As of December 31, 2009, City Bank had approximately $1.13 billion in total assets and $1.02 billion in total deposits. Whidbey Island Bank paid the FDIC a premium of 1.0 percent to assume all of the deposits of City Bank. In addition to assuming all of the deposits, Whidbey Island Bank agreed to purchase approximately $704.1 million of the failed bank's assets.

The FDIC and Whidbey Island Bank entered into a loss-share transaction on $455.6 million of City Bank's assets. Whidbey Island Bank will share in the losses on the asset pools covered under the loss-share agreement...As part of this transaction, the FDIC will acquire a value appreciation instrument. This instrument serves as additional consideration for the transaction.

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $323.4 million. Whidbey Island Bank's acquisition of all the deposits was the "least costly" resolution for the FDIC's DIF compared to all alternatives. City Bank is the 50th FDIC-insured institution to fail in the nation this year, and the fifth in Washington. The last FDIC-insured institution closed in the state was Rainier Pacific Bank, Tacoma, February 26, 2010.

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52. If I Added Correctly, and Nothing Goes Boom in HI or AK Total Bite of

$584.7 Million minimum cost.

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48. Ever Wonder Why Banks Don't Fail in Alaska or Hawaii?

Very suspicious....

[Dr.Phool]

50. They have banks?

I was reading an article in the last couple of days (Krugman?) He was comparing Georgia and Texas. Why Georgia had so many failures and Texas didn't. He said that the two were geographically similar, as far as buildability, Texas seemed to have much stronger banking regulations, and consumer protections.

[Po_d Mainiac]

53. There are only 9 banks with HQ's in Hawaii

That list is likely to shrink to 7 in the near future

http://banktracker.investigativereportingworkshop.org/banks/hawaii/honolulu/

[Turbineguy]

4. My heart entreats

just hear those savage beats
and go put on your cleats
and come and trample me.

[Demeter]

7. Okay, Guy, Whatever You Say

http://www.youtube.com/watch?v=TytGOeiW0aE

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5. His Early Life

Born in 1928 in Manhattan, Tom Lehrer began studying classical piano music at the age of seven, but was more interested in the popular music of the age. Eventually, his mother also sent him to a popular-music piano teacher. At this early age, he began writing his own show tunes, which eventually would help him in his future adventures as a satirical composer and writer in his years at lecturing at Harvard University and later at other universities.

Lehrer was graduated from the Loomis Chaffee School in Windsor, Connecticut. While studying mathematics as an undergraduate student at Harvard University, he began to write comic songs to entertain his friends, including "Fight Fiercely, Harvard" (1945). Those songs later were named, The Physical Revue, a joking reference to a leading scientific journal, The Physical Review.

http://www.youtube.com/watch?v=3J04FRsesBQ


http://www.youtube.com/watch?v=SmwlzwGMMwc&feature=related

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9. Greece takes key step towards rescue

http://link.ft.com/r/R5WAEE/LQNRG5/Q38E1/404UFE/YHGQD4/PJ/t

George Papaconstantinou, finance minister, says the government wants to discuss ‘a multi-year economic policy programme’ with the Commission, the ECB and IMF...

THAT'S GOTTA SMART!

[Demeter]

11. China moves to prevent property bubble

http://www.ft.com/cms/s/0/98703912-483c-11df-b998-00144feab49a.html

China unveiled restrictions on property speculation on Thursday as economic growth accelerated to 11.9 per cent in the first quarter from the same period last year.

The latest data underlined the country’s rapid recovery from the global economic crisis but raised questions about the risks of overheating.

The economy expanded at its fastest rate in nearly three years – and more quickly than economists had expected – putting fresh pressure on the authorities to consider tougher tightening measures, including appreciating the exchange rate and interest rate rises.

In spite of rising fears of overheating, consumer price inflation dipped to 2.4 per cent last month from 2.7 per cent in February, according to data published on Thursday. But factory-gate inflation continued to accelerate, increasing half a percentage point to 5.9 per cent.

First-quarter gross domestic product figures came out a day after the government said housing prices had increased 11.7 per cent during the past 12 months.

The growth was the fastest since the data series began five years ago and prompted fresh concerns about a potential bubble in the property market.

The State Council said anyone buying a second home would need to put up a 50 per cent deposit, up from 40 per cent, while the mortgage rate for second homes was also increased. The down payment for first homes bigger than 90 sq m was set at a minimum of 30 per cent...

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20. Outsiders included in China lender’s IPO team

http://www.ft.com/cms/s/0/15902416-4838-11df-b998-00144feab49a.html


Macquarie and Deutsche Bank surprised the investment banking industry on Thursday when they were named among five foreign banks chosen to assist Agricultural Bank of China with its initial public offering.

The duo were viewed as outsiders to secure lucrative book-runner roles in what could be the world’s biggest listing yet. Their involvement highlights the rising ability of investment banks from outside the US and Switzerland to compete for key mandates in China.

State-owned Agricultural Bank is planning a dual IPO in Shanghai and Hong Kong that some analysts predict could raise Rmb200bn ($29bn).

The listing is expected to generate advisory fees of between $400m and $500m.

Agricultural Bank also named Goldman Sachs, Morgan Stanley and JPMorgan as book-runners for the Hong Kong offering, while China International Capital Corp will assist.

The mandate is a coup for Australia’s Macquarie, which only expanded its regional equity capital markets group in 2008. It is also a major consolation prize for Deutsche, which was working on the listing of AIG’s Asian insurance assets until the process was aborted last month in favour of a sale to the UK’s Prudential.

People familiar with the matter said that Deutsche, Goldman and CICC would be named as joint global co-ordinators of the Hong Kong offering, although there was no official comment whether the trio had been awarded an elevated role.

Representatives of the five banks met Agricultural Bank management and government officials in Beijing on Thursday in a two-hour “kick-off” gathering which formally launched the IPO process.

Agricultural Bank is the last of China’s large commercial lenders to seek a stock market listing. Its IPO was repeatedly delayed to allow the bank to reform its management and balance sheet. Chinese lenders are raising tens of billions of dollars in fresh capital to bolster balance sheets strained by rapid loan growth.

Two other foreign investment banks, Credit Suisse and Bank of America Merrill Lynch, have been chosen to assist Bank of China with its forthcoming $7bn capital-raising in Hong Kong.

“The top three or four foreign banks can’t handle all these capital raisings so Beijing sees the benefits of spreading the love around,” said one Hong Kong-based investment banker.

Goldman and CICC have also been chosen to advise on a possible $1bn IPO of China Grand Automotive Group, a mainland car dealer part owned by TPG, the US private equity fund, according to people familiar with the matter.

[Demeter]

21. China investigates western miners over iron ore

http://www.ft.com/cms/s/0/45a7ff9e-488c-11df-9a5d-00144feab49a.html

China, the world’s biggest buyer of iron ore, announced on Thursday that it would launch an investigation into whether Rio Tinto, BHP Billiton and Vale are exerting illegal monopoly control over global iron ore pricing.

The announcement, from China’s ministry of commerce, highlights Beijing’s continuing frustration at China’s inability to control the price of an input that is crucial to its steel industry.

This frustration helped motivate last month’s conviction of four Rio Tinto employees on charges of accepting bribes and stealing commercial secrets.

“The commerce ministry’s antitrust bureau is currently studying the issue,” a ministry spokesman said at a press conference. Authorities and steelmakers elsewhere, including the European Union, have also raised competition concerns.

The announcement confirmed reports earlier this week from state-affiliated media that such an investigation was in the offing.

But it was unclear on Thursday whether the announcement portends a full-blown investigation. Under China’s anti-monopoly law, which came into force in August 2008, investigations into monopoly pricing or cartel activity are not conducted by the ministry of commerce’s antitrust bureau but by other branches of government which jointly enforce the anti-monopoly law.

Beijing has so far launched very few monopoly pricing or cartel investigations, though it has been much more active in policing the anti-competitive effects of mergers and acquisitions, including those that take place entirely overseas.

The big miners are not thought to have been formally notified by the Chinese authorities of a possible investigation. BHP and Rio declined to comment.

Vale of Brazil and Anglo-Australian miners BHP and Rio dominate the global iron ore industry, accounting for about 70 per cent of the commodity’s exports.

China’s steelmakers have been vocal in their complaints about soaring iron ore prices and the recent demise of the 40-year old system that set an annual contract price for the commodity.

Eurofer, which represents European steelmakers, has also complained to the European Commission, saying there were “strong indications of illicit co-ordination of price increases and pricing models and pressure on individual steel producers to accept these changes”.

Ironically, news of a possible investigation comes as the global iron ore pricing system moves toward market pricing for the first time, with the demise of the benchmark system.

Credit Suisse said in a recent note: “We cannot see why the adoption of a quarterly pricing mechanism that follows a market index is perceived as being anti-competitive or that it creates market distortions.”

[Demeter]

23. Chinese banker given suspended death sentence

http://www.ft.com/cms/s/0/73609344-487b-11df-9a5d-00144feab49a.html

A senior Chinese banker was handed a suspended death sentence in Beijing on Thursday for taking bribes and abusing his power while serving as a top official at China Development Bank.

A Beijing court sentenced Wang Yi, 54, to death with a two-year reprieve for accepting bribes totalling Rmb11.96m ($1.75m) between 1999 and 2008, when he was first detained by authorities.

A suspended death sentence is usually commuted to life in prison in China.
AMERICAN COURTS TAKE NOTICE

The case has sparked intense interest because at least two prominent female celebrities have been implicated as accomplices and because the government appears to have completely ignored allegations that Mr Wang was involved in insider trading and other irregularities in China’s notoriously corrupt equity markets.

Before being appointed to China Development Bank, Mr Wang was a vice-chairman at the China Securities Regulatory Commission and its predecessor between 1992 and 1999.

Some Chinese commentators suggest the government chose to publicise the celebrity involvement and the bribery charges to distract the public from the wider problem of official corruption, particularly at the securities regulator. About 41,000 Chinese government officials were investigated for embezzlement, bribery, dereliction of duty and other work-related crimes last year, according to official figures.

Others say the sentence may have political implications for one of China’s most high-profile government officials. Mr Wang is closely linked with the family of Bo Xilai, the mayor of Chongqing, who is leading a crackdown on corrupt officials and triad gangs in the city.

Mr Wang previously served as personal secretary to Bo Yibo, Bo Xilai’s late father and a prominent member of a group of revolutionary founding fathers of communist China who controlled the party in the 1980s and 1990s and were referred to as the “eight immortals”.

The charges against Mr Wang do not include any suggestion of wrongdoing during his time as Mr Bo’s secretary or his time as a top official at the securities regulator. As the official in charge of share offerings and fund management companies at the CSRC, he wielded influence over the fund management industry and decisions over which companies could raise money through share sales.

Mr Wang was well-known in classical music circles, where his compositions were performed by the China National Symphony Orchestra.

[Demeter]

104. Devastating Drought in Shangri-La

http://chovanec.wordpress.com/2010/04/09/devastating-drought-in-shangri-la/

Rare is the year that goes by without reports of a flood or drought somewhere in China. But without a more specific sense of place and context, it’s hard to evaluate the significance of such calamities, or their impact on business and the economy. The “Nine Nations of China” framework can often be helpful in getting a handle on the situation.

The part of China most often afflicted by both flood and drought is the Yellow Land, an arid, densely populated region dependent on the turgid and unpredictable Yellow River for its water supply. The news these past few weeks, however, has been dominated by reports of a devastating drought affecting an entirely different area, the southwest provinces of Yunnan, Guizhou, and Guangxi — the region I call “Shangri-La.” Those who have read my description of Shangri-La may recall my mentioning, among its key resources, its plentiful supplies of water. Normally that’s true, but this year is different.

According to news reports, Shangri-La has gotten barely a drop of rain since September — over seven months. It’s worth keeping in mind, of course, that even in normal years, China is not like temperate regions in Europe or North America, which receive relatively even rainfall all year round. All of China, the north as well as the south, is affected by the monsoon, with a rainy season (the summer) and a dry season (the winter and spring). For instance, the city of Kunming, in the center of Shangri-La’s drought zone, averages more than 8 inches (20cm) of rain in July and August — as much as a tropical rainforest. Even in the winter, though, it typically gets at least half an inch a month, and 3-4 inches per month in the fall. Yunnan province’s name, which means “south of the clouds,” reflects the region’s reputation for having a moist, misty climate throughout the year.

Although some have been quick to blame this year’s drought on global warming, imperial records indicate that normally lush Shangri-La has, in fact, suffered severe droughts periodically throughout history (76 out of the 691 years from 1300 to 1991, to be precise). Though rare — or perhaps because they are so rare — these periods can wreak havoc on the region’s fragile economy.

Shangri-La is the poorest of China’s “nine nations,” and highly dependent on the crops it can grow in its usually nourishing environment. 400 cities, with over 20 million people, are already facing shortages of drinking water. But that’s merely an inconvenience, compared to the effect on farmers. Over 11 million livestock are going thirsty. The region’s tobacco crop (it’s main source of cash) and corn crop (it’s main source of subsistence) are planted in May – before the monsoon – but that may prove impossible this year. Almost 5 million hectares are affected. Farmers who can’t plant crops may have to migrate to find jobs to support their families.

The drought is already having an effect on some of Shangri-La’s other important cash crops. China’s rubber industry, based in southern Yunnan, has virtually ceased production due to water shortages. Thailand, the world’s largest rubber exporter, which lies downstream and receives its water from Shangri-La’s rivers, is also severely affected. As a result, Bloomberg reported Monday that global rubber prices have hit a 20-month high. Chinese tire makers, mainly located in the Back Door and the Metropolis, are seeing their margins evaporate. Already hit hard by U.S. tariffs, they face rubber prices that have risen to $3,633 per ton, more than double the price at the beginning of this year, and have been forced to start raising their own prices.

The flower business has also been hit hard. As I’ve noted in the past, Shangri-La is a major producer of fresh cut flowers, its #2 export after tobacco. Yunnan alone supplies over 80% of China’s flowers. This year, about 31,000 hectares, over 80% of Yunnan’s flower fields, are short of irrigation, hurting both quantity and quality of flowers produced, and causing $125 million in direct economic losses to the sector. Tens of thousands of small farmers in certain districts, like Chenggong County outside of Kunming, depend entirely on planting flowers for their income. “This is the first time the flower industry in Yunnan has suffered such a big blow,” according to Li Ban, manager of the Dounan Flower Market, Asia’s largest. Last year the market sold nearly 3 million flowers a day at its peak season, but this year daily sales have fallen to 1.4 million. Due to short supply, flower prices in many Chinese cities, such as Shanghai, have doubled. The price of baby’s-breath, for instance, has recently risen from 10 yuan/kg to 30.

In a previous post, I mentioned that global corporations like Starbucks, Nestle, and Maxwell have been investing in Shangri-La’s nascent coffee-growing industry. According to China Daily, coffee is now Yunnan’s third largest export, behind tobacco and flowers. But Hu Lu, deputy secretary general of the Coffee Association of Yunnan, says that “the drought will not only bring down the province’s coffee production in 2009 and 2010, but also have long-term effects on the coffee industry.” The coffee harvest season began in October and ended in March, with the drought affecting the entire period. “The continuous drought will hurt coffee trees and they might die of thirst, and then coffee growers will not have another harvest for five or six years,” Hu said. Plans to increase coffee production next year are unlikely to be realized, and output may even drop. Unlike rubber and flowers, where shortages have resulted in higher prices, global buyers like Starbucks can turn to other places to purchase their coffee beans, leaving local producers to sell their diminished yield at the same low prices. China’s highly prized Pu’er tea, on the other hand, which is grown in some of the same locations, has been rising in price due to the drought’s effect on production.

Even power generation has been affected by the drought. Shangri-La relies heavily on hydropower generated from dams along the region’s raging rivers, which carve steep paths through its mountainous terrain. With their flow reduced, less power can be generated, both in Shangri-La itself, and downstream at the Three Gorges Dam (located in the Crossroads), where the dam’s reservoir has fallen six meters from a year before. Xinhua news service reports that “300,000 tonnes of thermal coal was needed to plug a shortage in Hubei estimated at 500 million kilowatts/hour due to a severe cut in hydropower, which supplies 30 percent of the province’s needs.” The article mentions that power shortages are also affecting the export hub of Guangdong, in the Back Door.

Those dams and reservoirs along Shangri-La’s mighty rivers are of interest to more than just the Chinese. The topic has been front and center in the first big summit of the Mekong River Commission (MRC), taking place this week in Thailand. The Mekong is one of several major rivers that flow through Shangri-La and provide Southeast Asia with much of its water. In particular, the Mekong supports the rich fishing grounds of Tongle Sap (Great Lake) in Cambodia, and the fertile rice paddies of the delta in southern Vietnam, both of which feed millions. China’s drought is having a big impact downstream, and several neighboring countries are blaming upstream Chinese dams for restricting what little flow there is left. Four Chinese dams have been completed, and another four are under construction or planned, and they’ve been a source of concern in Southeast Asia for years. But the drought — and historically low water levels on the lower Mekong (the lowest in 50 years) – have brought those concerns to head. The MRC’s executive director, Jeremy Bird, has defended China, saying that downstream water shortages are due to natural causes (reduced rainfall), not the dams. But the controversy is likely to stir further debate about China’s role in Southeast Asia, and the impact further efforts to harness Shangri-La’s water resources will have on its neighbors.

[Demeter]

12. Who's Next?

This following song is portentous if one considered Weapons of Mass Economic Destruction, too!

http://www.youtube.com/watch?v=8FgMTAj4f_o&feature=related

Mathematics career

Lehrer earned his BA degree in mathematics (magna cum laude) from Harvard University in 1947, when he was nineteen. He received his MA degree the next year and was inducted into Phi Beta Kappa. He taught classes at MIT, Harvard, and Wellesley.

He remained in Harvard's doctoral program for several years, taking time out for his musical career and to work as a researcher at Los Alamos, New Mexico. He served in the Army from 1955 to 1957, working at the National Security Agency. (Lehrer has stated that he invented the Jell-O Shot during this time, as a means of circumventing liquor restrictions.) All of these experiences eventually became fodder for songs: "Fight Fiercely, Harvard", "The Wild West Is Where I Want To Be" and "It Makes a Fellow Proud to Be a Soldier", respectively. Despite holding a master's degree in an era when American conscripts often lacked a high school diploma, Lehrer served as an enlisted soldier, achieving the rank of Specialist Third Class, later known as 'Specialist-4', and currently simply 'Specialist', which he described as being a "corporal without portfolio". In 1960, Lehrer returned to full-time studies at Harvard, however, he never completed his doctoral studies in mathematics.

