The irrepressible overseas TV talking head Max Keiser, who has called the derivatives market "a pyramid of faulty nothingness," rips Goldman Sachs a new one. Unless you're a regular viewer of France24, you haven't heard this. So click above to hear him label Goldman "scum" and note that it has "co-opted the U.S. government."
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Opium production in Afghanistan has dropped 10 percent, but prices are still at a 10-year low, according to the U.N. Office on Drugs and Crime (Afghan Opium Survey 2009). Somehow, this is kinda being spun as progress in the war on drugs.
Taking away Afghan farmers' livelihoods may not be the best way to win the overall Afghan War, and the farmers are fighting back the only way they know how. With an efficiency that would put the most cunning Wall Street derivatives genius to shame, Afghan farmers who haven't been rousted by narcs are extracting more of the popular derivative per poppy bulb.
So why are prices dropping? The same reason that oil prices don't really depend upon supply.
The last thing the world needs is two regulatory agencies whose duties overlap putting their heads together to come up with a compromise. But that's what's going on right now: The SEC and CFTC are knocking booty in a rare meeting to exchange views on how to deal with Wall Street. The WSJ story on this (with the amusing headline "Exchanges Offer Views on Harmonizing Regulation") notes that CFTC Chair Gary Gensler said in his opening remarks, "All options must be on the table, and there are no sacred cows."
When all is said and done, this is just another act of the dog-and-pony show the Obama Administration is orchestrating to make people think that there's going to be more regulation of cockamamie derivatives and less manipulation of commodity futures prices by the goniffs currently out of control under the CFTC.
Uh-huh. The fact is that the SEC, for all its faults, at least has rules in place to actually regulate the markets. The CFTC, on the other hand, is mostly a joke, with its "self-regulating" rules for commodities speculators.
The guys doing over-the-counter derivatives that speculators so often abuse want no part of the SEC telling them what to do. CME Group (Chicago Mercantile Exchange) Chair Craig Donohue voiced the veiled threat. Or, as the WSJ story puts it, "Mr. Donohue cautioned against abandoning the CFTC philosophy of regulation and said an SEC style applied to futures markets would drive the business offshore. While he rejected a wholesale merger, he said there are a "few discrete areas" where regulation could be improved through harmonization, according to the prepared remarks."
But Gensler is no regulator; he's just going through the motions, so don't sweat it too much, guys.
Wisdom for a punch-drunk Wall Street (FT)
Book review of Henry Kaufman's The Road to Financial Reformation: Warnings, Consequences, Reforms. One of the Wall Street elder statesman's "biggest beefs is the Fed's tolerance of concentration in the financial system." Ten largest U.S. financial institutions control more than 50 percent of country's financial assets, compared with only about 10 percent in 1990. Glass-Steagall, he says, should have never been repealed.
Madoff Victims: Are You Kidding Me?! (WallStNation)
People duped by Bernie want not only their initial investments back but also the phony profits Madoff told them they earned. "U.S. greed rolls on."
Raft of Deals for Failed Banks Puts U.S. on Hook for Billions (WSJ)
FDIC's absorbing banks' risk on billions in loans. Shudder. Call it the Bank Buying Bubble. But the NYT looks at the bright side: "As Big Banks Repay Bailout Money, U.S. Sees a Profit," saying that "taxpayers have begun seeing profits" from the bailout of banks.
Can Rally Run Without Revenue? (WSJ)
OK, all these companies are leaner, and their quarterly reports reflect that, and investors are happy. Now, what about revenue? Sales are disappointing, most people are still in the grip of a recession that will get worse. We'll see when the third quarter reports are in just how bad the damage still is. NYT version: "Some Analysts See an End to Market Rally." More immediately, CNN says, "Wall Street braces for a hit." Sobering news that the market may be at its peak right now. Gloomy news from the Mole on Seeking Alpha: "Preview from Europe: Stocks Get the China Syndrome." And watch out: Inflation forces "are brewing."
