Posts Tagged ‘new world order’

GMAC… again… Tax payer now majority stake holder

December 31, 2009

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=agcYWuOIJVRg

Excerpts:

The infusion will bolster lending at GMAC as it absorbs $3.8 billion in new pretax charges and decides what to do with its loss-plagued home mortgage unit, according to statements from the agency and the company yesterday. The aid comes on top of about $13.5 billion previously earmarked for GMAC, which regulators have said is crucial to the U.S. auto industry. […] The U.S. stake will rise to 56.3 percent from 35.4 percent. The U.S. also controls General Motors, GMAC’s former parent, whose stake shrinks to 6.7 percent.

The following are quotes that should likely elicit a “what the fuck!” from you if you understand the irony:

GMAC was the only company of 19 that underwent stress tests that wasn’t able to raise capital in the private sector, Williams said. Still, the Treasury said the aid was less than originally planned because restructurings at GM and Chrysler caused less disruption at GMAC than regulators expected. Tim Price, a partner at Cerberus, didn’t return a call for comment. […] There will be individual asset sales in the near future but whether some larger concept evolves is a matter of time,” Carpenter said. “We think ResCap and the mortgage business is stable and that we don’t have to do anything crazy. We have no urgency.

So aid was less than originally planned? A cynic would say that GMAC is not done asking for capital as they have just done. As far as having no urgency to do something “crazy” is concerned: of course you have no urgency, the government is shoveling public funds your way.

Here is the moral of the story.

Billionaire investors, astute funds managers, competent hedge fund managers and lowly retail investors are all saying they are not interested in buying GMAC stock. They look at the company, they don’t like what they see and they don’t buy the company stock.

So, apparently, Obama thinks that his administration is smarter than all the more competent investors in the market place and decrees that your money will be given to GMAC whether you like it or not.

The government is now majority owner in GMAC as it is majority owner in GM which was the original owner of GMAC and all this with your money. The money you and me and everyone else thought would be employed in infrastructure improvement, education or financial reform is now being given to a failing finance company that was created in order to sustain GM but that turned out to be one of the largest lenders to the real estate bubble and that is today creaking under the weight of its failed bets.

Obama thinks GMAC will turn out ok and against taxpayers’ wishes is giving them just under $4Billion Dollars on top of the $13Billion that had already been given a few months ago.

Can we yet call this corporatism? Can we call it Fascism?

War is dialed in latest by 2015 but, likely, by 2013

Advertisements

The revolt of the fifth estate (Allen Roland)

November 13, 2009

http://blogs.salon.com/0002255/

America gave away it’s power after 9/11 by allowing ourselves to be bamboozled by the Cheney/Bush administration who seized and abused their executive power while flying the banner of the War On Terror. President Obama is riding that same white horse of unlimited executive power as he gets ready to substantially increase our presence in Afghanistan ~ while Congress and the fourth estate ( Main Steam Press ) fall dutifully and lock step in line.

Terrorism and the state

November 13, 2009

NB – This is an article that dates from before 9/11

http://www.guardian.co.uk/world/2001/may/07/terrorism

Excerpts:

” […] statistics [on terrorism] are fundamentally meaningless because, as the report points out, “no one definition of terrorism has gained universal acceptance

Using the definition preferred by the state department, terrorism is: “Premeditated, politically motivated violence perpetrated against noncombatant* targets by subnational groups or clandestine agents, usually intended to influence an audience.” (The asterisk is important, as we shall see later.)

The state department regards attacks against “noncombatant* targets” as terrorism. But follow the asterisk to the small print and you find that “noncombatants” includes both civilians and military personnel who are unarmed or off duty at the time. Several examples are given, such as the 1986 disco bombing in Berlin, which killed two servicemen.

The most lethal bombing in the Middle East last year was the suicide attack on USS Cole in Aden harbour which killed 17 American sailors and injured 39 more.

As the ship was armed and its crew on duty at the time, why is this classified as terrorism? Look again at the small print, which adds: “We also consider as acts of terrorism attacks on military installations or on armed military personnel when a state of military hostilities does not exist at the site, such as bombings against US bases.

A similar question arises with Palestinian attacks on quasi-military targets such as Israeli settlements. Many settlers are armed (with weapons supplied by the army) and the settlements themselves – though they contain civilians – might be considered military targets because they are there to consolidate a military occupation.