From 1962, he taught in the political science department at Massachusetts Institute of Technology (MIT). In 1972, he joined the faculty of the University of California, Santa Cruz, teaching an introductory course entitled "The Nature of Mathematics" to liberal arts majors—"Math for Tenors", according to Lehrer. He also taught a class in musical theater. He occasionally performed songs in his lectures, primarily those relating to the topic.

In 2001, Lehrer taught his last mathematics class (on the topic of infinity) and retired from academia. He has remained in the area, and still "hangs out" around the University of California, Santa Cruz.

[elleng]

Here's the Vatican Rag!

http://www.youtube.com/watch?v=3f72CTDe4-0&feature=related

und Verner von Braun! DANKE!

http://www.youtube.com/watch?v=QEJ9HrZq7Ro&feature=related and Lobachevsky! http://www.youtube.com/watch?v=RNC-aj76zI4&NR=1

[Demeter]

81. Thank you ! Stop in Often

We are here every weekend, and the thread grows continuously...

[Demeter]

13. Kyrgyz president steps down and leaves country

http://www.ft.com/cms/s/0/6adf560c-485c-11df-9a5d-00144feab49a.html

Kurmanbek Bakiyev, the president of Kyrgyzstan, stepped down on Thursday and left his country, ending a dramatic stand-off with the interim government that ousted him last week during a violent uprising.

Mr Bakiyev had tried to muster support in his heartland in the south of the impoverished central Asian state since fleeing the capital Bishkek last week as thousands of protesters occupied the government headquarters.

In a statement, the Organisation for Security and Co-operation in Europe welcomed Mr Bakiyev’s departure from Kyrgyzstan as “an important step towards the stabilisation of the situation, a return to a framework providing for the rule of law, and the prevention of a civil war in Kyrgyzstan”.

Mr Bakiyev, who swept in during the so-called Tulip Revolution in 2005, had refused an offer from the interim government to guarantee his safety if he left Kyrgyzstan, insisting that his family also be given security guarantees.

But on Thursday support for the president in the south appeared to be waning. He was forced to flee a rally in the city of Osh as rival groups clashed and shots were fired in the air.

“Bakiyev has zero chance. It is over,” an elderly man in the crowd said just a few hours before the interim government confirmed that his presidency was over, even as he flew to neighbouring Kazakhstan.

Mr Bakiyev has been internationally isolated since the uprising, with both Russia and the US, which compete for military influence in Kyrgyzstan, supporting the interim government.

Dmitry Medvedev, Russia’s president, condemned the attempts of Russia’s erstwhile ally to rally support in the south this week, and warned that Kyrgyzstan was on the brink of a civil war.

Vladimir Putin, the Russian prime minister, spoke to Mr Bakiyev by telephone on Wednesday night “at the initiative of ”, according to Mr Putin’s office.

Then, visiting Bishkek on Thursday, Robert Blake, the US assistant secretary of state, added his voice in support, saying “the provisional government and the people of Kyrgyzstan have a unique and historic opportunity to create a democracy that could be a model for central Asia and the wider region”.

Roza Otunbayeva, the leader of the interim government, has pledged to honour an existing agreement allowing the US to use the Manas military airfield near Bishkek to ferry troops and fuel to Afghanistan.

Mr Blake said talks with Ms Otunbayeva this week in Bishkek had not focused on the military base. But he said the US was ready to review controversial fuel contracts signed at the base if they were found to be non-transparent.

The US Congress has launched an investigation of the fuel contracts amid allegations that Maxim Bakiyev, the son of Mr Bakiyev, enriched himself via the deals.

When Mr Bakiyev took power in 2005 he pledged to stamp out corruption and promote democracy, but in recent years he has been accused of running Kyrgyzstan as a family business and of heading an increasingly authoritarian government.

The OSCE said an agreement between the interim government and Mr Bakiyev had been co-ordinated by Nursultan Nazarbayev, president of Kazakhstan, Barack Obama, the US president, and Mr Medvedev. The OSCE, which is chaired by Kazakhstan this year, and the United Nations also mediated in the dispute.

MUST NOT HAVE KISSED THE RIGHT ASSES.

[Daveparts still]

45. Tee Shirt

in Kyrgyzstan, "Mr Bakiyev sold our country to the CIA and all I got was a lousy Tee shirt."

[Demeter]

47. Hey Dave! Thanks for Stopping In!

The joint is jumping with hep tunes!

[Demeter]

14. Argentina announces terms of new debt swap

http://www.ft.com/cms/s/0/7d2a6d6a-48f7-11df-8af4-00144feab49a.html

After weeks of delays, Argentina on Thursday unveiled the terms of a debt swap offer to the holders of nearly $20bn in bonds unpaid for nearly a decade.

Against the backdrop of a worsening domestic fiscal outlook, Argentina is seeking to return to international credibility and close the chapter on its 2001 default on nearly $100bn with what is billed as a final offer to unpaid creditors.

“Our objective is to end the shame of 2001 once and for all,” Amado Boudou, the economy minister, told a news conference.

The offer places a lower-than-expected market value on the debt but contains a new cash sweetener to tempt small investors to take part.

Argentina conducted a debt swap in 2005 that won over three-quarters of the owners of defaulted bonds. Holders of the remaining $20bn (€14.7bn, £12.9m) in debt – now owed some $29bn including interest – earned the nickname “holdouts” because they have been waiting for better terms. Litigation from the “holdouts” has prevented Argentina from tapping capital markets for fear any money raised could be seized by creditors.

Mr Boudou said the new offer would vary for large- and small-scale investors. Institutions would be offered the same “discount bond” as in 2005 with the same 66.3 per cent haircut. But because of current market conditions, the offer is worth more than 50 cents on the dollar, compared with 33 cents in 2005.

Small investors, meanwhile, will be offered a “Par bond”, which has no haircut but is trading below its nominal value and is less liquid. Creditors who accept this will likely end up with a loss when they sell the bonds.

Mr Boudou said the government had no pressing need to raise cash. Argentina’s planned issue of $1bn in sovereign debt would go ahead only after the debt swap had taken place, he added. Argentina has said there could be more issuance this year.

However, the cash-strapped government of Cristina Fernández, president, has found access to credit costly and difficult without access to international markets. Meanwhile, public spending has surged more than 30 per cent year-on-year and is likely to rise even higher in the run-up to next year’s presidential elections.

Even if the debt swap is a success, as it is expected to be, Argentina still owes more than $6bn to the Paris Club of 19 western creditor nations – one of the next items on Mr Boudou’s to-do list. However, Argentina is steadfastly opposed to any deal with the International Monetary Fund, which it blames for insisting on reforms that led it to default. An IMF programme is a requirement for rescheduling Paris Club debt.

[Demeter]

15. I'm Surprised That This Didn't Come Down

http://www.youtube.com/watch?v=HHhZF66C1Dc&NR=1

dang these unfinished businesses in Iraq and Afghanistan...

[Demeter]

16. Quadrangle to pay $12m to settle pension investigation CUOMO STRIKES AGAIN!

http://www.ft.com/cms/s/0/73303c0c-48bd-11df-8af4-00144feab49a.html

Quadrangle, the US private equity group, disavowed the actions of co-founder Steven Rattner on Thursday as it agreed to pay regulators $12m to settle an investigation into “pay to play” practices in the New York state pension system.

Andrew Cuomo, New York attorney-general, said Quadrangle agreed to a $7m settlement after it was accused of funnelling fees to an influential political consultant to secure investments from the state’s biggest pension fund. Quadrangle will pay $5m to settle similar charges by the Securities and Exchange Commission.

The attorney-general’s office said the settlement does not cover Mr Rattner, until last July the Obama administration’s “car tsar”. Quadrangle, which neither admitted nor denied the allegations against it, said: “We wholly disavow the conduct engaged in by Steve Rattner . . . That conduct was inappropriate, wrong, and unethical.”

Jamie Gorelick, Mr Rattner’s lawyer, said her client disagrees with the characterisation of events as portrayed by the attorney-general and Quadrangle. “Mr Rattner shares with the New York attorney-general the goal of eliminating public pension fund practices that are not in the public interest,” Ms Gorelick said.

Quadrangle, which holds its annual meeting with investors next week, said it had co-operated fully with the investigations and was “pleased” to have settled.

Regulators alleged that in 2005, Quadrangle hired Hank Morris, a political strategist for the former New York comptroller, Alan Hevesi, in an attempt to increase the state pension fund’s investments with the firm from $25m to $100m.

Regulators also said Quadrangle arranged for a DVD distribution deal for a low-budget film, Chooch, produced by the brother of the state’s former deputy comptroller, David Loglisci. The SEC said in 2003 and 2004, Mr Rattner negotiated with a Quadrangle affiliate, GT Brands, to help distribute the film.

The investigation into Mr Rattner came to light last April and marred his tenure as head of the US Treasury’s car taskforce, where he helped restructure Chrysler and General Motors.

Mr Loglisci pleaded guilty to the corruption charges last month and acknowledged “making investment decisions according to political benefit” of the comptroller. He said he helped steer hundreds of millions of dollars to Mr Morris and to “politically favoured firms”.

ARE THEY CIRCLING THE WAGONS DOWN ON PENNSYLVANIA AVENUE YET?

[Demeter]

17. Musical career

Influenced mainly by musical theater Lehrer's style consists of parodying various forms of popular song. For example, his appreciation of list songs led him to set an unordered list of the chemical elements to the tune of Gilbert and Sullivan's "Major-General's Song".

Author Isaac Asimov recounted in his second autobiographical volume In Joy Still Felt of seeing Lehrer perform in a Boston nightclub on October 9, 1954, during which Lehrer sang very cleverly about Jim getting it from Louise, and Sally from Jim, "and after a while you gathered the 'it' to be venereal disease likely this was, "I Got It From Agnes". Suddenly, as the combinations grew more grotesque, you realized he was satirizing every perversion known to mankind without using a single naughty phrase. It was clearly unsingable (in those days) outside a nightclub." Asimov also recalled a song that dealt with the Boston subway system, making use of the stations leading into town from Harvard, observing that the local subject-matter rendered the song useless for general distribution. Lehrer subsequently granted Asimov permission to print the lyrics to the subway song in his book. "I haven't gone to nightclubs often," said Asimov, "but of all the times I have gone, it was on this occasion that I had by far the best time."

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

THIS SEGUES NICELY INTO OUR ECONOMIC THEME, DON'T YOU THINK?

[Demeter]

18. ECB warns of global imbalances threat

http://www.ft.com/cms/s/0/8d75f008-4867-11df-9a5d-00144feab49a.html

Distortions in the global economy that provided the backdrop to the financial crisis threaten to widen again and upset the worldwide recovery, the European Central Bank has warned.

In unusually blunt language, the ECB has made clear its fear that governments are not doing enough to put the global economy back on a sustainable growth path – despite international policy initiatives in the past year.

“At the current juncture, global imbalances continue to pose a key risk to global macroeconomic and financial stability . . . The stakes are high to prevent a disorderly adjustment in the future that would be costly to all economies,” it concludes in a special article in its monthly bulletin published on Thursday.

The report’s inclusion in the ECB’s normally restrained monthly bulletin, highlights the Frankfurt-based institution’s worries about the strength of the economic rebound. In its monthly commentary on world economic developments, it also concludes that the US’s return to growth has “important characteristics of past jobless recoveries”.

The ECB shies away from the dispute over China’s management of its exchange rate, however. The ECB also argues that the 16-country eurozone had “remained very close to external balance”, even though the large trade surplus of Germany, its largest member, is seen by many economists as restricting growth prospects elsewhere in the region.

Prior to the outbreak of the global financial crisis in August 2007, concerns rose about “imbalances” in the world economy as highlighted by America’s large current account deficit and China’s massive surplus.

The ECB report points out that the exact role such imbalances played in triggering the financial crisis is hotly disputed by economists, but says they had long been identified as “posing substantial risks to the global economy”.

Since the outbreak of the crisis, the imbalances have narrowed. However, the report argues that such trends are likely to be temporary. Cyclical factors that led to a narrowing, such as lower oil and commodity prices, have gone into reverse. At the same time, structural factors that contributed to the build-up in imbalances remain – including the lack of a social “safety net” in emerging Asian economies, which has encouraged domestic saving, and the desire of countries to build up reserves as insurance against future crises.

Moreover, differences in growth rates have widened, with export-led emerging economies becoming an increasing source of global growth, the ECB adds.

Among global policy initiatives taken to correct such imbalances, the ECB report highlights last September’s Pittsburgh summit at which G20 leaders pledged to promote more balanced current accounts. But striking a noticeably cynical tone, the report notes the experience of multilateral consultations on imbalances in 2006-07, after which commitment made “were not fully implemented by the economies involved”.

Speaking in Washington, Jürgen Stark, ECB executive board member, said Asian emerging market economies were powering global growth, with prospects still weak in many advanced economies. “Questions can be raised as to whether such an uneven pattern of the recovery will prove sustainable.”

He warned that advanced economies would “continue to face severe macro-economic imbalances in the years to come”, as highlighted by the dramatic deterioration in public finances. “We may already have entered the next phase of the crisis: a sovereign debt crisis.”

Mr Stark concluded: “There is no doubt that the crisis will leave us a heritage of severe macro-economic imbalances. Dealing with them will represent one of the most daunting challenges for policymakers in modern history.”

[Name removed]

19. Deleted message

Message removed by moderator. Click here to review the message board rules.

[Demeter]

26. Blankfein faces grilling on Capitol Hill

http://www.ft.com/cms/s/0/f51dd456-4992-11df-9060-00144feab49a.html

The pressure on Goldman Sachs will intensify this month when Lloyd Blankfein, the US bank’s chief executive, faces tough questioning from a high-powered Senate panel as part of a probe of Wall Street groups.

People close to the situation said Mr Blankfein would testify before the Senate’s permanent subcommittee on investigations on April 27 after months of questioning of Goldman executives by the panel’s staff, including sworn depositions about the bank’s activities leading up to the global financial meltdown.

Mr Blankfein has appeared on Capitol Hill before, including a controversial appearance before a Congress-appointed inquiry in January.

But the subcommittee conducts some of the most thorough investigations in Washington and has the time and resources to use its subpoena power aggressively.

Carl Levin, the Democratic senator who heads the panel, has been tight-lipped about the probe, but told reporters it had discovered levels of greed that were “frankly disgusting”.

Mr Levin’s staff declined to comment on the hearing or disclose the witness list, which may include other Wall Street executives. But Mr Levin and staff have signalled interest in investment banks’ trading practices and Wall Street’s use of complex instruments.

He has said the probe would examine “how securitisations and financial engineering ran wild . . . and how credit default swaps turned investing in America into gambling on the demise of one American company or another”.

Mr Levin said he would decide at the conclusion of four planned hearings whether to refer the panel’s findings to the Department of Justice.

The panel began its investigation into the causes of the financial crisis in November 2008. In its first two hearings this week investigators revealed stunning new details about the collapse of Washington Mutual, the thrift that was seized by the government in 2008 and sold to JPMorgan Chase, and the failure of regulators to rein in reckless lending practices at the bank.

Next week, the panel will release details about its probe into failures at credit rating agencies.

[Name removed]

28. Deleted message

Message removed by moderator. Click here to review the message board rules.

[Demeter]

30. Goldman accused of subprime fraud MORE JUICY NEWS

http://www.ft.com/cms/s/0/0e4a7b38-496a-11df-9060-00144feab49a.html

US authorities on Friday accused Goldman Sachs of securities fraud that caused investor losses of more than $1bn, in the toughest regulatory crackdown so far on the excesses of the credit-bubble era.

News of the civil action by the Securities and Exchange Commission wiped more than $12bn off the market value of Wall Street’s most prestigious bank, cast doubt over the future of its leadership team and business model, and rocked other banks.

The SEC move came as President Barack Obama made a final push for financial reform in the Senate next week. “Wall Street titans still recklessly speculate with borrowed money,” he told supporters. “We cannot delay action any longer.”

In the first of what promises to be a series of actions over banks’ role in the financial crisis, the SEC accused Goldman and one of its vice-presidents of failing to disclose that in 2007 the hedge fund Paulson & Co had a major role in creating a collaterised debt obligation, a security backed by subprime mortgages, so that it could bet against it.

Goldman denied the charges and vowed to “vigorously contest them and defend the firm and its reputation”. But news of the SEC charges knocked its shares and intensified speculation over the position of Lloyd Blankfein, its chief executive. The SEC said Goldman’s “senior-level management” approved the CDO but did not name any executives.

Goldman shares closed nearly 13 per cent lower to $160.70.

The civil complaint alleges that Goldman and Fabrice Tourre, one of its vice-presidents, hid from investors the fact that Paulson & Co, which has not been charged, had a heavy hand in influencing the composition of loans that made up the CDO. Mr Tourre could not be reached for comment.

“The product was new and complex but the deception and conflicts are old and simple,” said Robert Khuzami, SEC enforcement director. “Goldman wrongly permitted a client that was betting against the mortgage market to heavily influence which mortgage securities to include in an investment portfolio.”

Within nine months of the creation of the CDO, 99 per cent of its loans had been downgraded, yielding Paulson & Co a profit of $1bn. Investors around the globe including IKB, the German bank which became the first casualty of the credit crisis in July 2007, lost $1bn, the complaint said.

Goldman made $15m-$20m from the CDO, according to the SEC, and a further $841m when ABN Amro, the Dutch bank that had taken on the risk associated with a tranche of the CDO, had to pay out. Most of the ABN Amro payment went to Paulson & Co, according to the SEC.

Paulson & Co said it was not the subject of this complaint, made no misrepresentations and was not the subject of any charges.

[ozymandius]

36. Demeter, are you just toying with me?

I don't think my heart can stand much more great news like this and the fraud complaint today. :woohoo:

Edited to add: I guess this is what one can expect for doing God's work.

[Demeter]

39. I just call them like I see them, Ozy

If I made the news, we'd be in much better shape, and the BFEE would be rooming with Bernie.

Have a Tom Lehrer break!