MORE HEADLINES FOLLOW
The big fight has started between the CFTC and everyone else about regulations to control speculators and finally slow down the frenetic futures market.
Unless the Obama administration is just blowing smoke with its vows to regulate credit-default swaps and the like. Maybe Barack Obama's team is deeply divided about regulating the markets. Maybe the Commodity Futures Trading Commission really will try to regulate derivatives. Or maybe this is just a sop for public consumption.
Gary Gensler, new chairman of the CFTC, announced the possibility of new rules to regulate derivatives. The little agency supposedly regulates "$5 trillion in daily trading of futures contracts including transactions for crude oil, foreign currency and agriculture products." All he said was that he plans to holding hearings to see whether regulations are needed. But that's enough for the big investment firms to start huddling with their vast array of lobbyists and sympathetic pols on a battle plan. (And enough to get the Wall Street Journal to say that "commodities regulators ... plan to propose sweeping trading limits.")
Maybe. Maybe not.
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Cooler, brain-dead heads are backing off from Capitol Hill's knee-jerk reaction to the public outrage over AIG bonuses.
Leading the coddling of the bonus babies are two Democrats, the New York Times points out in "Legislators to Propose Milder Bonus Bill."
The media overkill on the issue may or may not have a long-term impact on the regulation of bonuses. But AIG's troops have formed an Armani-clad army of gangbankers, and they're applauding one of their own who has refused to return his lucre.
"Some at AIG Buck Efforts to Give Back Bonus Pay," the Wall Street Journal reports this morning. As usual these days in its strong coverage of the meltdown, the WSJ points out a wonderful absurdity in a serious situation:
Joining in the ovation was Gerry Pasciucco, attendees said. Mr. Pasciucco heads the division that had $40 billion in losses last year that nearly sank AIG and triggered the government rescue. About five employees of the unit quit Wednesday, said a person familiar with the matter. Mr. Pasciucco, who was recruited last autumn from Morgan Stanley to manage the AIG unit, declined to comment.
How did DeSantis become such a hero to his mates? The Times had given him some of its sacred op-ed space to mount a defense of his bonus — a defense that carried the extremely misleading headline "Dear A.I.G., I Quit!".
The piece is an e-mail he supposedly sent to AIG CEO Edward Liddy. In it, DeSantis wrote:
In response to this, I will now leave the company and donate my entire post-tax retention payment to those suffering from the global economic downturn. My intent is to keep none of the money myself.
Let's withhold judgment on his heroic stand until we see whether he sticks to his plan to become a veritable Mother Teresa.
Here's a suggestion to DeSantis for helping those who are suffering: Take a bunch of your fellow AIG'ers to a spa for a golf tourney and a well-deserved respite from the public hounding.
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This morning's Wall Street Journal describes the weekend's revelations in more polite terms:
After calls for more transparency, AIG disclosed Sunday that roughly two-thirds of the $173.3 billion in federal aid it received has been paid out to trading partners such as banks and municipalities in the U.S. and abroad.
It's hardly surprising that Goldman Sachs appears to be the largest U.S. recipient in this scheme involving what are formally called credit default swaps: Former Goldman CEO Hank Paulson was the Bush regime's bailout czar.
By the way, you can probably kiss that money goodbye. Despite the disclosure, at last, of the money received by these counterparties, it's highly doubtful that any of the money will be clawed back.
Simply put, those banks and others had invested money in AIG, the world's largest insuror, to insure their own losses in the mortgage-securities market. Like a restaurant owner refusing to name mobsters who were silent partners, AIG refused to identify the counterparties.
Adding to the frustration: U.S. taxpayers had already "made whole" these counterparties, as the WSJ puts it, when these toxic assets were bought by a bailout bank set up last year by the Federal Reserve after the Wall Street meltdown.
Think of these counterparties as mobsters reaching over the counter of a pizza joint owned by a sucker indebted to them and snatching money right out of the cash register.
Further adding to the frustration is that the $120 billion of bailout money funneled through AIG to the big banks and others represented insurance those banks purchased in case average Americans' mortgages collapsed in the subprime-market schemes.