If, under the state department rules, Palestinian mortar attacks on settlements count as terrorism, it would be reasonable to expect Israeli rocket attacks on Palestinian communities to be treated in the same way – but they are not. In the American definition, terrorism can never be inflicted by a state. (emphasis added)”

Interestingly, the American definition of terrorism is a reversal of the word’s original meaning, given in the Oxford English Dictionary as “government by intimidation”. Today it usually refers to intimidation of governments“.

Issuing such a list does at least highlight the anomalies and inconsistencies behind anti-terrorism laws. It also points towards a simpler – and perhaps more honest – definition: terrorism is violence committed by those we disapprove of.”

Fascism by any other name… something very ugly this way cometh…

November 10, 2009

http://www.cbsnews.com/blogs/2009/11/09/taking_liberties/entry5595506.shtml?tag=mncol;txt

This excerpt says it all:

In a case that raises questions about online journalism and privacy rights, the U.S. Department of Justice sent a formal request to an independent news site ordering it to provide details of all reader visits on a certain day.

The grand jury subpoena also required the Philadelphia-based Indymedia.us Web site “not to disclose the existence of this request” unless authorized by the Justice Department, a gag order that presents an unusual quandary for any news organization.

First they came for the communists, and I did not speak out—because I was not a communist;
Then they came for the socialists, and I did not speak out—because I was not a socialist;
Then they came for the trade unionists, and I did not speak out—because I was not a trade unionist;
Then they came for the Jews, and I did not speak out—because I was not a Jew;
Then they came for me—and there was no one left to speak out for me.

Got gold?

More catching up by the main stream press

November 1, 2009

The real climate change catastrophe

http://www.telegraph.co.uk/news/6425269/The-real-climate-change-catastrophe.html

Is the main stream press suddenly getting a wake-up call?

Ian Plimer Prof Earth Science

October 30, 2009

Author of the book: Heaven and Earth

http://www.netcastdaily.com/broadcast/fsn2009-1024-2.mp3

Howard Hayden’s letter to the EPA via Lew Rockwell (Global Warming)

October 30, 2009

http://www.lewrockwell.com/blog/lewrw/archives/041453.html

October 29, 2009

Physicist Howard Hayden’s One-Letter Disproof of Global Warming Claims

Posted by Stephan Kinsella on October 29, 2009 11:47 AM

Physicist Howard Hayden, a staunch advocate of sound energy policy, sent me a copy of his letter to the EPA about global warming. The text is also appended below, with permission.

As noted in my post Access to Energy, Hayden helped the late, great Petr Beckmann found the dissident physics journal Galilean Electrodynamics (brochures and further Beckmann info here; further dissident physics links). Hayden later began to publish his own pro-energy newsletter, The Energy Advocate, following in the footsteps of Beckmann’s own journal Access to Energy.

I love Hayden’s email sign-off, “People will do anything to save the world … except take a course in science.”

Here’s the letter:

***

Howard C. Hayden
785 S. McCoy Drive
Pueblo West, CO 81007

October 27, 2009

The Honorable Lisa P. Jackson, Administrator
Environmental Protection Agency
1200 Pennsylvania Ave., NW Washington, DC 20460

Dear Administrator Jackson:

I write in regard to the Proposed Endangerment and Cause or Contribute Findings for Greenhouse Gases Under Section 202(a) of the Clean Air Act, Proposed Rule, 74 Fed. Reg. 18,886 (Apr. 24, 2009), the so-called “Endangerment Finding.”

It has been often said that the “science is settled” on the issue of CO2 and climate. Let me put this claim to rest with a simple one-letter proof that it is false.

The letter is s, the one that changes model into models. If the science were settled, there would be precisely one model, and it would be in agreement with measurements.

Alternatively, one may ask which one of the twenty-some models settled the science so that all the rest could be discarded along with the research funds that have kept those models alive.

We can take this further. Not a single climate model predicted the current cooling phase. If the science were settled, the model (singular) would have predicted it.

Let me next address the horror story that we are approaching (or have passed) a “tipping point.” Anybody who has worked with amplifiers knows about tipping points. The output “goes to the rail.” Not only that, but it stays there. That’s the official worry coming from the likes of James Hansen (of NASA­GISS) and Al Gore.

But therein lies the proof that we are nowhere near a tipping point. The earth, it seems, has seen times when the CO2 concentration was up to 8,000 ppm, and that did not lead to a tipping point. If it did, we would not be here talking about it. In fact, seen on the long scale, the CO2 concentration in the present cycle of glacials (ca. 200 ppm) and interglacials (ca. 300-400 ppm) is lower than it has been for the last 300 million years.