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

[Demeter]

60. SEC Sues Goldman for Fraud YVES SMITH'S VERSION

http://www.nakedcapitalism.com/2010/04/sec-sues-goldman-for-fraud.html


Oooh, things are starting to get interesting.

A number of journalists and commentators (yours truly included) have taken issue with the fact that some dealers (most notably Goldman and DeutscheBank) had programs of heavily subprime synthetic collateralized debt obligations which they used to take short positions. Needless to say, the firms have been presumed to have designed these CDOs so that their short would pay off, meaning that they designed the CDOs to fail. The reason this is problematic is that most investors would assume that a dealer selling a product it had underwritten was acting as a middleman, intermediating between the views of short and long investors. Having the firm act to design the deal to serve its own interests doesn’t pass the smell test (one benchmark: Bear Stearns refused to sell synthetic CDOs on behalf of John Paulson, who similarly wanted to use them to establish a short position. How often does trading oriented firm turn down a potentially profitable trade because they don’t like the ethics?)

The SEC is now mounting a civil suit against Goldman against one of its Abacus trades, which was a series of synthetic CDOs used to take short positions in real estate. Interestingly, the deal in question was on behalf of John Paulson. Greg Zuckerman’s book on subprime shorts, The Greatest Trade Ever, indicated that Paulson wanted to take down the all the credit default swaps created through the CDO issuance process (which would typically leave him 95% short the par value of the CDO, since Paulson would put up the equity tranche, usually 4-5%). The SEC may have started with this transaction because the communications between Paulson and the SEC would make it easy to show the intent, that of putting crappy CDS in the CDO.

Strange as it may seem, structured credit-related litigation is a new area of law, with few precedents. Until the credit crisis, unhappy investors seldom sued dealers and other key transaction participants.

From the New York Times:

Goldman Sachs, which emerged relatively unscathed from the financial crisis, was accused of securities fraud in a civil suit filed Friday by the Securities and Exchange Commission, which claims the bank created and sold a mortgage investment that was secretly devised to fail…

The instrument in the S.E.C. case, called Abacus 2007-AC1, was one of 25 deals that Goldman created so the bank and select clients could bet against the housing market…

As the Abacus deals plunged in value, Goldman and certain hedge funds made money on their negative bets, while the Goldman clients who bought the $10.9 billion in investments lost billions of dollars….

Goldman let Mr. John Paulson select mortgage bonds that he wanted to bet against for Abacus 2007-AC1 — the ones he believed were most likely to lose value — and packaged those bonds into Abacus 2007-AC1, according to the S.E.C. complaint. Goldman then sold the Abacus deal to investors like foreign banks, pension funds, insurance companies and other hedge funds.

But the deck was stacked against the Abacus investors, the complaint contends, because the investment was filled with bonds chosen by Mr. Paulson as likely to default. Goldman told investors in Abacus marketing materials reviewed by The Times that the bonds would be chosen by an independent manager.

Mr. Paulson is not being named in the lawsuit.

Update 11:30 AM. The complaint is here. Reading through it quickly, the SEC is seeking to apply traditional securities law standards (the overarching charge is “making materially misleading statements and omissions in connection with a synthetic collateralized debt obligation (“CDO”) GS&Co structured and marketed to investors,” with the key issue being that John Paulson’s role in having a significant influence in the selection of the collateral was not disclosed:

After participating in the selection of the reference portfolio, Paulson effectively shorted the RMBS portfolio it helped select by entering into credit default swaps (“CDS”) with GS&Co to buy protection on specific layers of the ABACUS 2007-AC1 capital structure. Given its financial short interest, Paulson had an economic incentive to choose RMBS that it expected to experience credit events in the near future.

Yves here. This is also interesting because Paulson appears not to have bought the CDS created to serve as collateral for the transaction, but instead shorted (via Goldman) some of the tranches. We’ve been told that shorting CDO tranches (as opposed to shorting BBB supbrime bonds) was pretty uncommon, but “pretty uncommon” may not be quite as rare as we had been told. Later in the complaint, we get further detail:

Paulson discussed with GS&Co the creation of a CDO that would allow Paulson to participate in selecting a portfolio of reference obligations and then effectively short the RMBS portfolio it helped select by entering into CDS with GS&Co to buy protection on specific layers of the synthetic CDO’s capital structure.

Yves here. Paulson could have simply taken down all the CDS in the deal and achieved the same result. But Goldman itself may have taken down the CDS (a New York Times story on the Abacus program suggested as much), or the swaps could have gone to other clients. Presumably, doing it this way was more attractive to Goldman (arranging a short on a CDO tranche has to have been a higher fee event), but I’m a bit perplexed as to how this mechanism would have been to Paulson’s advantage (unless the shorts on the lower-rated CDO tranches, which would fail first, hence assuring Paulson a faster time to profit realization).

It is also interesting that the SEC is suing Goldman and one of its employees, and not the collateral manager, ACA Management:

Fabrice Tourre, a Goldman employee who is a party to the SEC suit, also misled ACA into believing that Paulson invested approximately $200 million in the equity of ABACUS 2007-AC1 (a long position) and, accordingly, that Paulson’s interests in the collateral section process were aligned with ACA’s when in reality Paulson’s interests were sharply conflicting...

[Demeter]

82. You Should See What Got Posted Saturday Morning

and the weekend is still young.

[Demeter]

61. Video Commentary by Squeezeplay EXCELLENT SUMMARY

http://watch.bnn.ca/squeezeplay/april-2010/squeezeplay-april-16-2010/#clip290212

[Demeter]

64. ALSO SEE "THIS AMERICAN LIFE" ON NPR

http://old.thislife.org/extras/radio/355_transcript.pdf

http://www.thisamericanlife.org/radio-archives/episode/405/inside-job

[Demeter]

62. Tom Adams: The Myth of “Insatiable” Investor Demand for CDOs

http://www.nakedcapitalism.com/2010/04/tom-adams-the-myth-of-%E2%80%9Cinsatiable%E2%80%9D-investor-demand-for-cdos.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29


By Tom Adams, an attorney and former monoline executive

One of the ongoing myths of the financial crisis is that investor demand was what motivated the creation of so many bad securities. Banks, journalists and academics have all described the period prior to the crisis as a period of “insatiable investor demand” for things like subprime mortgages and CDOs. According to the conventional wisdom as retold by Michael Lewis and countless others, this mania-level investor demand is what caused banks and lenders to bundle up mortgage loans and related bonds as fast as they could.

As Yves Smith has noted on a number of occasions, the notion of “insatiable investor demand” is nonsense. Real cash investors were not the ones demanding more subprime loans and the bonds that they got packaged into. The demand was artificial and a form of Ponzi scheme. It came, overwhelmingly, from CDOs.

CDOs were transactions that bought up low rated tranches from mortgage backed securities. Issuers and bankers of mortgage backed securities came to rely on CDOs as the buyer of the low rated MBS bonds almost exclusively by 2006. As soon as the mortgage bonds were assembled, they knew with certainty that a CDO would buy them because the purchase had been lined up, frequently with companies or units effectively controlled by the lead investment bank, even before the loans were made. The issuance of a CDO was a great money making scheme for the banks, adding further to the demand for MBS bonds, because they would finance the MBS that were intended for the upcoming CDO in warehouse lines with the CDO manager. Creating CDOs for the purpose of buying mortgage bonds was an essential part of the banker toolkit in this era.

Even if the mortgage bonds were being sold in faux transactions to captive or friendly “buyers” in the form of CDOs, one would think that at least the market would determine the price of the CDOs when they were sold. In this way, presumably, the cold light of reality would trickle through to the underlying mortgage bonds and mortgage loans. However, if you thought this, you would be wrong.

Real cash investors were not demanding CDO bonds, no matter what the price. In fact, a significant amount of demand for CDO bonds (especially lower rated and hard to sell CDO bonds) came from other CDOs. A substantial portion of the collateral in so called high grade (amazing name, isn’t it?) CDOs was recently issued CDO bonds from other transactions. Many of these deals had up to 40% of mini CDO squareds. So-called mezzanine CDOs (the sort that consisted heavily of BBB rated tranches) generally contained 10% of other, low rated CDo tranches.

In addition, an even bigger portion of the so-called insatiable investor demand came from the banks themselves who had been tasked with selling the bonds. In particular, banks such as UBS, other European banks, and Citigroup, devised a strategy to purchase for themselves the senior most AAA rated portions of the CDOs. They claim that this was an attractive investment strategy. It was also useful as a way of continuing to feed the machine with “buying” for more subprime mortgage bonds.

The only CDO “investor” group that was somewhat independent of the CDO sausage-making factory was correlation traders, who constructed trades that approximated being long one CDO tranche and short another. These buyers were credit-indifferent and most suffered sizeable losses.

Without the demand from other CDOs and banks buying their own CDOs, the insatiable investor demand for subprime bonds would have vanished. The people at the tops of these institutions were in a position to know this but they either ignored it, because the fees from keeping the dance going were too great, or they were too foolish to realize it.

Thus, the myth of investor demand is exposed as nothing more than a fabrication to provide cover for the irresponsible behavior of the bankers.

More and more evidence is surfacing that proves out this story. For example, the Financial Crisis Inquiry Commission elicited some gems last week. At the end of this article from Bloomberg, Nestor Dominguez, the former co-head of Citigroup’s CDO business, is quoted as saying that he continues to believe CDOs provided a valuable service in meeting investor demand for the product. But just a few lines earlier in the article he admits that Citigroup itself was a huge buyer of CDOs, responsible for a good portion of their bailout needs, and thus a major contributor to non arms length “demand” for otherwise unnecessary bonds.

Yesterday, Bloomberg provided further compelling evidence of where the “demand” for CDOs, came from: Citigroup’s liquidity puts. According to the Bloomberg story, the Financial Crisis Inquiry Commission may be making the case that Citigroup used $14 billion worth of liquidity puts to aid in the purchase of CDOs by Citigroup sponsored commercial paper programs. Basically, Citigroup “sold” the CDOs to investors in the commercial paper but, because investors likely balked at the risk in the CDOs, Citigroup provided liquidity puts to the investors. These puts allowed investors to “put” the bonds back to Citigroup if they declined substantially in value. Which they did, causing Citigroup to buy back about $25 billion of CDOs at about a third of their face value.

Why did Citigroup provide these liquidity puts for the CDOs? To help get the bonds sold in a market that would have otherwise been saturated and unwilling to buy any more of the CDOs.

Prior to 2006, AIG and the bond insurers provided guarantees on a large portion of the AAA rated CDO bonds backed by MBS. This insurance helped investors get comfortable with the credit risk in CDOs (we all know how that turned out for AIG and the other insurers). Based on calculations I’ve made from publicly available transaction data, over 65% of the mortgage related CDOs issued between 2003 and 2005 had insurance provided on the senior bonds by AIG and the bond insurers. By 2007, thanks to AIG’s pull back from the CDO market and the size limitations of the bond insurers, this percentage fell to approximately 25%. Citigroup’s liquidity puts were basically a form of bond insurance and thus a way to give investors comfort that they didn’t have to worry about credit. By “selling” the CDOs to the commercial paper programs, subject to a liquidity put, Citigroup completely fabricated demand for CDOs or, to put it another way, became the insurer in AIG’s absence.

The fact that fewer and fewer CDO deals were being insured should have been a sign to Citigroup that people were no longer comfortable with the credit risk of the bonds. Instead, Citigroup and other banks continued to ramp up the volume by “insuring” it themselves. Citigroup, which was one of the largest issuers of asset backed commercial paper, was probably one of the worst offenders for this tactic (hence their massive bailout by the government) but other banks, such as UBS, Calyon, Societe Generale and others, likely used similar tactics.

The reason Citigroup and others were so eager to keep the CDO machine going (and growing) was because the deals were so lucrative for the bank management and its employees. The fees in the CDO business were among the highest in banking and there were all sorts of additional ways of generating fees and income using the CDO technology and regulatory arbitrage. So the bankers were highly motivated to find creative ways to find new “buyers” for CDOs so they could reap huge personal rewards – even mid-level CDO bank staffers were lavished with seven figure compensation packages and the top brass made multiples of that. Of course, it’s easy to make money if you assume that the underlying deals have no credit risk.

Citigroup officials continued to insist last week that they were meeting the insatiable demand of investors when they created more CDOs. Various industry apologists continue to perpetuate the myth of the exuberant buyer of CDOs, mortgage backed securities and sub-prime mortgage loans. In truth, by 2006, there were virtually no natural buyers for CDOs. This “demand” was a complete farce and if the demand for the CDOs was a farce, then the demand for risky MBS and the mortgage loans was a farce too.

The CDO bankers at Citigroup (and the other banks) who pushed their deals into the commercial paper programs, while calling it a “sale”, the bank managers who misreported these risks to the regulators and accountants, and the government officials who fueled the reckless policies with low rates and a total absence of regulatory scrutiny should all be doing the perp walk (http://www.observer.com/2010/wall-street/end-times-investor ). The entire mortgage related CDO business was a sham. However, it had a tremendously damaging impact on the economy by grossly distorting the mortgage market. In many ways, the CDO business came to resemble a Madoff like Ponzi scheme – new bonds were made to satisfy the “demand” of the CDS short sellers (i.e. Magnetar and company) and the CDO salesmen at the banks who had found the ultimate suckers to dump the bonds on – their own bank and, eventually, the taxpayers.

Addendum 4:00 AM, 4/14 (by Yves): Tom’s post does not include a point discussed more than occasionally among the Naked Capitalism team that has been working on CDOs, namely that they were also sold to unsophisticated institutions, generally foreign (the long-standing expression on Wall Street is “X was sold, not bought”). See former credit derivatives salesman Tetsuya Ishikawa’s book, How I Caused the Credit Crunch, for details.

[Demeter]

74. Leaked Goldman Presentation on Abacus Trade

http://www.nakedcapitalism.com/2010/04/leaked-goldman-presentation-on-abacus-trade.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29



We received a copy of the document via e-mail and assume this is being leaked broadly (which begs the question of whether this was by design or happenstance of deliberate. The proximity to the filing of the suit suggests the latter)...

SEE LINK FOR PDF FILE

[Demeter]

84. GS GOSSIP BITS Pity the Poor PigMen

...Instead of tipping Martinis on the outdoor deck, fondling 19-year old Ukranian escorts, and boasting of how many large clients they ripped off, the PigMen are going to be walking around this weekend in their Park Ave. apartments. Scratching their heads, wondering if their beloved firm is going to go down the toilet, swamped with massive fraud investigations.

Instead of the usual and normal "Epic Weekend at The Hamptons" often reported on Friday afternoons, the PigMen got the shaft...

http://www.zerohedge.com/article/pigmen-shafted-russian-escorts-stranded-europe-hamptons-weekend-ruined

The comments are especially catty

[ozymandius]

22. I love wasting my evenings with Tom Lehrer.

New Math and That's Mathematics! have only become more dear with age.

[PSzymeczek]

38. A couple of years ago,

my daughter bought me the book "Too Many Songs by Tom Lehrer".

[Demeter]

40. What a Loving Daughter!

you are blessed!

[PSzymeczek]

102. She gave me some moments

when she was in high school, but what kid doesn't? She turned out just fine.

[Demeter]

79. Return to music

In the 1970s, Lehrer concentrated on teaching mathematics and musical theater, although he also wrote ten songs for the children's television show The Electric Company—Lehrer's Harvard schoolmate Joe Raposo was the show's musical director for its first three seasons. In the early 1980s, Tom Foolery, a revival of his songs on the London stage, was a hit. Although not its instigator, Lehrer eventually gave the stage production his full support and updated several of his lyrics for the production (such as "Who's Next", in which Neiman-Marcus, not Alabama, gets the bomb). Tom Foolery contained 27 Lehrer songs and led to more than 200 productions, including an off-Broadway production at the Village Gate, which ran for 120 performances in 1981.<13>

On June 7 and 8, 1998, Lehrer performed in public for the first time in 25 years at the Lyceum Theatre, London as part of the gala show Hey, Mr. Producer! celebrating the career of impresario Cameron Mackintosh, who had been the producer of Tom Foolery. The June 8 show was his only performance before Queen Elizabeth II. Lehrer sang "Poisoning Pigeons in the Park" and an updated version of the nuclear proliferation song "Who's Next?". The DVD of the event includes the former song.

In 2000, a boxed set of CDs, The Remains of Tom Lehrer, was released by Rhino Entertainment. It included live and studio versions of his first two albums, That Was The Year That Was, the songs he wrote for The Electric Company, and some previously unreleased material. It was accompanied by a small hardbound book containing an introduction by Dr. Demento and lyrics to all the songs.

In April 2010 a CD and a new DVD, called The Tom Lehrer Collection, is due to be released by Shout! Factory. The DVD will include the whole of Lehrer's performance in Oslo, Norway, on September 10, 1967, as well as other songs and interviews.

[Demeter]

86. Tom Lehrer Clementine

http://www.youtube.com/watch?v=7i4f8oohdi0&feature=related

[Demeter]

24. Toyota to test safety of all SUVs BETTER LATE THAN NEVER DEPT.

http://www.ft.com/cms/s/0/4b79eec2-4851-11df-9a5d-00144feab49a.html

Toyota Motor is to halt production of sports utility vehicles at a plant in central Japan while it tests the safety of all its SUVs after a warning by a US magazine prompted it to suspend sales of the Lexus GX460 luxury model.

The Japanese carmaker, already battling a safety crisis that has seen it recall more than 8m vehicles since November, said it would review the performance of electronic stability-control systems on Toyota and Lexus branded SUVs.

The company is preparing to halt SUV production at its Ta­hara plant for about 10 days while it conducts the safety review, a person familiar with the issue said. The plant produces many Lexus vehicles as well as some Toyota models.

Consumer Reports, a publication that tests product safety, this week said the GX460 was vulnerable to rolling over when taking certain kinds of turns. The magazine issued a rare “don’t buy” rating on the vehicle, which went on sale at the end of last year. About 6,000 have been sold.

Toyota denied reports by Japanese media that it was recalling the GX460, saying it could not take such a decision until its engineers had confirmed the problem identified by Consumer Reports. The suspension of sales applies to North America, Russia and the Middle East, where the GX460 has been introduced.

Questions over its safety could also disrupt Toyota’s plans to launch the model later this year in China, an increasingly important market for global carmakers.