In essence, these big banks bet against average Americans, who then bailed them out — before bailout plans began for said average Americans.
The Bush regime had refused to press AIG to release the names and amounts of money in this scheme — in other words, Hank Paulson kept secret the fact that his former bank was apparently the biggest U.S. recipient of the publicly funded payoffs. Some of the names leaked out last week. But now the names and numbers have been made public.
James Lieber cut through to the heart of these credit default swaps and other aspects of Wall Street's derivatives schemes whose collapse ignited the global financial crisis in his January 28 Voice piece "What Cooked the World's Economy?":
The advantage of treating these players like racketeers under federal law is that their ill-gotten gains could be forfeited. The government could recoup these odious gambling debts instead of simply paying them off. In finance, the bottom line is the bottom line. The bottom line in this scandal is that fantastically wealthy entities positioned themselves to make unfathomable fortunes by betting that average Americans — Joe Six-Packs and hockey moms — would fail.
Now that the names and numbers are finally public, the details of how Lehman tanked and Goldman was saved last year become clearer in context. As Lieber wrote in late January:
Had Goldman bought from AIG credit derivatives that it needed to redeem? Like most other huge financial traders, Goldman has a secretive hedge fund, Global Alpha, that refuses to reveal its transactions. Regardless, Paulson's meeting with Blankfein was a low point. If Dick Cheney had met with his successor at Halliburton and, the very next day, written a check for billions that guaranteed its survival, the press would have screamed for his head.
The WSJ concisely describes the scheme this way, after which you can judge for yourself whether the money will ever be clawed back:
The sum includes $52 billion of outflow from AIG's Financial Products unit, the unit that made bad insurance bets on mortgage assets. Another $43.7 billion was used to repay banks and brokers that were customers of AIG's securities-lending business. It also includes $24 billion in Fed money that was used to buy mortgage-linked securities that AIG insured so that the contracts tied to them could be torn up.
There are political risks to the disclosures, notably the fact that taxpayer dollars are essentially passing through AIG to make whole private businesses and foreign banks. Yet it was concern over the risk of a cascading series of bank failures, both in the U.S. and abroad, that spurred the government to consent to an emergency rescue plan. Fears of financial stress at U.S. municipalities was another worry.
Oh, yeah, the latest bonus round of the unfolding scandal: The AIG unit that Lieber focused on in his January 28 piece as a key to AIG's meltdown is certainly being made whole. The WSJ notes:
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| Buffett's Berkshire is sitting on $25.54 billion |
Buffett's annual letter to shareholders of his Berkshire Hathaway conglomerate (which includes GEICO — gecko and all) is always entertaining and often surprising — five years ago, for example, the capitalist hero railed against corporate welfare.
This year's letter, released Saturday, tells us something we already know — the global economy is a "shambles" — but it also warns that the government bailouts will cause an "onslaught of inflation."
But the Omaha-based Buffett devotes a lot of his space to his own use of derivatives, and how they cut deeply into his billions. Not so deep that he didn't have $5 billion to bail out Goldman Sachs last September.
Along the way, however, the often-contrarian Buffett (if a guy so worshipped by so many people can ever be considered a contrarian) delivers another shelling — this time he aims at the "private equity" sector. He breaks it down like this:
Their new label became "private equity," a name that turns the facts upside-down: A purchase of a business by these firms almost invariably results in dramatic reductions in the equity portion of the acquiree's capital structure compared to that previously existing.
A number of these acquirees, purchased only two to three years ago, are now in mortal danger because of the debt piled on them by their private-equity buyers. Much of the bank debt is selling below 70ยข on the dollar, and the public debt has taken a far greater beating. The private equity firms, it should be noted, are not rushing in to inject the equity their wards now desperately need. Instead, they're keeping their remaining funds very private....
Incidentally, it's not as if Buffett has been chewing on sour grapes. Reuters notes that Berkshire still has triple-A credit ratings and $25.4 billion in cash to play around with.