Global-warming alarmists tell us that the rising CO2 concentration is (A) anthropogenic and (B) leading to global warming.

(A) CO2 concentration has risen and fallen in the past with no help from mankind. The present rise began in the 1700s, long before humans could have made a meaningful contribution. Alarmists have failed to ask, let alone answer, what the CO2 level would be today if we had never burned any fuels. They simply assume that it would be the “pre-industrial” value.

  • The solubility of CO2 in water decreases as water warms, and increases as water cools. The warming of the earth since the Little Ice Age has thus caused the oceans to emit CO2 into the atmosphere.

(B) The first principle of causality is that the cause has to come before the effect. The historical record shows that climate changes precede CO2 changes. How, then, can one conclude that CO2 is responsible for the current warming?

Nobody doubts that CO2 has some greenhouse effect, and nobody doubts that CO2 concentration is increasing. But what would we have to fear if CO2 and temperature actually increased?

  • A warmer world is a better world. Look at weather-related death rates in winter and in summer, and the case is overwhelming that warmer is better.
  • The higher the CO2 levels, the more vibrant is the biosphere, as numerous experiments in greenhouses have shown. But a quick trip to the museum can make that case in spades. Those huge dinosaurs could not exist anywhere on the earth today because the land is not productive enough. CO2 is plant food, pure and simple.
  • CO2 is not pollution by any reasonable definition.
  • A warmer world begets more precipitation.
  • All computer models predict a smaller temperature gradient between the poles and the equator. Necessarily, this would mean fewer and less violent storms.
  • The melting point of ice is 0 ºC in Antarctica, just as it is everywhere else. The highest recorded temperature at the South Pole is –14 ºC, and the lowest is –117 ºC. How, pray, will a putative few degrees of warming melt all the ice and inundate Florida, as is claimed by the warming alarmists?

Consider the change in vocabulary that has occurred. The term global warming has given way to the term climate change, because the former is not supported by the data. The latter term, climate change, admits of all kinds of illogical attributions. If it warms up, that’s climate change. If it cools down, ditto. Any change whatsoever can be said by alarmists to be proof of climate change.

In a way, we have been here before. Lord Kelvin “proved” that the earth could not possibly be as old as the geologists said. He “proved” it using the conservation of energy. What he didn’t know was that nuclear energy, not gravitation, provides the internal heat of the sun and the earth.

Similarly, the global-warming alarmists have “proved” that CO2 causes global warming.

Except when it doesn’t.

To put it fairly but bluntly, the global-warming alarmists have relied on a pathetic version of science in which computer models take precedence over data, and numerical averages of computer outputs are believed to be able to predict the future climate. It would be a travesty if the EPA were to countenance such nonsense.

Best Regards,

Howard C. Hayden
Professor Emeritus of Physics, UConn

RedditDigg thisStumble ItShout It • <!– <a href=””>Share on Facebook • –> <!– <a href=””>Save to del.icio.us • –> Add to MixxDiscuss on Newsvine
« Previous: Obama at Dover AFB War-Dead Ceremonies | LRC Home | LRC Blog | Next: The Jigsaw Killer Is Pro-Obamacare »

Backdoor taxes hit Americans with public financing in the dark

October 26, 2009

This article highlights information that is much too important to show excerpts for. I warmly suggest you read the whole thing because it will give you an idea of the scope, breadth and depth of this debacle. I will reproduce the full text of the article and intersperse my comments in brackets prefixed by “GR” in Italics.

http://www.bloomberg.com/apps/news?pid=20601109&sid=aBarSkIcch2k

Oct. 26 (Bloomberg) — Salvatore Calvanese, the treasurer of Springfield, Massachusetts, for four years, had a ready defense for why he risked $14 million of taxpayer money on collateralized-debt obligations laden with subprime mortgages in 2007.

He didn’t know what he was buying, he says, and trusted the financial professionals who sold them and told him they were safe.

“I thought they were money markets that were just paying more,” Calvanese said in an interview. “Nobody ever used the term ‘CDO,’ and I am not sure I would have known what that was anyway.” (GR: This, I remind you, from a “Treasurer”; a County Treasurer to boot. These are the type of people that are in charge of public funds)

Such financial mistakes, often enabled by public officials’ lack of disclosure and accountability for almost 90 percent of government financings in the $2.8 trillion municipal bond market, are costing U.S. taxpayers as much as $6 billion a year, according to data compiled by Bloomberg in more than a dozen states.