Lexus models account for a little over a tenth of Toyota’s US sales by volume, but profit margins on the vehicles can be as much as 10 times higher than those on Toyota-badged cars, according to analysts.

“This issue is serious because for Toyota it could damage the Lexus brand,” said Koji Endo, an analyst at Advanced Research Japan, an automotive industry consultancy.

In January, Toyota temporarily suspended sales of eight models including the Camry and Corolla, to address an accelerator pedal defect. Its Prius petrol-electric hybrid, meanwhile, has suffered from problems with its anti-locks braking system.

The string of problems has dented Toyota’s reputation for quality and led to hundreds of lawsuits, several US Congressional investigations and a $16.4m fine from US safety regulators.

Separately on Thursday, Mazda announced the recall of nearly 90,000 Mazda3 and Axela compacts in China and Japan to fix a defect in the oil hoses. The carmaker said a further 191,503 cars sold in other markets could be subject to repairs.

[DemReadingDU]

27. Ratigan talks about SEC suit against Goldman Sachs

4/16/10 Msnbc's Dylan Ratigan talks about SEC suit against Goldman Sachs and the investigation into its corruption.

appx 16 minutes
http://www.msnbc.msn.com/id/31510813/ns/msnbc_tv-the_dylan_ratigan_show#36604057

[Demeter]

31. Talk about drawing a map!

Ratigan has just put the finger on Goldman in a way that nobody will be able to ignore.

He ought to be reckoned on the list that includes Woodward and Bernstein.

[DemReadingDU]

32. For J6P, Ratigan has some excellent videos! n/t

[Demeter]

29. FAME AND FORTUNE

Inspired by the success of his performances of his own songs, he paid for some studio time to record "". At the time radio stations would not give Lehrer air time because of the his controversial subjects. Instead, he sold his album on campus at Harvard for three dollars, while "supportive record merchants and dorm newsstands bought copies…and marked them up fifty cents." After one summer, he also started to receive mail orders from all parts of the country (as far away as San Francisco after The Chronicle wrote an article on the record). Interest in his recordings was spread by word of mouth, friends and supporters brought their records home and played them for their friends, who then also wanted a copy.

Self-published and without promotion, the album—which included the macabre "I Hold Your Hand in Mine", the mildly risqué "Be Prepared", and "Lobachevsky" (regarding plagiarizing mathematicians)—became a cult success via word of mouth. Lehrer then embarked on a series of concert tours and recorded a second album, which was released in two versions: the songs were the same, but More Songs by Tom Lehrer was studio-recorded, while An Evening Wasted with Tom Lehrer was recorded live in concert.

Lehrer's major breakthrough in the United Kingdom came as a result of the citation accompanying an honorary degree given to Princess Margaret, where she cited musical tastes as "catholic, ranging from Mozart to Tom Lehrer". This prompted significant interest in his works and helped secure distributors for his material in the U.K. It was there that his music achieved real popularity, as a result of the proliferation of university newspapers referring to the material, and the willingness of the BBC to play his songs on the radio (something that was a rarity in the USA).


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

[Demeter]

33. The Lord Is My Insurer How conservative Xtians get around health-care reform's individual mandate

http://prospect.org/cs/articles?article=the_lord_is_my_insurer

"Who is this Barack Obama who mocks the armies of the living God?" demanded James Lansberry, Christian crusader against government-regulated health care, last summer in the heat of the battle over reform.

Since the health-care reform bill passed last month, Lansberry has become a hot commodity on the conservative talk-radio circuit where he sings the praises of health-care-sharing ministries (HCSMs), Christian nonprofit organizations through which members agree to cover each others' health-care costs. As president of the Alliance of Health Care Sharing Ministries, Lansberry, and his team of lobbyists, had persuaded Senate lawmakers to exempt alliance members from the individual mandate. That exemption, Lansberry said, made those ministries "an island of freedom amidst this terrible piece of reform legislation" and "the last pro-life option for Christians of faith."

The exemption raises an array of concerns, including constitutional questions about the limits of such religious exemptions as well as about adequately protecting consumers without the type of regulatory oversight required of insurance companies. It is also emblematic of how elected officials cater to religious objections without fully examining their origins or consequences.

The exclusion from the individual mandate is "just another example of an exemption granted by a legislature that doesn't bother to look under the rock," says Marci Hamilton, a professor at Cardozo Law School and author of God Versus The Gavel: Religion and the Rule of Law. "It happens all the time. A religious group asks for an exemption, and busy legislators think, well, it's religion, at least I?m doing some good for someone today. But they don?t ask the hard questions."

Lansberry is also vice president of Samaritan Ministries International, the largest of a handful of HCSMs with 46,000 members (HCSMs have a nationwide membership of roughly 100,000 ). For Samaritan's members, there are no premiums, co-pays, or claims forms. To join the HCSM, applicants must agree to a statement of faith that they are a "professing Christian, according to biblical principles" set out in Romans 10:9-10 and John 3:3. They must agree to adhere to guidelines that include no sex outside of "traditional Biblical marriage," no smoking or drugs, and mandatory church attendance. They must agree to pay their membership fee and monthly share, and they must also agree not to sue Samaritan in the event of any dispute because "Christians are not to sue each other in the civil courts or other government agency."

Members pay for their medical costs out of pocket, and submit their receipts to the ministry, which then "publishes" members' "needs" in a monthly newsletter. There is a $100,000 cap on reimbursements, and certain medical conditions, including some pre-existing conditions, pregnancies of single mothers, abortions, drug and alcohol rehabilitation, and sexually transmitted diseases, are excluded. Each member then sends their monthly "share" to a member who has a published "need." In an interview, Lansberry maintained that no Samaritan member has had a "need" go unfunded, because "God is the ultimate provider."

Due to HCSMs' lobbying, most states do not regulate them as insurance companies. But the National Association of Insurance Commissioners has consumer-protection concerns about HCSMs, noting, "Such arrangements are not insurance and the participants do not have the protections available to purchasers of licensed insurance plans." Michael McRaith, director of the Illinois Department of Insurance, says, "This is not an issue of whether faith-based communities are appropriate vehicles to share health-care costs. The issue is: Are consumers in fact receiving what they've been told they're paying for?" Unlike conventional insurance companies, McRaith says, sharing arrangements are not required to maintain reserves to pay out claims; the contracts are not subject to the same conventions and interpretations as insurance contracts; and consumers do not have recourse to state regulators or private litigation if their claims are denied.

While the mission of insurance companies is simply to pool health risk, Samaritan, which has 501(c)(3) status under the Internal Revenue Code, states in its most recent tax return that its primary purpose is "to carry out the Biblical Great Commission of Matthew 28:19 & 20, currently focusing on developing a Christian worldview among its members and the broader Christian community." This, according to the tax return, is "opposite the 'entitlement' mindset that is endemic in our culture."

Samaritan argues that a community of believers should be exempt from government requirements for insurance so they can care for each other in accordance with their religious beliefs. But according to Hamilton, HCSMs are not constitutionally entitled to the exemption from the individual mandate. "I don't know of any group that has a set of religious beliefs that require religiously orchestrated insurance," she said. "Under the Equal Protection Clause, under the Free Exercise Clause, and under the Establishment Clause, the government cannot give someone a benefit just because they're religious" but only exempt them if there is a burden on their religious practices, such as the exemption certain Native American tribes have for use of peyote in religious ceremonies. Health care, she added, is "the arena where it's my view that the Supreme Court needs to start explaining what are the boundaries for exemptions."

Last summer, Lansberry discussed HCSMs at the annual conference sponsored by American Vision, a group with ties to the Christian Reconstructionist movement, which aims to remold society to conform to biblical law, replacing regulation by the state. Lansberry downplayed the health-care crisis, claiming that it is "important that we see health-care reform is not urgent, and the reasons for it not honest." Lansberry complained, "We've allowed government to provide charity" rather than the church. "Every time we let the government help someone we should be helping," he maintained, "we rob Jesus of glory, and we are thieves just as much as the government who's stolen that money from us to provide that care."

Doug Phillips, president of the Christian Reconstructionist group Vision Forum and son of conservative movement icon Howard Phillips, touted Samaritan after the passage of health-care reform, calling it a "biblical alternative to socialized health care." American Vision also began offering Samaritan membership rather than insurance to its employees. "We believe that the Bible mandates Christians to exercise servanthood dominion in every area of life," American Vision Vice President Brandon Vallorani said in a press release announcing the affiliation. "SMI is doing just that in the area of health care and God is clearly blessing it."

[Demeter]

34. Tom Lehrer - I Wanna Go Back to Dixie

http://www.youtube.com/watch?v=HAwhC_btAUU&feature=related

[Demeter]

37. Strategic defaults increase consumer spending

http://www.nakedcapitalism.com/2010/04/strategic-defaults-increase-consumer-spending.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29

TO SUMMARIZE--"CONSUMERS" WITH BRUISED SENSIBILITIES AND UNDERWATER HOUSES ARE DEFAULTING AND LIVING IT UP--A TRICK THEY LEARNED FROM.....

THE BANKSTERS!

[Demeter]

41. AND NOW FOR SOMETHING DIFFERENT---

Vatican massively confused about nature of sex, says therapist Mike Lew

http://www.news.com.au/breaking-news/vatican-massively-confused-about-nature-of-sex-says-therapist-mike-lew/story-e6frfku0-1225854187670

THIS IS NEWS?

[Demeter]

42. The Government’s Loan Mod Bizarro World

http://timiacono.com/index.php/2010/04/15/the-governments-loan-mod-bizarro-world/

Just when you think that the statistics can’t get any worse for the graduating class of the Obama Administration’s Home Affordable Modification Program, they do. Otherwise known as HAMP, this program is apparently designed to convince people who really can’t afford their current debt load that they really can.

To that end, it is meeting with modest success.

How else can one explain that total debt-to-income ratios have risen even higher than February’s ridiculous burden of just under 60 percent as noted in this item four weeks ago?



Over the last four weeks, some 60,000 HAMP “trial” participants have had their loan modifications elevated to “permanent” status, meaning that they can now go confidently forth into the world thinking that their impossible debt load is somehow under control.

It’s not.

As shown below, the median back-end debt-to-income ratio has now climbed to over 61 percent with no upper limit in sight (no, you can’t go over 100 percent, but that doesn’t mean they won’t try – just make sure you get that counseling as detailed in note 2).



What is even more astonishing about this data is that things are getting worse very quickly, much faster than the 1.5 percentage point increase in total debt service as shown above.

Consider that, in February, there were 170,000 “permanent” loan mods and, last month, another 60,000 joined their ranks. A quick calculation reveals that, in order for the new graduates to raise the overall median from 59.8 percent to 61.3 percent, the median back-end debt-to-income ratio for the next 60,000 had to be somewhere around 65 percent!!

Sixty five percent!!

How can these people possibly afford to pay their taxes, service their debt, and then have enough money left over to put food on the table and pay their utilities, let alone buy gasoline, clothes, and sock away a little money for retirement?

The government must be living in some kind of loan mod “bizarro world” to think that these “permanent” loans won’t go bad on a massive scale.

That assessment of the government’s grasp on reality was confirmed in this NY Times story the other day when Shaun Donovan, secretary of Housing and Urban Development uttered these rather remarkable words:

Given how stressed these borrowers are, even in the best situation, there will be redefaults. But I don’t think there is any evidence that would cause us to worry at this point.

Of course not…

They’ve got enough to worry about getting people out of old debt burdens that they couldn’t manage into new, slightly lower debt burdens where they have little or no chance of survival either.

Julia Gordon of the Center for Responsible Lending was also quoted in the NY Times story and provided a much more realistic view of things:

It’s definitely alarming to look at those statistics. The current model for modifications doesn’t necessarily produce sustainable results.

Well, maybe that was never the plan.

The record shows that more than half of the loans modified in late-2008 ended up redefaulting within a year and, with debt-to-income levels as high as that being produced by HAMP, you’d expect that success rate to be just a pipe dream for HAMP.

Truly startling is the realization that these 230,000 “permanent” loan modifications represent the current cream of the crop, one that appears to be less creamy every month.

Of course, this is working out rather nicely for the banks.

While the”homeowner” gets a slightly lower mortgage payment, thanks to freakishly low interest rates subsidized by the Treasury Department, the banks get to carry these loans on their books at full value, as if they’ll ultimately be repaid.

And, better yet for other banks, second mortgages are not touched during these loan modifications. In fact, in many cases under their new monthly payment regime, homeowners will be writing out a larger check for their home equity line of credit or second mortgage than for their first mortgage where the payment has been lowered thanks to Uncle Sam.

Clearly Elizabeth Warren had it right yesterday when she told “homeowners”:

Some of you should stay in your homes…and some of you don’t belong in those homes and you’ve got to be moved out. And frankly, those houses need to get back onto the market and get into the hands of people who can afford them. In other words, acknowledge the problem, deal with it, write off the losses and start rebuilding an economy on solid ground.

Now that sounds like a good plan.

The bad news is that, in the government’s eyes, “extend and pretend” appears to be the order of the day – extend the period of time that banks keep getting sent monthly mortgage checks while pretending that all of the borrowed money will somehow be repaid.

[Demeter]

43. Now I'm Getting Depressed, by My Own Hand, As It Were

By the early 1960s, Lehrer had retired from touring (which he intensely disliked) and was employed as the resident songwriter for the U.S. edition of That Was The Week That Was (TW3), a satirical television show. An increased proportion of his output became overtly political, or at least topical, on subjects such as education ("New Math"), the Second Vatican Council ("The Vatican Rag"), race relations ("National Brotherhood Week"), air and water pollution ("Pollution"), American militarism ("Send the Marines"), World War III "pre-nostalgia" ("So Long, Mom", premiered by Steve Allen), and nuclear proliferation ("Who's Next?" and "MLF Lullaby"). He also wrote a song that famously, satirized the alleged amorality of the rocket scientist, Wernher von Braun, who previously had worked for Nazi Germany before working for the United States. ("'Once the rockets are up, who cares where they come down? That's not my department', says Wernher von Braun.") Lehrer did not appear on the television show; his songs were performed by a female vocalist and his lyrics often were altered by the network censors. Lehrer later performed the songs on the album, That Was The Year That Was, so that, in his words, people could hear the songs the way they were intended to be heard.

In 1967, Lehrer was persuaded to make a short tour in Norway and Denmark, where he performed some of the songs from the television program. The performance in Oslo, Norway, on September 10 was recorded on video tape and aired locally later that autumn.<11>

The record deal with Reprise Records for the That Was The Year That Was album also gave Reprise distribution rights for Lehrer's earlier recordings, as Lehrer wanted to wind up his own record imprint. The Reprise issue of Songs by Tom Lehrer was a stereo re-recording. This version was not issued on CD, but the songs were issued on the live Tom Lehrer Revisited CD instead. The live also included bonus tracks "L-Y" and "Silent E", which Lehrer wrote for the PBS children's educational series The Electric Company. Lehrer later commented that worldwide sales of the recordings under Reprise surpassed 1.8 million units in 1996. That same year, the album That Was The Year That Was went gold.

http://www.youtube.com/watch?v=aIlJ8ZCs4jY

[Demeter]

44. When the Starved Beast Bites Back: GOP are trying to create a fiscal crisis they may not survive

http://www.tnr.com/article/politics/when-the-starved-beast-bites-back

FRANKLY, THE GOP IS ALREADY TOAST. WHAT I WANT IS FRSP FOR GOLDMAN AND THEIR 500 NEAREST AND DEAREST CRONIES.

Ever since George W. Bush massively cut taxes back in 2001, squandering much of the $5.6 trillion, ten-year surplus he inherited from Bill Clinton, liberals have assumed that the fiscal game was rigged. Conservatives had been explicit about their starve-the-beast strategy—the practice of creating large deficits through tax cuts in order to force future spending cuts. By playing along, the thinking went, Democrats would only further enable irresponsible behavior—a bit like negotiating with terrorists. Why kill yourself balancing the budget, as Bill Clinton did, if the next Republican is just going to slash taxes again?

The fear of conservative high jinks persists to this day, which is one reason liberals have responded coolly to President Obama’s deficit-cutting commission. In fact, many suspect the right is up to something even more sinister—a “doubling down on starve-the-beast,” as Paul Krugman put it recently. “Depriving the government of revenue, it turns out, wasn’t enough to push politicians into dismantling the welfare state,” Krugman wrote. “So now the de facto strategy is to oppose any responsible action until we are in the midst of a fiscal catastrophe.”

Krugman is almost certainly onto something. I suspect, as he does, that Republicans believe precipitating a fiscal crisis will force Democrats to roll back entitlement spending (i.e., Medicare, Medicaid, and Social Security), which would be both politically unpopular and the realization of the right’s dearest policy fantasy. It’s an altogether brilliant, if diabolical, plan. Except for one minor flaw: There’s a good chance it could vaporize the GOP.

The thing to keep in mind about economic crises is that parties who solve them tend to survive and even prosper over the long-term, even if they sometimes suffer short-term pain. Conversely, parties who fail to solve them tend to face political calamity. The case of Democrats and Republicans during the Great Depression is the most familiar example, but hardly the only one. In the last decade-and-a-half, persistent economic crises have sent ruling cliques and parties into the wilderness in Indonesia, Argentina, and Turkey. Even in Japan, which effectively had a one-party monopoly since the 1950s, the recurring economic problems of recent years have given the opposition DPJ a chance to govern. The failure of Democrats in the United States and Labour in Britain to address the economic sclerosis of the 1970s helped lay the groundwork for the conservative ascendance of the 1980s.

So let’s say Republicans keep forcing the country toward the fiscal crisis some of them are quietly rooting for: They refuse to sign off on any package of tax increases and spending cuts while they’re out of power, and they insist on cutting taxes when they’re in power. At some point, investors in U.S. bonds will presumably decide they’re unlikely to be repaid—that the U.S. is either headed toward default or runaway inflation. At that point, interest rates would spike and we’d be in for a deep recession.

Now, crises being unpredictable phenomena, let’s assume the day of reckoning is just as likely to come during a Democratic administration as a Republican administration. What then? Well, if the bomb goes off under a Democratic president, I suspect the crisis would get solved. The Democratic base doesn’t exactly love the idea of cutting entitlement spending—The New York Times recently reported that the mere whiff of Social Security benefit cuts had spawned organized progressive opposition, including a well-funded group called “Social Security Works.” But the antipathy isn’t strong enough, nor is the left powerful enough, to force Democratic politicians to take the option off the table.

Indeed, many Democratic moderates, like House Majority Leader Steny Hoyer and Senate Budget Committee Chairman Kent Conrad, have openly mused about the possibility of Social Security benefit cuts. (A handful of these Democratic deficit hawks—including Bill Clinton, Bob Rubin, and Peter Orszag—will be gathering at the Peterson Institute in late April to chew over fiscal fixes.) For that matter, the health care bill Congress just passed includes hundreds of billions of dollars in cuts to Medicare. So far as I can tell, no Democrat is at risk of being primaried for supporting it.

Likewise, no one likes to raise taxes, especially no one who depends on moderate voters to get elected. But Democrats have found that raising taxes is hardly political death. Bill Clinton raised taxes as part of his 1993 fiscal package and still cruised to re-election in 1996. Yes, the 1994 midterms weren’t exactly an advertisement for the political benefits of tax increases. (Though that year’s Democratic route is way over-determined, and I suspect the tax-hikes ranked behind half-a-dozen other causes.) But the point is that a Democrat can both raise taxes as president and live to tell about it.

On the other hand, what if a Republican is president when the fiscal crisis strikes? To be blunt, I think the economic situation would be nearly hopeless. Since 1992, when, according to conservative lore, George H.W. Bush’s broken no-new-taxes pledge cost him re-election, basically no national Republican has dared contemplate the possibility of tax increases, much less vote for them. And you can delete the “basically” if you’re talking about the last several years. The party’s anti-tax jihadis are so influential there’s simply no future—or, more precisely, no funding source—for anyone who defies them.

Strait-jacketed by his or her base, a Republican president facing a fiscal crisis would have to rein in the deficit entirely through spending cuts. But that would be even less doable than raising taxes. In 2005, George W. Bush’s presidency effectively ran aground over the cuts he proposed to Social Security. The Gingrich revolution hit a wall a decade earlier over proposed cuts in Medicare. In both cases, the cuts under discussion were far smaller than anything a Republican president would have to embrace if tax increases were a no-go. Long story short: Democrats have enough flexibility with their base, and enough credibility with the political center, to respond to a crisis. The GOP has neither.

And then there’s the really bad news for the GOP: My assumption that a fiscal crisis is just as likely to strike a Democratic as a Republican administration is almost certainly wrong, for some of the same structural reasons I describe above. Because moderates and fiscal hawks enjoy significant influence within the party—particularly at the elite level—most Democratic administrations are going make marginal progress on the deficit. Obama is a case in point. Despite his domestic policy ambitions, the recent health care reform modestly pares back the deficit in its first decade, and makes potentially significant inroads in its second decade. Bond traders are likely to reward such moves even if they don’t solve the country’s deepest fiscal problems. At the very least, the bond markets aren’t likely to melt down over them.

But Republican administrations can’t even make this incremental progress because the pressure on them to cut taxes is too great, and because they have no political cover to cut spending. Worse, the next Republican won’t have the one advantage George W. Bush enjoyed, which was an enormous surplus to play with. Which means a future Republican’s tax cuts will turn a pretty lousy deficit picture into a dire one. And that, in turn, is very likely to trigger a crisis. After all, the history of such episodes is that once you add a spark to the kindling, you’re very quickly engulfed by flames. That’s because of the relentlessly self-fulfilling dynamics at work: a certain fraction of bondholders panics and starts selling, which raises interest rates and lowers bond prices, thereby terrifying a broader group of bondholders, who then join the sell-off … and on and on until you’re Argentina.

Of course, we can’t be sure about the political fallout. Times change—if nothing else, the news cycle moves a lot faster today than it did in 1970, to say nothing about 1930. Maybe the Republicans would recover after a few years out of power. On the other hand, being the party that’s associated forever more with America’s own third-world style debt crisis can’t exactly be good for the brand.

So, yes, like Krugman, I’m concerned that the Republican Party really might cast us into the abyss as part of some spectacularly misguided political strategy. But the one thing I’m emphatically not worried about is that it might somehow help the GOP.

Noam Scheiber is a senior editor of The New Republic.

[Demeter]

51. Tune In Tomorrow, When the Madness Continues Here on Weekend Economists

http://www.youtube.com/watch?v=pklr0UD9eSo&feature=related

[Demeter]

54. Tom Lehrer's Departure from the scene

There is an urban legend rumoring that Lehrer gave up political satire when the Nobel Peace Prize was awarded to Henry Kissinger in 1973. He did comment that awarding the prize to Kissinger made political satire obsolete, but has denied that he stopped creating satire thereafter as a form of protest, asserting that he had stopped several years prior to the award. Another mistaken belief is that he had been sued for libel by the estate of Wernher Von Braun, the subject of one of his songs, and been forced to relinquish all of his royalty income to Von Braun. Lehrer firmly denied this in a 2003 interview.

When asked about his reasons for abandoning his musical career, in an interview in the book accompanying his CD box set released in 2000, he cited a simple lack of interest, a distaste for touring, and boredom with performing the same songs repeatedly. He observed that when he was moved to write and perform songs, he did, and when he wasn't, he did not, and that after a while he simply lost interest. It frequently has been observed that, although many of Lehrer's songs satirized the Cold War political establishment of the era, he stopped writing and performing just as the 1960s counterculture movement gained momentum.

Lehrer's musical career was brief; in an interview in the late 1990s, he pointed out that he had performed a mere 109 shows and written 37 songs over 20 years. Nevertheless, he developed a significant cult following both in the U.S. and abroad.

[bread_and_roses]

55. The depth of my ignorance revealed this weekend - I scarcely understand one word upthread

I never heard of Tom Lehrer (though I think I heard that "elements" song once and thought it very clever), and I don't comprehend a word of the financials this weekend...the reference to dandelions was a great relief, as I do love them - bright little suns in the grass. Our "lawn" is a mix of whatever grassy seeds nature deposited there, and I love the way the indominable dandelions pop up between each mowing. Small children love how soft they are when in flower, and of course blowing the puff-ball of seed is always fun too.

But, as always, scanning the entries still gives me at least a glimmer of the gist, even if I couldn't then explain it to someone else. More corruption, failures to regulate, transfer of wealth, rape of the earth ... but is the Goldman suit one of those tiny points of light that heralds an incoming meteor? Reading of it, the phrase that kept occuring to me was "punctuated equilibrium":

http://en.wikipedia.org/wiki/Punctuated_equilibrium

Punctuated equilibrium is a theory in evolutionary biology which proposes that some sexually reproducing species will experience little evolutionary change for most of their geological history, remaining in an extended state called stasis. When evolution occurs, it is localized in rare, rapid events of branching speciation, called cladogenesis. Cladogenesis is the process by which species split into two distinct species, rather than one species gradually transforming into another. Thus, "punctuated equilibria is a model for discontinuous tempos of change (in) the process of speciation and the deployment of species in geological time."

I'm sure I thought of it because ever since reading of the theory of punctuated equilibrium yea these many years ago I have thought of it as a metaphor for tidal social change as well - that everything goes along goes along, no matter how awful the going is, till seemingly suddenly the serfs storm the castle. Now, the metaphor is imperfect, to be sure - because I also firmly believe that the sudden upheaval was partially the result of many of us little moles - under the dandelions, as it were - working away in darkness moving one tiny clod of earth at a time, practically grain by grain till somewhere there is a molehill of volcanic proportions...but still, there is the mysterious x factor - why here, why now? And the unpredictablility of the outcome - we little moles burrowing away may not precipitate a greater light but an even greater darkness...it is not in our control.

I have to admit, I was staggered when I read of the suit - like, what? Have the stars rearranged themseleves? Do Timmy and the rest of the Cabal approve? How does this move comport with what I read everywhere is an essentially weak and inadequate proposed regulatory Bill? What of the 2012 campaign contributions Obama has been so assiduously protecting? Are the times about to get even more interesting? One waits with bated breath...

[Demeter]

57. All We Can Do Is Hope for "punctuated equilibrium"

Yes, there have been earth-shattering developments this week. I am hoping that something that changes the game for us ordinary people will result.

You know more than 90% of the nation, including the President, so don't sell yourself short. And you are seeking to learn more, which is never a bad thing.

We are all staggered. That's why I brought out Tom Lehrer for comedic refreshment. Nothing like drawing on the big guns when needed. I hope you are enjoying his ditties as the WORLD AS WE KNOW IT comes to an end.

==========================================================================

Tom Lehrer's Musical legacy

Lehrer has commented that he doubts his songs had any real effect on those not already critical of the establishment: "I don't think this kind of thing has an impact on the unconverted, frankly. It's not even preaching to the converted; it's titillating the converted... I'm fond of quoting Peter Cook, who talked about the satirical Berlin kabaretts of the 1930s, which did so much to stop the rise of Hitler and prevent the Second World War."<12>

In 2003 he commented that his particular brand of political satire is more difficult in the modern world: "The real issues I don't think most people touch. The Clinton jokes are all about Monica Lewinsky and all that stuff and not about the important things, like the fact that he wouldn't ban land mines... I'm not tempted to write a song about George W. Bush. I couldn't figure out what sort of song I would write. That's the problem: I don't want to satirise George Bush and his puppeteers, I want to vaporize them."

In a phone call to Gene Weingarten of the Washington Post in February 2008, Lehrer instructed Weingarten to "Just tell the people that I am voting for Obama."

A play, Letters from Lehrer, written by Canadian Richard Greenblatt, was performed by him at CanStage, from January 16 to February 25, 2006. It followed Lehrer's musical career, the meaning of several songs, the politics of the time, and Greenblatt's own experiences with Lehrer's music, while playing some of Lehrer's songs. There are currently no plans for more performances, although low-quality audio recordings have begun to circulate around the internet.

Lehrer was praised by Dr. Demento as "the best musical satirist of the twentieth century". Other artists who cite Lehrer as an influence include "Weird Al" Yankovic, whose work generally addresses more popular and less technical or political subjects<16>, and educator and scientist H. Paul Shuch, who tours under the stage name Dr. SETI and calls himself "a cross between Carl Sagan and Tom Lehrer: he sings like Sagan and lectures like Lehrer." More stylistically influenced performers include American political satirist Mark Russell, and the British duo Kit and The Widow. British medical satirists Amateur Transplants acknowledge the debt they owe to Tom Lehrer on the back of their first album, Fitness to Practice. Their songs "The Menstrual Rag" and "The Drugs Song" are to the tunes of Lehrer's "The Vatican Rag" and "The Elements" respectively. Their second album, Unfit to Practise, opens with an update of Lehrer's "The Masochism Tango" and is called simply "Masochism Tango 2008". Syndicated conservative morning-radio talk show host Jim Quinn sings with piano backing in a Lehrer-like tribute in a song on how political correctness has destroyed so many Christmas traditions with the song "A Politically Correct Christmas".

Lehrer has said of his musical career, "If, after hearing my songs, just one human being is inspired to say something nasty to a friend, or perhaps to strike a loved one, it will all have been worth the while."

[Demeter]

56. Doth Magnetar Speak With Forked Tongue?

THIS REFERS TO THE HEDGE FUND MAGNETAR, FOR POSTINGS OF WHICH SEE LAST WEEKEND
http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=103&topic_id=529078&mesg_id=529435

AND EARLIER THIS WEEK ON STOCK MARKET WATCH.

http://www.nakedcapitalism.com/2010/04/doth-magnetar-speak-with-forked-tongue.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29

By Tom Adams, an attorney and former monoline executive; Andrew Dittmer, a mathematician who has worked for a hedge fund; Richard Smith, a UK-based capital markets IT consultant, and Yves Smith (WHO IS STRANDED IN EUROPE THANKS TO A CERTAIN VOLCANO...)

As described in ECONNED and in later reports by ProPublica, a Chicago-based hedge fund, Magnetar Capital, entered into a program of sponsoring subprime-based CDOs that was unprecedented in its scale. The hedge fund supplied a disingenuous, legalistic defense of its strategy, in an effort to depict the ProPublica reports as having failed to integrate some of the information Magnetar claims to have provided to ProPublica.

However, a close reading of their letter shows that it does not effectively rebut the overarching charge, that Magnetar-sponsored CDOs were designed to fail, but is also consistent with our analysis of the strategy (which came to Magnetar’s attention more than three weeks ago).

Magnetar’s efforts to defend itself consist of some seemingly straightforward arguments, as well as two dense paragraphs. We’ll deal with the more accessible bits first:

1. Its strategy was “market neutral” and would show a profit whether the subprime market did well or badly

2. Magnetar was merely the “initial equity purchaser”; the “Collateral Manager” (often know as the CDO manager) and the dealer were independent, and the Collateral Manager was responsible for selecting the assets and exposures in the CDO and had a financial incentive for the deals to succeed

3. Magnetar’s analysis of its CDO’s performance, contra that of ProPublica, shows that its CDOs performed better than that of “like securities”.

Let us debunk each in order.

1. merely means the trade was profitable whether the underlying market went up or down, not how the profit potential was distributed across the two outcomes. We have indicated, based on the input of market participants, including individuals who worked on Magnetar’s deals, that the ABS (subprime-related) CDO trade was constructed to show a comparatively thin profit if the CDOs continued to perform, and a much greater return if the bonds in or referenced by the CDO failed. This bias is consistent with the 76% returns for this strategy reported by ProPublica.

2. is simply disingenuous. Substantial equity investors were given considerable rights to influence the overall design of a transaction, with the notion that any steps the equity investor took to protect the value of his investment would benefit all other investors. There is ample evidence that Magnetar used the influence it gained over transaction to influence its parameters to its benefit, to the detriment of the other investors/funders on the long side. For instance, it used triggerless deals (in a typical CDO, the cash flow distribution to the equity trance would be cut when losses reached certain thresholds. In a triggerless deal, the equity tranche investor would have the same rights to payment right up to when the CDO defaulted or was liquidated.

Some accounts indicate that Magnetar provided lists of suggested securities to the CDO manager, it would not have been necessary to go that far to influence CDO design. For instance, merely calling for a very high average coupon would have forced the CDO manager to buy only particularly “spready” or high yield, meaning crappy, bonds. The ProPublica article includes an e-mail message from Magnetar’s James Prusko to a CDO manager, Ischus, where Magnetar not only pushed for higher spread (meaning riskier) CDS on subprime bonds to be included, but also provided a spreadsheet with a “target portfolio”. Magnetar would achieve its ends if the CDO manager used many of the instruments its suggested portfolio, or simply constructed one that had the same characteristics.

While we have taken issue with some elements of Michael Lewis’ The Big Short, his book does provide a good description of the role the CDO manager played: that of creating the appearance of independent, objective asset selection. In reality, many CDO managers were closely affiliated with particular investment banks and were so thinly staffed that the idea that they were actually doing much analysis is questionable. CDO manager fees were 0.10% to 0.20%, meaning $1 to $2 million per annum on a $1 billion CDO for doing very little.

3 is ridiculous. Most of the deals have hit an event of default and the average rating is well into the CC range. The deals all failed,so whether they failed in 10 months or 12 months is not a measure of success. The weighted average Moody’s rating of senior bond of magnetar deals is Ca (CC equivalent). 64% of the deals had their ratings withdrawn. Arguing that their deals performed better than some other deal is meaningless semantics.

Now we will parse the denser section of their argument, with Magnetar’s text in italics:

Magnetar would not have invested the way it did if it had concluded that the housing and residential mortgage markets were near collapse. If Magnetar had that view, it would not have needed to devote resources to its strategy of combining long positions with hedges. Short positions were easy to obtain.

True, but a misdirection. Note the word “near” in “near collapse.” Short sellers almost never are able to short a bubble right before its peak. Magnetar’s strategy was designed to address the usual problem that vexes short sellers, that they often wind up being early, and conventional strategies for shorting show losses until the market turns. Magnetar’s strategy was designed to avoid the problems other shorts had had who had underestimated how long it would take for the bubble to pop.

Magnetar’s strategy for investing in CDOs was based on a market neutral mathematical statistical model, and was designed to have a positive return whether housing performed well or poorly.

This is consistent with what ECONNED and ProPublica have written. This statement does not mean “Magnetar’s strategy would have a positive return no matter what,” since no such strategy exists. It is a labored way of saying “there were scenarios in which housing performed well under which Magnetar’s strategy would be profitable, and there were also scenarios involving a housing collapse under which Magnetar’s strategy would show a profit.” Most likely, all of this just means that Magnetar was long correlation and that the return from their equity position in the CDOs was fat enough to fund
their short positions.

Magnetar’s statistical models looked at all equity tranches and all hedges in the portfolio simultaneously in a global framework and not on a deal by deal basis.

Again, this is not inconsistent with what we have written. None of this contradicts the thesis that Magnetar knew very well that certain types of CDOs were better for their strategy than others, and actively pushed to make sure those sorts of CDOs were more likely to be created.

Magnetar explained this market neutral strategy to its investors beginning in early 2006. Magnetar’s strategy was not based on fundamental analysis expressing any view that values in the housing market would go up or down.

The catch here is “fundamental analysis..of the housing market.” The insight that drove this arb was that risky subprime loans looked pretty certain to come to a bad end, and that the price of insurance on this credit looked to be wildly underpriced. You didn’t have to believe the housing market would decline to think this trade was a good bet.

Magnetar’s model instead focused on the structures of the mortgage securities and the CDO markets.

…. i.e. the fact that CDO assets were massively correlated, which meant that the AAA tranche of a CDO was badly mispriced.

Magnetar employed no fundamental analysts to make its investments in CDOs.

Irrelevant.

As of the end of September, 2007, the majority of the notional value of Magnetar’s hedges referenced CDOs in which Magnetar had no long investment.

This statement is tricky. The Wall Street Journal has noted that Magnetar took short positions in addition to the shorts it constructed using the CDOs it sponsored. One interpretation is that Magnetar is referring to CDS written by third parties against CDO tranches, meaning those cases where Magnetar bought protection on a CDO tranche from a protection seller of some sort. These transactions were unusual, and would be likely to be only a minor component of Magnetar’s overall position. It could also mean is that Magnetar bought CDS against CDOs containing the same sub bonds that appeared (in synthetic form)
in the CDOs that they sponsored.

Notably, focusing solely on the group of CDOs in which Magnetar was the initial purchaser of the equity, Magnetar had a net long notional position.