The money lost to taxpayers — when the worst recession since the Great Depression is forcing local governments to cut university funding, delay paying bills and raise taxes — is enough to buy health care for everybody in Minneapolis; Orlando, Florida; and Grand Rapids, Michigan, according to figures from the U.S. Census Bureau and the U.S. Department of Health and Human Services.

Florida county commissioners sent deals to their favorite banks in an arrangement that led to criminal convictions. Pennsylvania school board members lost $4 million on an interest-rate swap agreement they didn’t understand in the unregulated $300 billion market for municipal derivatives.

Trouble With Swaps

Local agencies in Indianapolis, Philadelphia, Miami and Oakland, California, spent $331 million to end interest-rate swaps with banks including JPMorgan Chase & Co. of New York and Charlotte, North Carolina-based Bank of America Corp. during the past 18 months. The swaps, agreements to exchange periodic interest payments with banks or insurers, were intended to save borrowing costs. Payments increased instead.

New Jersey taxpayers are sending almost $1 million a month to a partnership run by Goldman Sachs Group Inc. for protection against rising interest costs on bonds the state redeemed more than a year ago, Bloomberg News reported Friday.

The interest-rate swap agreement, which the state entered in 2003 under former Governor James E. McGreevey, remained in place even after the state Transportation Trust Fund Authority replaced $345 million in auction-rate bonds that had fluctuating yields with fixed-rate securities last year.

Harvard Pays

Now, the 3.6 percent the trust fund is paying on the swap has pushed the cost on the original debt to 7.8 percent, the most the authority has paid since it was formed in 1985, according to records on its Web site. Canceling the swap before 2011 would require the state to pay an estimated $37.6 million fee, according to state records.

Even Harvard University, whose endowment of $26 billion makes it the world’s richest academic institution, fell for Wall Street’s financing in the dark: The Cambridge, Massachusetts- based university paid $497.6 million to investment banks during the year ended June 30 to cancel $1.1 billion of swaps. (GR: This from Harvard… that sacrosanct temple of knowledge)

The public needs more transparency in municipal debt transactions, said Elizabeth Warren, chairwoman of the Congressional Oversight Panel for the Troubled Asset Relief Program. Proposed reforms, such as an oversight agency for consumer finance, could help spur improvements, she said in an interview this month.

‘Worldview Change’

“We need a worldview change about transparency, and that includes municipal finance,” said Warren, a professor of bankruptcy law at Harvard Law School.

The public paid extra costs for borrowing with tax-exempt bonds because local governments resist providing investors the same level of disclosure as corporate borrowers, which file quarterly reports.

Municipalities typically file financial statements only once a year. Detroit, the largest U.S. city with a less-than- investment-grade credit rating, released its annual report for fiscal 2007 in March, more than 18 months later.

State and local governments that share more financial information than the minimum required pay yields as much as 0.20 percentage points lower than others, said Lisa Fairchild, professor and chairman of the finance department at Baltimore’s Loyola University Maryland, who produced a 1998 study on disclosure.

Applied across the tax-exempt bond market, that’s $5.6 billion a year, enough to buy more than 12,000 $465,608 pumper- tender fire trucks. That’s more than one truck for every county in the U.S. The rest could form a parade 50 miles (80 kilometers) long.

Build America Bonds

State and local governments that sold $43.8 billion of taxable Build America Bonds this year will pay $385 million a year more in interest than similarly rated corporate borrowers, based on data compiled by Bloomberg.

The bonds, for which the federal government subsidizes 35 percent of interest costs, pay an average yield that’s 0.8 percentage points more, relative to benchmark rates, than yields for corporate securities with the same credit ratings, the data show.

As a result, it costs New Jersey road authorities, Georgia sewer districts and other agencies more to borrow, even though they, unlike corporations, can raise fees or taxes to make up for deficits. Corporations are at least 90 times more likely to default than local governments, according to Moody’s Investors Service.

Discounted to their present value, those additional payments by municipal borrowers add up to $6.1 billion over the life of the debt.

‘It’s Horrendous’

“I think it’s horrendous, but it’s very hard to get anybody to pay much attention to it,” said Stanley Langbein, a law professor at the University of Miami and a former tax counsel at the U.S. Treasury in Washington.

Underwriters — banks or securities firms that guarantee the purchase of debt issuers’ bonds — have an interest in keeping prices low, and yields high, because it means higher returns for them and the first investors, Langbein said.

Many Build America bonds traded at higher prices immediately after agencies sold them, a sign that taxpayers lost, he said.