Magnetar is trying to give the impression it did not have a net short position on the CDOs it sponsored, but the writing awfully tortured. For instance, “initial purchaser of the equity” (as opposed to more straightforward terminology like “sponsor”) may narrow the universe under discussion to a small subset of the trades we and ProPublica have identified. It might even mean simply that their short had positive carry.

To put this into perspective, Magnetar would earn materially more money if these CDOs in aggregate performed well than if these CDOs performed poorly.

This statement appears to be broad (as in arguing that Magnetar would do better if the CDOs it sponsored did well) when it could be very narrow. For instance, we are now discussing “these CDOs”, which per above may be a subset of all the CDOs Magnetar created. Moreover, our analysis suggests that Magnetar bought only a small percentage of the CDS protection created by its CDOs (we assumed a short interest 4x its long position, which would be equivalent to roughly 20% of the par value of the CDO). With this structure, Magnetar does best in the unlikely event that ONLY the bonds referenced by its CDS fail, and the rest perform. It would not only collect on its short bet, but the CDO would only be somewhat impaired rather than fail.

The purchase of credit protection for Magnetar was primarily a portfolio hedge to Magnetar’s long positions. This distinguishes Magnetar from some other market participants that purchased credit protection primarily as an expression of a fundamental view on the market and not as a hedge.

If our understanding of the Constellation program is accurate, this statement may be narrowly true, but it is highly disingenuous. The implied opposition between “portfolio hedge” and a short position on the market probably refers to the contrast between the Magnetar program that was long correlation and people like John Paulson and Steve Eisman who were simply short housing.

Magnetar’s role as an equity investor was limited and did not replace the roles of the investment bank (Dealer), the Collateral Manager or the credit rating agencies.

By design. But none of this contradicts any of the things that are alleged about Magnetar’s role as an equity investor.

Collateral Managers and Dealers were independent from Magnetar and negotiated at arm’s length against Magnetar with respect to transaction terms, such as the amount of certain types of compensation that the Collateral Manager and the Dealer would receive from the CDO. Magnetar did not select the underlying assets of the CDO at any time prior to or subsequent to transaction issuance.

Doesn’t follow that they were not successful in influencing the deals’ parameters.

When Magnetar was an initial purchaser of the equity of a CDO, the compensation terms and structure of the transaction provided the Collateral Manager with a financial incentive to select assets they believed would perform well.

This remark implies that the system of using Collateral Managers who received incentive compensation helped create high quality CDOs. The results across the industry in fact were the polar opposite.

Before Magnetar’s participation as an equity investor, the fee arrangements generally had less emphasis on incentive-based fees.

If we assume, then, that Magnetar is suggesting that Magnetar favored compensation packages for managers that were heavy on “performance incentives” and light on direct compensation, one tempting explanation is that they figured that the performance incentives would be unlikely to be paid.

In those CDOs in which Magnetar was an initial purchaser of equity, Magnetar did not have the intent or any reasonable basis to believe that the CDOs were built to fail.

This is the hardest statement to make sense out of, particularly since it does not track grammatically. But the “built to fail” by implication refers to the action of third parties (since Magnetar is insistent that it its role in influencing the deals was very limited). So this statement could be taken to mean that Magnetar did not believe that the Collateral Manager or Dealer were designing the CDO to fail.

In addition, derivatives expert Satyajit Das, who reviewed the Magnetar letter, advised us, “Because of model differences and problems of verifying the inputs, it is possible to construct speculative positives that may superficially appear hedged. This allows traders to take any position that they really wish to.”

This means that Magnetar could muster a mathematical analysis of its portfolio that would support its claim that it was hedging, when in fact its intention was to take a short position.

Importantly, the study finds that, when the same Collateral Manager executed transactions with and without Magnetar as an equity investor, the transactions in which Magnetar was an investor performed materially better using the above key metrics.

ProPublica claims to have produced a study showing that Magnetar-sponsored CDOs performed worse than industry norms, which is consistent with our own review of the transactions. All of the Magnetar CDOs blew up, so the point is somewhat academic.

Put simply, Magnetar’s defense, while predictable, is less than persuasive.

[alterfurz]

114. funny, I mis(?)read that subject line as "Darth Magnetar"!

[Demeter]

58. Is Obama Winning in DC and Losing the Country?

http://www.nakedcapitalism.com/2010/04/is-obama-winning-in-dc-and-losing-the-country.html


A pair of articles, one at the Washington Post, the other at Politico, look at the significance of continuing slide in Obama’s poll ratings.

At the WaPo, pollsters Douglas Schoen and Pat Caddell are firmly of the view that Obama is out of touch with the mood in the heartland, and needs a sharp course correction to avoid a “November bloodbath.” Caddell has told me privately that he has never seen anything remotely resembling the current gap between beliefs among policy elites versus attitudes of the public at large. One might point out that politicians should above all else be in the business of shaping public sentiment. My admittedly parochial view is that Obama is almost reflexively lauded for his rhetoric, when in fact he has done a terrible job here. Schoen and Caddell note:

Recent polling shows that despite lofty predictions that a broad-based Democratic constituency would be activated by the bill’s passage, the bill has been an incontrovertible disaster. The most recent Rasmussen Reports poll, released on April 12, shows that 58 percent of the electorate supports a repeal of the health-care reform bill — up from 54 percent two weeks earlier. Fueling this backlash is concern that health-care reform will drive up health costs and expand the role of government, and the belief that passage was achieved by fundamentally anti-democratic means….

In fact, Monday’s Gallup report showed the president’s weekly job approval rating at a low of 47 percent. And as the Democratic Party’s favorability has dropped to 41 percent — the lowest in Gallup’s 18-year history of measuring it — this week’s Rasmussen Reports survey shows the Republican Party with a nine-point lead in the generic congressional vote. Moreover, independents, who are more energized than Democrats, are leaning Republican by a 2-to-1 margin.

The Politico piece contains strong signs of wishful thinking, of an Administration overly attuned to dynamics in Washington over those in the country at large:

“The President undertook health care because it was the right thing for the country even though it was politically risky,” White House communications director Dan Pfeiffer said. “We don’t share the media’s obsession with poll numbers, particularly months and months from an election. The politics of passing health care will be very good for Democrats. It’s only in this town that not having them fully realized in a matter of days would be seen as a failure.”

Yves here. Huh? Enthusiasm for change is usually highest at the outset; regrets tend to come later. And the reservations about the health care bill are rising rather than abating:

A new Associated Press-GfK poll found Americans oppose the health care overhaul 50 percent to 39 percent – worse rankings than before Congress passed the bill, when polls were evenly split.

Yves again. But Team Obama seems in danger of believing its own PR:

Obama aides say that perceptions in the capital about Obama’s effectiveness and political standing have been changed not just by health care, but also job growth, foreign-policy successes and lower-than-expected costs for the bailout.

“What we got in the Beltway was a break in the losing narrative,” said one of the city’s best-known Democratic consultants. “Obama has won something, and it was against all odds. He had lost the health-care battle a half-dozen times, and he finally got it over the finish line.” (emphasis ours)

Yves here. “Obama has won something” is a very low bar for success. The Administration has demonstrated that it can handle the legislative process when it has a controversial program but also enjoys majorities in both houses.

The Administration seems to be pinning its hopes on continued economic improvement to lead to higher approval ratings. That could prove to be a risky bet.

[Demeter]

63. Tom Lehrer - We Will All Go Together When We Go

http://www.youtube.com/watch?v=frAEmhqdLFs&feature=related

[Demeter]

65. I'd Put My Money on Andrew Cuomo Being Our Next President

If he pulls off the prosecution of GS and the hedge funds and the CDOs, he's a shoo-in. Stay safe, Mr. Cuomo! Your fellow Americans NEED you! You are the only one in a position to do something that isn't crooked and compromised. Please stay that way.

And take out Bernanke and Geithner and Rubin and Summers with the rest of the trash, please!

[bread_and_roses]

108. And what passes for progressive leadership is cozy under the covers with Obama - and as deluded

I am tied (at very very low, low ground level, let me be clear) to USAction and to the labor movement. USAction's home page currently touts "Health Care Reform Is On Its Way!" (woo hoo!) and the Labor movement too is telling its members to support the Administrations great big gift-wrapped box of goodies to the Vampire Insurance Cos.

Now, both these entities worked for over two years almost solely on health care reform on the national stage. Both campaigned hard for a public option all that time. (Neither came out demanding single-payer, which I thought a mistake at the time - especially for USAction. The Labor movement could not get too far ahead of its dues paying members, who were scared that all the wages they'd given up over the last years to keep health benefits would be lost and they'd end up with poor care too under single-payer. However, the also-dues-paying-members of USAction tend to be more ahead of the curve than Labor rank-and-file: they could have been the leaders on this, and still partnered with Labor, which did not expressly reject single-payer and could have come along eventually - supporting it under their "public-option" plank.)

However, both organizations are in bed with Obama and would not, in the end, stand against him. Both have lost more than they know, I think. For USAction, there are dedicated progressives who are utterly disgusted with the organizations capitulation to the Admin. For Labor, it's worse. Too many members are registered Rs, too many listen to RW radio, too many ARE NOT BEING GIVEN A NARRATIVE TO COUNTER THOSE INFLUENCES BECAUSE THEIR LEADERSHIP WILL NOT DEFY THE ADMINISTRATION! This is going to have terrible long-term consequences as the this dreadful Bill plays out in the hands of the chortling insurance vampires.

Both are trying to "sell" this clunky rube-goldberg of "reform" to a membership that knows it's been screwed. For USAction, I'd say most know exactly who's holding the screwdriver, but for Labor rank-and-file, they are going to suffer and are going to blame Obama and the Admin. Even their leadership may not be able to turn them out to work for the Dems - there is widespead anger at this Bill, they know they are getting screwed, and only the Glenn Beck crew is giving them a narrative to explain it.

(In the end, Labor did manage to wrest a few concessions out of the Admin - I don't know how many of you noticed, but there was an at least two week period during the reconcilliation process that Labor went virtually silent in the public on the Bill - no cheerleading, no pushing, no letters to congress-critters. When that silence broke, the excise ("cadillac") tax had been modified - it was still in, to save Obama face - but had been rendered virtually toothless for a least a few years and, more critically, the exclusions originally granted only to Labor had been extended to the entire populace. After which Labor's leadership came out with ITS woo-hoos and hurrahs.)

Not to mention that at least some of us know are aware that passage of this monstrosity means that the "progressive" movement will have to continually exhaust its energies trying to fight the insurance vampires deep-pocketed hydra of attempts to get around whatever crumbs of reform are in the Bill. Energies we need to fight for peace, to save the earth, to tackle poverty, to tackle the throttle of Big $$ on our "democracy."

[Demeter]

111. Alas, Everything You Say Is True--and Outside of This Thread, People Won't Listen!

[Demeter]

59. JPMorgan gets paid to borrow $271 billion

We know that JPMorgan is not substantially increasing lending anytime soon. And we also know that banks are recapitalizing courtesy of a steep yield curve and near zero rates, what I would call free money. What I didn’t know is how free these funds truly were. An investor friend pointed out something curious buried deep in JPMorgan Chase’s financial report from Q1 2010, namely that they were effectively paid five basis points to borrow money...

SEE REST OF ARTICLE AND SUPPORTING DOCUMENTATION AT LINK:

http://www.nakedcapitalism.com/2010/04/jpmorgan-gets-paid-to-borrow-271-billion-from-the-government.html

NICE WORK IF YOU CAN GET IT

[Demeter]

66. The Origins of the Next Crisis William White

William White joins William K Black in our stable of economic experts--so here you have it, in Black and White!

http://www.nakedcapitalism.com/2010/04/the-origins-of-the-next-crisis.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29

[Demeter]

67. Reviews selected by Lehrer for his liner notes

* "Mr. Lehrer's muse is not fettered by such inhibiting factors as taste." — The New York Times (9 February 1959)

* "More desperate than amusing" — New York Herald Tribune

* "He seldom has any point to make except obvious ones" — The Christian Science Monitor

* "Plays the piano acceptably" — The Oakland Tribune

[Demeter]

68. Yves Smith Interviewed on her book ECONNED!

http://www.nakedcapitalism.com/2010/04/interview-with-the-telegraphs-robert-miller.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29

[Demeter]

70. Yves Mentions Greece--Remember Greece?

Well, Greece's problems haven't gone away. And of course, there's always Goldman's role in creating and abetting them...

[Demeter]

71. Satyajit Das: New & Old Greek Lessons (GIVING A NEW MEANING TO "GREEK TRAGEDY")

http://www.nakedcapitalism.com/2010/04/satyajit-das-new-old-greek-lessons.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29

...Despite the “solution” announced by the European Union (”EU”), the problems of Greece have deepened.

Greek borrowing costs have increased sharply. Greece now must pay around 4.00 % p.a. more for their debt than Germany, the most creditworthy EU borrower. That is, if anyone will lend to them. This is a rise of over 1.00% p.a. over the last few days and roughly a doubling of the margin since January 2010.

Recent Greek debt issues are now deep under water. The most recent attempt by Greece to raise money was substantially under subscribed, proving almost as popular as Ebola fever and. This combined with the day-to-day volatility of the risk margin for Greece makes it difficult for traders to price and investors to commit to purchases of Greek securities.

Greek banks are now experiencing difficulties in funding in international markets and have been forced to seek government support.

Greek Salad…

Greece’s immediate problem is one of liquidity – it must find cash to roll over existing debt. Greece needs around Euro 50 billion in 2010, of which around Euro 25 billion is needed by June. With characteristic insouciance, Greek officials have assured creditors that they are fine till end April 2010!

Unfortunately, the Greek problems run far deeper. Beyond 2010, Greece needs to re-finance borrowings of around 7%-12% of its Gross Domestic Product (”GDP”) (around Euro 16 billion to Euro 28 billion) each year till 2014. There are significant maturing borrowings in 2011 and 2012. In addition, Greece is currently running a budget deficit of over 12% that must be financed. Greece total borrowing, currently around Euro 270 billion (113% of GDP), is forecast to increase to around Euro 340 billion (over 150% of GDP) by 2014.

Greece’s problems were inevitable. Like many of the economically weaker EU members, Greece fudged the numbers to meet the qualifications for entry into the Euro. One example of this is the use of derivative transactions with Goldman Sachs to disguise the level of its real borrowing.

Membership of the Euro resulted in Greece losing its costs competitiveness. The sharply lower Euro interest rates set off credit driven a real estate boom and chronic over-borrowing.

Membership of the Euro also reduced the ability of Greece to manage its economy. It lost the ability to use its currency, via devaluations, to improve competitiveness and stimulate exports. It also lost the ability to set interest rates (now set by the European Central Bank (”ECB”)). It also cannot print its own currency to fund sovereign borrowing.

Greece also has low levels of domestic saving and is heavily reliance on international capital flows.

The current episode exposed an underlying weak and unbalanced economy with few sustainable competitive advantages. It has also exposed poor political leadership and inadequate financial controls....

MUCH MORE AT LINK

....Greek Lessons…

Ironically, the optimal course of action for Greece may be to withdraw from the Euro, default on its debt (by re-denominating it in a re-introduced Drachma) and then undertake a program of necessary structural reform.

Lenders to Greece would take significant writedowns on their debt, reducing its debt burden and give it a chance from emerging as a sustainable economy. The current debate misses the fact that the “bailouts” are mainly about rescuing foreign investors. These investors were imprudent in their willingness to lend excessively to Greece assuming EU “implicit” support and are now seeking others to bail out them out of their folly. As Herbert Spencer, the English philosopher, observed: “the ultimate result of shielding men from the effects of folly is to fill the world with fools”.

Such default would not affect the Euro. Many countries have defaulted on their U.S. dollar obligation without any effect on the currency.

Much depends on the politics of the EU and the attitude of Chancellor Angela Merkel and succesors who is more Deutschland centric than her predecessors. Support for Greece may depend on her judgement of ordinary Germans’ willingness to aid its Club Med neighbour and the risk of future claims on the German taxpayer.

The chance of a clean and logical solution is minimal as the EU may mistakenly try to defer the inevitable. Greece may face a future of a “rolling crises” and stopgap measures, much like Argentina from 1999 until its eventual default in 2002.

Greece highlights a few new and old truths about the GFC. The level of global debt has not been addressed. Sovereign debt was substituted for private sector debt. As trillions of dollars of private and government debt matures and must be refinanced, the next stage of the process of de-leveraging will play out. Vulnerable borrowers, such as Greece and earlier Dubai, highlight this risk.

The problems of contagion in highly inter-connected economic and financial systems have not abated.

As at June 2009, Greece owed US$276 billion to international banks, of which around US$254 billion was owed to European banks with French, Swiss and German banks having significant exposures. What happens in Greece is unlikely to stay in Greece creating new problems for the fragile global banking.

Greece’s problems have also drawn attention to the looming financing problems of other sovereigns. In a world with significant reduced liquidity, the strain of funding these requirements is likely to restrain growth prospects.

The EU bailout of Greece would require the participation of Spain, Portugal and Ireland (the other three members of the debt laden “PIGS”) further straining their weak finances.

The bailout would also merely transfer the problem from the “weak” economies to the “stronger” European countries. In a nice irony, the EU attempts to ensure “financial stability” through the bailout increases the risk of longer-term “financial instability”.

The Greek bailout also has interesting parallels to the shotgun marriage of Bear Stearns before the precipitous collapse of Lehman Brothers.

Iceland’s problems brought forth creative headlines – “Iceland Erupts”, “Iceland Melts” and “Geyser Crisis”. The common refrain this time has been about the “Greek Tragedy”. The term describes a specific form of drama based on human suffering, rather than anything Athenian. But it seems this Greek tragedy may be coming soon to a location near you in the new phase of the GFC.

[Demeter]

72. The Original Greek Tragedy

http://www.youtube.com/watch?v=mScdJURKGWM&feature=related

[Demeter]

73. Auerback: The PIIGS Problem: Maginot Line Economics

THE PROBLEM ISN'T CONFINED TO GREECE, ALAS!

http://www.nakedcapitalism.com/2010/04/auerback-the-piigs-problem-maginot-line-economics.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29

The Maginot Line, named after French Minister of Defense André Maginot, was a line of defenses which France constructed along its borders with Germany and Italy after suffering appalling damage and casualties during World War I. The French thought they were now protected from a repeat, and believed the defenses impenetrable.

Chatting to a number of German participants at last week’s Institute for New Economic Thinking (INET) conference, we couldn’t help getting a sense of the economic parallel in regard to Germany’s deep resistance to greater fiscal expansion as means of dealing with the problem of the “PIIGS“.

The Problem

Germany’s fiscal deficit fetishism is largely a product of that country’s own hyperinflation experience during the Weimar Republic. As deeply ingrained as that trauma remains in the German psyche, it is now taking on an almost hysterically irrational quality as evidenced by the latest “rescue package” for Greece. Its EMU “partners”, led by Greece and soon to be followed by Portugal, Spain, Ireland and Italy, are increasingly being forced to embrace Germanic-style hair shirt economics, because the obvious fiscal response is constrained via self-imposed rules inherent in the rules governing the European Monetary Union. These rules are regarded, almost to a man, as “sound economics” by Germany’s policy makers and the vast majority of its citizens (if one is to measure this via the national polls, which continue to indicate visceral hostility to “bailouts” for “lazy Greek scroungers and tax dodgers”). We wonder if they’ll still be feeling that way if the contagion extends to Berlin and Paris.

Historians all know how effective the Maginot Line ultimately proved for the French in terms of defending a German occupation of their country during the Second World War: the Germans were able to avoid a direct assault on the Maginot Line by violating the neutrality of Belgium, Luxemburg and the Netherlands, whilst the Luftwaffe simply flew over it.

Likewise, we think Germany’s “Weimar 2.0″ phobia is based on similarly flawed “Maginot Line” thinking, thereby generating a correspondingly ineffectual response to the EMU crisis. It’s becoming a story of intellectual hubris, defending “good economics”, Germanic-style, over common sense.
Judging from the market’s reaction to the 45m euro rescue package of Greece, it appears that the EMU and, by extension, the euro, have dodged a bullet for now. But the PIIGS problems remain. The terms and conditions include IMF ‘austerity’ measures, which will act to slow the economy of Greece and the entire EU — which is already dangerously weak to the point of promoting higher budget deficits through low tax revenues and high transfer payments. All of which serves to further weaken the creditworthiness of all the member nations.

It also increases the euro debts of the other contributing nations because they are being forced to contribute to this funding package for Greece. The implication of the same type of ‘rescue’ for the larger euro nations is not pretty. Expect much higher levels of stress for the remaining euro member nations presumed to be ’strong’ as the same kind of forced austerity appears in store for other “violators” of the Maastricht Convergence Criteria. Think about Spain, which now has 20% unemployment, or Ireland, which has a classic Iceland problem, given that the liabilities of its banking system vastly exceed the country’s overall GDP.

The underlying assumption of the rescue package is not sound. The stronger nations still think by offering a big enough “guarantee” the markets will take up the slack and finance Greece for them. But the markets now want to see the cash and, more importantly, they want a firm demonstration that the funding guarantees provided will help to sustain the ability of nations like Greece to service its debt without turning the nation into an industrial wasteland. The markets no longer believe in a “contingent liability” model, which is something akin to indicating that you have a rich relative who can help you out if needed. The EMU’s “rich relative” has already indicated that this is verboten, but it has denied Greece and the other PIIGS nations the means to grow adequately to service debt going forward....

READ ON FOR HIS PROGNOSTICATIONS

[Demeter]

85. Tom Lehrer- The Irish ballad

http://www.youtube.com/watch?v=JKbd_Ajkex0&feature=related

[Demeter]

77. Guest Post: Is the World’s Second Biggest Economy On the Ropes?

http://www.nakedcapitalism.com/2010/04/guest-post-is-the-worlds-second-biggest-economy-on-the-ropes.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29

Iceland has approximately the 101st biggest economy in the world.

Dubai is also tiny.

Greece is somewhat bigger, with the 27th biggest economy.

When Iceland, Dubai and Greece tanked, that was horrible … but not catastrophic.

Portugal – the 37th biggest economy – may be next. It would be horrible if Portugal tanks.

But Spain is also in real trouble. As the 9th biggest economy, a default by Spain could be major.

But none of these are in the same ballpark as Japan – the world’s 2nd biggest economy (by nominal gdp). Only the U.S. is bigger.

So it is newsworthy that S & P cut Japan’s sovereign credit rating in January.

And that, as Bloomberg wrote April 2nd:

Japanese National Strategy Minister Yoshito Sengoku said the country should have a greater sense of urgency about the nation’s fiscal situation, comparing it to the plight of Greece. “So far some have been crying wolf, but Greece’s situation isn’t entirely unrelated to Japan’s,” Sengoku said at a news conference in Tokyo today. “At the end of the day, Japan’s situation right now is not that good. There hasn’t been a sense of crisis about this, including from ourselves.”

***

Sengoku is not the only policy maker to compare Japan with Greece, whose fiscal woes weakened the euro and forced the government to adopt austerity measures as its borrowing costs surged. Bank of Japan board member Seiji Nakamura said in February that Greece’s example shouldn’t be regarded as “a burning house on the other side of the river.”

And AFP reported yesterday:

Greece’s debt problems may currently be in the spotlight but Japan is walking its own financial tightrope, analysts say, with a public debt mountain bigger than that of any other industrialised nation.

Public debt is expected to hit 200 percent of GDP in the next year as the government tries to spend its way out of the economic doldrums despite plummeting tax revenues and soaring welfare costs for its ageing population.

Based on fiscal 2010’s nominal GDP of 475 trillion yen, Japan’s debt is estimated to reach around 950 trillion yen — or roughly 7.5 million yen per person.

Japan “can’t finance” its record trillion-dollar budget passed in March for the coming year as it tries to stimulate its fragile economy, said Hideo Kumano, chief economist at Dai-ichi Life Research Institute.

“Japan’s revenue is roughly 37 trillion yen and debt is 44 trillion yen in fiscal 2010, ” he said. “Its debt to budget ratio is more than 50 percent.”

Without issuing more government bonds, Japan “would go bankrupt by 2011″, he added.

***

The system of Japanese government bonds being bought by institutions such as the huge Japan Post Bank has been key in enabling Japan to remain buoyant since its stock market crash of 1990.”Japan’s risk of default is low because it has a huge current account surplus, with the backing of private sector savings,” to continue purchasing bonds, said Katsutoshi Inadome, bond strategist at Mitsubishi UFJ Securities.

But while Japan’s risk of a Greek-style debt crisis is seen as much less likely, the event of risk becoming reality would be devastating, say analysts who question how long the government can continue its dependence on issuing public debt.

“There is no problem as long as there are flows of money in the bond market,” said Kumano.

“It’s hard to predict when the bond market might collapse, but it would happen when the market judges that Japan’s ability to finance its debt is not sustainable anymore.”

In addition, Japan’s population is declining rapidly, due to a combination of delay in age of childbirth, declining fertility and a society unfavorable to immigration. As Business Week wrote last August:

Japan’s Internal Affairs Ministry published the latest numbers on the country’s declining population on Aug. 11. The data doesn’t make for pleasant reading. In the year through the end of March 2009, the number of births in Japan fell for the first time since 2006 to 1.08 million, while there were 1.13 million deaths. Put together, that adds up to a record decline in the population of 45,914. That bests (if that’s the right word) the previous biggest decline of 29,119 in 2007. Just as worrying, the number of Japanese 65 or older increased to a record 28.21 million out of total population of 127 million. Meanwhile, the current recession—Japan’s GDP may shrink 6% this year—will likely make things worse as couples decide to delay or have fewer children.

Japan Times adds some details:

The population dynamics estimate of the Health, Labor and Welfare Ministry indicates that Japan’s population decline is accelerating. The report, based on birth and death registers submitted from January 2009 to October 2009, estimates the number of births in Japan in that year at 1,069,000, or 22,000 less than in 2008, and the number of deaths in 2009 at 1,144,000, or 2,000 more than in 2008. The death figure is the highest since 1947 and represents the ninth straight yearly increase.

As a result, Japan’s population is estimated to have shrunk by 75,000 last year, 1.46 times the decrease marked in 2008.

Japan’s population will continue to decrease at an accelerating rate, the ministry noted. The number of women able to bear children is on the decline, and the number of deaths among the nation’s graying population will continue to rise.

The National Institute of Population and Social Security Research estimates that Japan’s population will dip below 100 million in 2046, below 90 million in 2055 and down to 44.59 million in 2105. If this trend continues, the labor force and consumer markets will shrink, having a strong impact on the economy....

IT GOES ON WITH GRAPHS AND MORE AND MORE...

[Demeter]

78. Gonzalo Lira: “Systemic Contradictions”: The Eurozone De Facto Currency Peg, and the Death Spiral

http://www.nakedcapitalism.com/2010/04/gonzalo-lira-%E2%80%9Csystemic-contradictions%E2%80%9D-the-eurozone-de-facto-currency-peg-and-the-death-spiral-we-are-currently-witnessing.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29


Gonzalo Lira: “Systemic Contradictions”: The Eurozone De Facto Currency Peg, and the Death Spiral We Are Currently Witnessing

By Gonzalo Lira, a novelist and filmmaker (and economist) currently living in Chile

Critics of free-market capitalism, especially of the Marxist persuasion, love talking about its “systemic contradictions”. Especially European critics—they adore using that steam-roller phrase: “systemic contradictions”. It sounds so thrillingly lapidary, so discussion-ending, so terminal. Nothing can escape its grasp, or the base indignity of it. “They will fail because of Systemic Contradictions!!”—like a cross between a nasty form of cancer, and some unmentionable venereal disease. And of course 100% fatal.

It’s ironic that European critics of free-market capitalism love that phrase—because it aptly describes the Europe of today, and the European monetary union that was hailed as the way of the future.

I would argue that, with the way things are going, it’s Europeans and their Eurozone which will soon be relegated to the dustbin of the past. Precisely because of its “systemic contradictions”.

The end of the Eurozone will be a tragedy—and I would argue, we are currently witnessing it.

Let’s review:

The Eurozone was born out of the Common Market, formed back in 1958, to the west of the Iron Curtain. In 1990, the Berlin Wall collapsed, so by 1992, a reunified Germany was effectively married to France and Club Med. The rationale was, economic union would beget political union, or at least political peace. In 1999, the Euro was born—a common currency for the members of the Union. Another step in European integration.

So far, so good.

However, though a series of complicated methods were used to control the debt, deficit and inflation levels of the various Euro-economies, one fact remained: Every country of the Euro had the same currency, while every country kept the right to float its own debt.

And of course—as we now all know—each country’s debt was assumed to be backed by the rest of the Union, when in point of fact, it was not.

So what does this mean?

Well, the shadow of the Euro makes it hard to realize what we are talking about. The Euro makes it appear as if we are dealing with one very large economy—Europe—while each member state’s fiscal problems could be thought of much as we think of, say, Mississippi’s fiscal problems in relation to the United States in its entirety.

From this way of looking at the Eurozone, the natural inference is to think of Greece as a small part of a larger, healthier whole. A part that is going down the drains, true, but it won’t bring the larger whole down with it.

But this is a false inference. It’s an easy logic trap to fall into, because the Euro as a currency papers-over the differences within the Eurozone. The Euro makes the Eurozone look like one big happy family, but with a black sheep named “Greece” that has to be sorted out.

However, this is not the case. The Eurozone and the European monetary union is actually several different economies at vastly different levels of development, which so happen to have a common currency—but they have nothing else in common. Because—unlike in the US—in the Eurozone, each member state can issue its own debt. Therefore, each member state can borrow its way to equality of wealth, instead of earning it.

Looked at this way, it becomes obvious that the Euro isn’t a common currency—rather, it is a very complex fixed rate exchange system.

In other words, a currency peg.

So instead of thinking of the Euro as €, common to all Eurozone countries, it would be smarter to think of the Euro as GR-€, or FR-€, or IT-€, or SP-€, and so on—a different Euro for each member economy, all of which happen to be fixed at a one-to-one parity.

Now it becomes obvious what we’re looking at—when we look at Europe today, what we’re really seeing is Latin America circa 1980.

Thinkit: A bunch of countries in Latin America fixed their exchange rates to the US dollar; at different times and for vastly different reasons, but for the present discussion those issues don’t matter.

At first, this dollar-peg worked like a charm. The Latin American countries found themselves with a false sense of prosperity, bought and paid for with cheap dollar-denominated debt—until the inevitable crash of ’82. (In Argentina, it happened again in 2001—those gauchos never learn.)

The dollar didn’t suffer because of the fixed exchange rates—it was all the poor saps south of the border who suffered, and greatly at that. Latin American debt suddenly had no buyers, and all the previous debt had to be paid off. With no incoming dollars, that dollar-denominated debt broke the Latin American economies.

If we look at Europe with Latin American lenses, we realize that the Eurozone is in exactly the same position—it’s a bunch of over-indebted countries with their currency pegged to, of all the economies of the world, Germany. Because the role of the US dollar in this fixed-exchange rate system is today being played by the German Euro—the GR-€. And it’s the deflation of the GR-€ which is absolutely killing the Eurozone.

Going back to the Latin American example, at least those countries had the option of ending their dollar-peg and floating their currencies, once their debt levels broke them.

But the Eurozone members can’t do that! Or rather, they can break away—but they won’t break away, until it’s too late and the damage has been done. Various European-wide subsidies and programs and wealth-redistribution schemes—otherwise known as bribes—will keep the countries all tied up for a while. For quite a while, in fact, human nature being what it is, and hope always being the last thing to die.

Each day the fixed exchange rate continues, though, is one day closer to complete Eurozone collapse—which will be a tragedy. Because European prosperity insures European peace, from the Urals to the Irish Sea.

But by the time they all realize that the GR-€ is destroying their economies—much like the dollar-peg in ’82 trashed the Latin American economies—it will be too late. The European Union will be wrecked, much as Latin America was wrecked in ’82. And that crisis ushered in all sorts of foolish craziness in many many places.

God Alone knows what will happen once the Eurozone is wrecked.

We are currently watching this wreckage—we just don’t realize it. Greece is not an aberration—it’s not even the canary in the coal mine: It’s the beginning. The GR-€ is wreaking havoc on all the other countries of the Eurozone, starting of course with the weakest, Greece. But it won’t end there—far from it. The GR-€ will take out, in no particular order, Portugal, Italy, Spain, until it eventually hits France.

Then it’s over for the Eurozone. Because once France decides to break away, there’s no more Eurozone—and possibly, no more political stability.

The single most important reason for the collapse of the Eurozone is that each member state was allowed to issue its own debt. This ability, coupled with the fixed-exchange rate otherwise known as the Euro, is the core “systemic contradictions” of the Eurozone.

Right now, we are watching the Eurozone in its death spiral. And I’m afraid that all the talk of IMF bailouts of Greece and whatnot aren’t addressing the key problem: Sovereign European debt.

If somehow, all European debt could be centralized, then maybe the Eurozone would survive. But if the Europeans lack the political will to sort out Greece now, then such collectivization of European-wide sovereign debt is impossible.

So that mean, the Eurozone death spiral is inevitable. And we are now watching it unfold....MORE AT LINK

http://www.nakedcapitalism.com/2010/04/gonzalo-lira-%E2%80%9Csystemic-contradictions%E2%80%9D-the-eurozone-de-facto-currency-peg-and-the-death-spiral-we-are-currently-witnessing.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29

[Demeter]

69. Tom Lehrer's Solo discography

* Songs by Tom Lehrer (1953)
* More of Tom Lehrer (1959)
* An Evening Wasted with Tom Lehrer (1959)
* Tom Lehrer Revisited (1960) (1990 CD reissue includes 1971 studio recordings of Silent E and L-Y)
* Tom Lehrer Discovers Australia (And Vice Versa) (1960; Australia-only)
* That Was the Year That Was (1965)
* Tom Lehrer in Concert (1994; UK compilation)
* Songs & More Songs by Tom Lehrer (1997)
* The Remains of Tom Lehrer (2000)

Many Lehrer songs also are performed (but not by Lehrer) in That Was The Week That Was (Radiola LP, 1981)

The sheet music to many of Lehrer's songs is published in The Tom Lehrer Song Book (Crown Publishers, Inc., 1954) Library of Congress Card Catalog Number 54-12068 and Too Many Songs by Tom Lehrer: with not enough drawings by Ronald Searle (Pantheon, 1981, ISBN 0-394-74930-8).

Hope you have been amused by his tale. I will post additional songs as we go along.

[Demeter]

75. BUT WAIT! THERES MORE! Rabobank: Merrill Committed Similar Fraud to GS With Magnetar-Sponsored CDO

http://www.nakedcapitalism.com/2010/04/rabobank-merrill-committed-similar-fraud-to-goldman-with-a-magnetar-sponsored-cdo.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29

The Wall Street Journal reports that Dutch bank Rabobank has filed a suit alleging that Merrill Lynch engaged in teh same type of behavior as Goldman did with John Paulson, namely, devising a CDO on behalf of a hedge fund who was using it to take a short position, and not disclosing that fact to investors in teh deal.

Oddly, the story does not mention that Magnetar was the hedge fund in question, (nor did the Journal report on its involvement in its earlier report on the CDO in question, Norma, back in 2007).

From the Wall Street Journal (hat tip Richard Smith):

Merrill Lynch & Co. engaged in the “same type of fraudulent conduct” that Goldman Sachs Group Inc. was accused of committing by the U.S. Securities & Exchange Commission in a lawsuit on Friday…..lawyers for Cooperatieve Centrale Raiffeisen-Boerenleenbank BA, or Rabobank, said Merrill Lynch committed a similar fraud in the structuring of a $1.5 billion collateralized debt obligation, known as Norma CDO Ltd…

Rabobank sued Merrill Lynch in New York state court last year, alleging it was owed about $45 million in a senior secured loan when the CDO defaulted and was liquidated in 2008.

The Dutch bank claimed Merrill Lynch misrepresented that the CDO was carefully structured investment vehicle when Rabobank made a $57.7 million upfront loan in March 2007.

Rabobank claims the Norma CDO was a “dumping ground” impaired subprime assets and was structured with the help of a prized Merrill Lynch hedge fund client as a bet against the mortgage-backed securities market.

[Demeter]

76. Tom Lehrer Slammed Sociology For Trying to Pretend It was Scientific with Math

Try listening to his song, substituting "Economics" for "Sociaology"

It doesn't scan, but the criticism is the same...

http://www.youtube.com/watch?v=wX5II-BJ8hI&feature=related

[Demeter]

83. AND MORE!

Citi 'Negative' On Subprime Mortgages As Early As 2006, Yet Firm Continued To Pump Out Subprime Mortgage Products (VIDEO)

http://www.huffingtonpost.com/2010/04/08/citi-negative-on-subprime_n_531130.html

[Demeter]

80. THIS IS A HAPPY BIRTHDAY TOM LEHRER--BELATED, BUT SINCERE

After all, the BEST, wittiest, musically gifted people are born in April (like yours truly, and half the choir I sing in, etc...)

I have to do some useful work today, alas! See you all later this evening?

Everything is breaking so fast--if you catch word of a new development while I'm off shoveling out the house, please post it here somewhere--it doesn't have to be organized, although that would be special!

[Demeter]

87. This Week's Quote--from Adlai E Stevenson

There was a time when a fool and his money were soon parted, but now it happens to everybody.

[Paladin]

88. God Bless Tom Lehrer. (n/t)

[Demeter]

89. 82 and hopefully still going strong!

[Paladin]

90. So Glad To Hear It.

What an enormous influence he's been on socio-political humor and satire for so many years. "Poisoning Pigeons In The Park," "The Old Dope Pedlar,"......Jeez, it seems like just yesterday......

[Demeter]

91. A Review of The Tom Lehrer Collection

Mathematician Tom Lehrer refused to acknowledge that he even had a career as a singer/ songwriter/ humorist - by his own estimate, in twenty years, he played about a hundred concerts and wrote just thirty-seven songs. But that career continues, even without his continued involvement, as succeeding generations have discovered his work. Lehrer combined catchy showtune melodies with Ogden Nash-style wordplay and gut-punch tastelessness, and a song like “National Brotherhood Week” still feels edgy today, even if its references to Lena Horne and Sheriff Clark are out of date. Anyone young enough to have avoided living through nuclear paranoia can check out “We Will All Go Together When We Go” and “MLF Lullaby” and get a vivid sense of what they missed.

The audio CD in this set compiles songs from his three live albums (strangely there’s nothing from his first album, the only one recorded in a studio), and adds the small handful of non-LP tunes Lehrer recorded after the sixties. The DVD presents a 30-minute live concert from Oslo in 1967, apparently the only performance footage of him in existence, and tacks on all of his videos for The Electric Company, explaining how to properly use “Silent E” and “L-Y” in sentences, along with a few glimpses of him coming out of retirement in the eighties and nineties. Lehrer’s not the most dynamic performer, and the Norwegian audience doesn’t seem to get most of the jokes - language barriers can make pun-based comedy a tricky proposition. But the Electric Company cartoons are still a hoot, and there’s also a new song about how to calculate derivatives, accompanied by visuals of the equations, that might just prove useful to the higher-educated in the audience.

http://laist.com/2010/04/13/cd_mailbag_the_stooges_tom_lehrer_t.php

[Demeter]

92. 22 songs posted so far--15 to go!

[eridani]

93. Us chemweenies can sing along with the Elements Song!

Hard to believe it was written in 1957. Lehrer was such a blessing to us geeky kids.

[Demeter]

94. This is the First Tom Lehrer Tune I Heard

in biology class in 1969 in an animated short catoon:


http://www.youtube.com/watch?v=JPrAuF2f_oI

[DemReadingDU]

95. Taibbi - Goldman Sachs Busted

4/16/10 Goldman Sachs Busted
Goldman, Sachs is getting busted, finally, for what to me is one of the most devious and brilliant crimes of the last decade. I can’t get into this too much because I have other material coming out about it. But the upshot of it is that GS teamed up with a hedgie named John Paulson (no relation) to make the biggest ball of subprime shit they could, got short of it by credit-default-swapping it, then roped third parties into buying it. It’s kind of awesome in a way, and I’m sure it was fun while it lasted. But now… I’m reminded of the scene in Goodfellas when the cops bust Henry…: Bye bye, dickhead!
http://trueslant.com/matttaibbi/2010/04/16/goldman-busted/

and a video...
4/16/10 Matt Taibbi: “I Heard Whiffs of this Story” a Year Ago
Matt Taibbi, a contributing editor at Rolling Stone magazine, talks with Bloomberg's Carol Massar about the U.S. Securities and Exchange Commission's lawsuit against Goldman Sachs Group Inc. Goldman Sachs was sued by U.S. regulators for fraud tied to collateralized debt obligations that contributed to the worst financial crisis since the Great Depression.
http://wallstreetpit.com/23622-matt-taibbi-i-heard-whiffs-of-this-story-a-year-ago
or
http://www.youtube.com/watch?v=beb2jBijo-s&feature=player_embedded

[DemReadingDU]

97. Mauldin Sees 50-50 Chance of Recession Return in 2011

4/13/10 Mauldin Sees 50-50 Chance of Recession Return in 2011: Video

John Mauldin, president of Millennium Wave Advisors LLC and author of the weekly newsletter Thoughts From the Frontline, talks with Bloomberg's Julie Hyman about the outlook for the U.S. economy and stock market. (Source: Bloomberg)

http://www.youtube.com/watch?v=Bc2bqMgzlO4

[DemReadingDU]

98. Janet Tavakoli: Did Goldman Sachs Commit Fraud?

4/16/10 Janet Tavakoli: Did Goldman Sachs Commit Fraud?
Highlights:

Yes. The only thing that was surprising how long the SEC took to do it.

The complaint does not go quite far enough. It was a blatant fraud, more than just a failure to disclose information.

And this may be the beginning of a lot of questions about a lot of investment banks. It has massive implications IF the SEC does its job right, which they have not done in the past.


click for short video
http://jessescrossroadscafe.blogspot.com/2010/04/janet-tavakoli-did-goldman-sachs-commit.html
or
http://www.youtube.com/watch?v=WiwZ2LfOO-c&feature=player_embedded

[Po_d Mainiac]

99. The Wall Street Transparency & Accountability Act of 2010

This is landmark reform legislation that will bring 100 percent transparency to an unregulated $600 trillion
market, close all loopholes and keep jobs on Main Street. This will protect taxpayers, jobs, consumers and the
global economy, and will go further than any other proposal to prevent future bailouts.

Historic Reform of the Derivatives Market
Brings 100 Percent Transparency to Market with Real-Time Price Reporting:
Wall Street will no longer be able to make excessive profits by operating in the dark. Exposing these markets to
the light of day will put this money where it belongs – on Main Street. The public will see what is being traded,
who is doing the trading and, most importantly, regulators can go after fraud, manipulation and excessive
speculation.

Lowers Systemic Risk by Requiring Mandatory Trading and Clearing:
Trading and clearing of swaps lower risks and make the entire financial system safer. Transactions, determined
by the regulator, will be required to clear through a clearinghouse. In addition, these transactions must be traded
on a regulated exchange, which will provide further market transparency.

Prevents Future Bailouts and Address “Too Big to Fail”:
Banks need to be kept in the business of banking. The taxpayer funds used to bail out AIG and other Wall Street
firms will never be used for this purpose again. The Federal Reserve and FDIC will be prohibited from
providing any federal funds to bail out Wall Street firms who engage in risky derivative deals.

Closes Loopholes:
Loopholes have allowed far too many to avoid the law of the land or set up shell companies to claim
exemptions. This bill gives regulators the authority to close any loophole they find, protecting the markets,
taxpayers and the economy.

Protects Jobs on Main Street:
The interests of Main Street will be protected. Commercial businesses and manufacturers who use these markets
and customized contracts to manage risk will still be permitted to do so without imposing additional margin
costs. This will protect American jobs and keep consumer costs low.

Protects Municipalities and Pensions:
Swaps dealers will have a “fiduciary duty,” just like investment advisers, that will require the interests of
municipalities and pension retirement funds be put first; ensuring Wall Street doesn’t take advantage of Main
Street and taxpayers.

Regulates Foreign Exchange Transactions:
Foreign exchange swaps will be regulated like all other Wall Street contracts. At $60 trillion, this is the second
largest component of the swaps market and must be regulated.

Increases Enforcement Authority to Punish Bad Behavior:
Regulators will be given broad enforcement authority to punish bad actors that knowingly help clients defraud
third parties or the public such as when Wall Street helped Greece use swaps to hide the true state of the
country’s finances.

Full legislative text is available http://ag.senate.gov/site/legislation.html
The Wall Street Transparency and Accountability Act of 2010
Senate Committee on Agriculture, Nutrition, and Forestry, Chairman Blanche Lincoln

....................................

This probably stands zip chance of passage, but it should

[Demeter]

100. Goldman warned of SEC suit 9 months ago: report

http://www.marketwatch.com/story/goldman-had-9-months-warning-from-sec-report-2010-04-17?siteid=YAHOOB

Goldman Sachs Group Inc. was warned nine months ago that Securities and Exchange Commission staff wanted to bring a civil case against it, but the investment bank didn't specifically disclose this to investors in regulatory filings, Bloomberg News reported Saturday, citing unidentified people it credited with direct knowledge of the communications.

GS responded to the so-called Wells notice from the SEC within months and met with agency officials in an effort to fend off the civil lawsuit, Bloomberg reported, citing its sources, who declined to be identified because the discussions weren't public.

The SEC sent Goldman the Wells notice in July 2009, and the company responded in September. In March 2010, the New York-based firm said in a regulatory filing that it was cooperating with regulators' "requests for information," Bloomberg noted.

On Friday, the SEC charged Goldman with securities fraud, alleging that the bank didn't tell investors in a collateralized debt obligation that hedge-fund firm Paulson & Co. had helped structure the deal and was betting against it. Goldman shares slumped 13% after the suit, the stock's biggest one-day loss in more than a year, knocking more than $10 billion off the company's market value. See Financial Stocks for more perspective on Friday's share decline.

Companies typically disclose legal issues such as regulatory probes in their quarterly and annual financial reports. If companies get Wells notices from the SEC, they often specifically disclose this, too. However, Goldman wasn't required to disclose the Wells notice if it believed it wasn't a material event. The notices don't always lead to charges or fines, a Wall Street Journal report noted.

"The question is whether a general disclaimer like that is rendered misleading because you left out the specifics," Adam Pritchard, a former SEC attorney, told Bloomberg News. "The prudent, conservative choice is to disclose more," because omissions can lead to shareholder lawsuits, Pritchard added.

Goldman's annual report for 2009, filed with the SEC in March, recycled a passage the company had used in the previous year's report to describe regulatory probes involving securities linked to subprime mortgages, Bloomberg reported. In both cases, the firm stated the following:

"GS&Co. and certain of its affiliates, together with other financial services firms, have received requests for information from various governmental agencies and self-regulatory organizations relating to subprime mortgages, and securitizations, collateralized debt obligations and synthetic products related to subprime mortgages. GS&Co. and its affiliates are cooperating with the requests."

Lucas van Praag, a spokesman for Goldman Sachs in New York, declined to comment to Bloomberg.

On Friday, Goldman had said the SEC's charges were "completely unfounded in law and fact," and the investment bank promised to "vigorously contest them and defend the firm and its reputation."

But Goldman may now face a raft of private lawsuits that could try to piggybank on the SEC's case, the Journal reported.

(The brand-new Goldman Sachs global headquarters in Lower Manhattan carries a reported price tag exceeding $2 billion. Some 6,500 of the 7,500 Goldman staff slated to work in the structure have reportedly moved in. Goldman employs more than 30,000 people worldwide.)

Paul Geller of Robbins Geller Rudman & Dowd, which represents a union that's suing Goldman over mortgage-securities losses, told the Journal that private lawyers are "foaming at the mouth."

Investors who were hurt by the alleged fraud are likely to sue. ABN Amro, now owned by the Royal Bank of Scotland, and German lender IKB lost roughly $1 billion after investing in the Goldman CDO at the center of the SEC's suit.

These banks may have a fiduciary duty to their private or public shareholders to sue, James Kramer, a lawyer at Orrick who defends companies against securities claims, told the Journal.

"IKB and other disappointed Abacus investors will almost certainly pursue related CDO claims against Goldman," Brad Hintz, a Wall Street analyst at Bernstein Research, wrote in a Friday note to investors.

Hintz estimated that Goldman could face a liability of $706.5 million from the SEC's suit, in a worst-case scenario. This includes the cost of claims by ABN Amro and other investors in the CDO, known as Abacus 2007-ACI. It also includes $70 million in fee disgorgement and fines by the SEC.

If Goldman doesn't settle with the SEC, the regulator could take depositions of Goldman employees, among other things, and disclose it publicly in court, potentially helping lawsuits filed by alleged victims, Kramer explained to the Journal.

Direct or so-called derivative lawsuits from Goldman shareholders could also follow. That's because Goldman shares slumped 13% after the SEC suit was announced Friday.

In derivative suits, which would be easier to bring than direct claims, Goldman shareholders -- acting on behalf of the company -- would sue Goldman's board of directors for allegedly exposing the company to financial and reputational damage, Kramer told the Journal. Direct claims by shareholders that the company or officers made material omissions or misstatements to them would be more difficult to prove, he added.

[Demeter]

101. Tom Lehrer Has a Song on Derivatives, Believe It or Not! Two, actually

http://www.youtube.com/watch?v=i9w_Ar8s5HM&feature=related

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

and one on the professor

http://www.youtube.com/watch?v=A6it_kQeOnU&feature=related

[Po_d Mainiac]

103. Summers and Rubin wrong?

Clinton: Rubin and Summers Gave Me Wrong Advice on Derivatives, and I Was Wrong To Take It

http://blogs.abcnews.com/politicalpunch/2010/04/clinton-rubin-and-summers-gave-me-wrong-advice-on-derivatives-and-i-was-wrong-to-take-it.html

...............

Very bad choice. Right up there with wrecking a fine smoke from Havana, type bad.

[ozymandius]

107. The bit about Greenspan was amended to the end of the article.

UPDATE: This post and its headline were updated after Clinton's office called to say the former president sees former Federal Reserve Chair Alan Greenspan as the one who mainly led the charge against regulating derivatives.

[Po_d Mainiac]

109. So much for 20/20 hindsight

At least they fell short of stating that Greenscum acted alone. :grr:

[Demeter]

105. Greenspan’s 15% survival formula Rolfe Winkler Capital Zoo

http://blogs.reuters.com/rolfe-winkler/2010/04/09/greenspans-15-survival-formula/

I believe that during the past 18 months, there were very few instances of serial default and contagion that could have not been contained by adequate risk-based capital and liquidity. I presume, for example, that with 15% tangible equity capital, neither Bear Sterns nor Lehman Brothers would have been in trouble. Increased capital, I might add parenthetically, would also likely result in smaller executive compensation packages, since more capital would have to be retained in undistributed earnings.

-Alan Greenspan*
FCIC Testimony, 4/7/10

http://link.reuters.com/dam27j


It’s a question on everyone’s mind: how much capital must banks be made to hold? No other regulatory change can do as much to prevent another financial collapse. A bigger equity cushion not only buffers bank creditors from losses — preventing cascading bank runs — it by definition would reduce frothy lending that inflates bubbles in the first place.

The issue has new immediacy today, in the wake of revelations published by WSJ that major banks are masking their leverage. Because balance sheets are reported at a single point in time, i.e. the last day of the quarter, there’s an incentive to reduce risk around that particular day in order to present a pretty face to the world. Meanwhile, during the quarter banks are jacking up leverage in order to boost profits. While Lehman actually hid leverage (with Repo 105), other banks are temporarily reducing it, “understating debt levels used to fund securities trades by lowering them an average of 42% at the end of each of the past five” quarters.

This is just another reason that, when setting new capital standards, regulators should err on the high side. Not only are banks sitting on large embedded losses with the help of extend and pretend accounting, there’s now strong evidence they’ll game whatever standards are set.

But what’s the right number? Few have been willing to commit to a figure. For instance, while the Basel Committee of international bank regulators has proposed strict new definitions for capital — and liquidity — it has yet to tender suggestions on precisely how much banks should be made to hold.

It’s notable that Alan Greenspan says 15% tangible equity would have been a good cushion for Lehman and Bear. Extrapolated across other major banks, the 15% figure implies they’d have to raise nearly $900 billion, a truly stupendous figure.

That’s so high, it’s hard to contemplate the implications. Suffice it to say, it’s not happening. Banks couldn’t come close to raising such sums even if they were commanded to by regulators. And such a draconian standard would hammer lending. I argued in my Breakingviews column yesterday (paywalled folks, sorry!) that regulators need to be concerned with raising capital standards, not lending levels, which are conflicting goals. But 15% TCE is a bit much.

But in setting a very high bar, Greenspan may have done regulators a favor. Perhaps it will give them cover to raise capital standards higher than they otherwise would. When banks inevitably complain, regulators can retort that they’re cutting them more slack than The Maestro would!

[Demeter]

106. Tom Lehrer on Currency

http://www.youtube.com/watch?v=KIpr0s52yVk&NR=1

[Demeter]

110. I'm Beat--Here's the rest of Tom Lehrer and That's the End of the News

http://www.youtube.com/watch?v=r58HrT0rRHI&NR=1

http://www.youtube.com/watch?v=yygMhtNQJ9M&feature=related

http://www.youtube.com/watch?v=J0L_rD7CCe4&feature=related

http://www.youtube.com/watch?v=7rSNQlsR5Pc&feature=related

http://www.youtube.com/watch?v=TSlpCBek1_M&feature=related

http://www.youtube.com/watch?v=FydHpyoGX0c&feature=related

http://www.youtube.com/watch?v=fSwjuz_-yao&feature=related

http://www.youtube.com/watch?v=iATzgXyhYRs&feature=related

http://www.youtube.com/watch?v=t1NCP5IZqE4&feature=related

http://www.youtube.com/watch?v=hH4J8CIBc7Q&feature=related

http://www.youtube.com/watch?v=ld7VVBztuVM&feature=related

http://www.youtube.com/watch?v=dl3mRjydcPw&feature=related

http://www.youtube.com/watch?v=8NOZH0y7VxE&feature=related

http://www.youtube.com/watch?v=S769YancquU&feature=related

Let me know if I missed any....

[bread_and_roses]

112. my sympathies - I'm reeling from trying to read it all

Hope your eve is restful and pleasant. Thanks for all the hard work and info. I often come back to this thread during the week when I can't get to it all on the weekend.

[Blue_Tires]

113. ttt