The Government Finance Officers Association, a professional group based in Chicago, warns municipalities of “competing objectives” in their relationships with underwriters. Many don’t heed that warning, said Christopher “Kit” Taylor, who was the top regulator of the municipal bond market from 1978 to 2007.

‘Stockholm Syndrome’

“They’re suffering from Stockholm syndrome,” he said, referring to the psychological phenomenon in which hostages begin to identify with and grow sympathetic to their captors. “They are being held hostage by their investment bank.”

Public officials shunned competitive bids for more than 85 percent of the $308.9 billion in new tax-exempt bond sales in the first nine months of this year, according to data compiled by Bloomberg. That’s up from 17 percent in 1970 and 68 percent in 1982, according to the Government Accountability Office.

Most borrowing costs that state and local taxpayers incur are set in private negotiations. Finance professionals say no- bid sales allow them to market debt to particular investors, helping issuers find demand when credit markets are tight.

The method boosts interest rates by as much as 0.06 percentage point, according to several academic studies reviewed by the GAO.

Excess Fees

Palm Beach County, Florida, paid $880,000 in excess bank fees and as much as $1.3 million a year in unnecessary interest because its commissioners sold bonds without bids, according to a county report in April.

Each commissioner nominated his or her favorite bank and work was parceled out on a rotating basis, the report showed. That allowed former commissioner Mary McCarty to steer more than $600 million in debt issues to banks that employed her husband, Kevin McCarty, according to federal charges that led to guilty pleas from both this year.

After the McCartys were charged, the county adopted a policy stating a preference for competitive bond sales. When bonds are sold by negotiation, a financing committee will circulate a request for proposals, evaluate them and then recommend an underwriter to commissioners, said Liz Bloeser, Palm Beach’s budget director.

No Bids

Beaver County, Pennsylvania, commissioners haven’t taken bids for bond underwriters since 1986, county records show. After relying on the same firm for more than two decades, they paid as much as $2.8 million more than they had to on a bond sale in January, based on trading records from the Municipal Securities Rulemaking Board, which oversees the tax-exempt bond market.

Using the same underwriter repeatedly for negotiated sales increases borrowing costs each time, according to a study published in the Winter 2008 edition of the Municipal Finance Journal. The study found that if an issuer had used the same bank twice before, its borrowing cost on $100 million of 10- year bonds increased by more than $1 million over the life of the debt.

Other financial mistakes can be difficult to quantify. Taylor, who studied government finances for 30 years as the executive director of the MSRB, said as many as five out of 10 local governments “aren’t getting the best deal by a long shot” on their investments.

Overpaid for Securities

Apache County, Arizona, overpaid its broker almost $500,000 for U.S. government securities, county records show. A price check would have caught the problem. The county has no record that it ever did one.

Many local officials are unprepared for Wall Street’s sales pitches, said Mary Christine Jackman, Maryland’s director of investments in Annapolis.

“When you combine people who are less sophisticated with people who can sell as those on Wall Street usually can, you end up with a very big problem,” she said. Jackman tries to offer basic training and advice to small municipalities, she said.

There are more than 89,000 cities, counties, school districts and other municipal authorities in the U.S., according to data from the Census Bureau. Each year, about 5,000 people attend training sponsored by the Government Finance Officers Association, which has 18,000 members, said Jeff Esser, the group’s executive director.

‘Doing Nothing’

The GFOA has never tried to make a comprehensive tally of its members’ educational attainment or professional backgrounds, he said. He added that during his 30 years with the organization, he has seen “a significant increase” in members’ education, training and professionalism.

Supervisors in Mohave County, Arizona, took issue with the professionalism of its treasurer, Lee Fabrizio, during an investigation last year in which employees reported that he played a lot of golf and was rarely in the office.

“It’s nice to get this paycheck for doing nothing,” Fabrizio told employees once, according to the July 2008 report by the county manager.

Fabrizio, who received a $56,500 annual salary, said he doesn’t remember making that statement and was in the office every day. He said he played nine holes of golf a day for two hours at lunchtime.

An employee’s grievance sparked the investigation and ultimately a state audit, which reported Aug. 28 that the treasurer bought corporate bonds with no evidence of competitive bidding, didn’t vet brokers’ backgrounds and continued to value a $5 million Lehman Brothers Holdings Inc. bond at full cost even after the firm’s Sept. 15, 2008, bankruptcy.

Not an Expert

The Lehman bond was purchased in late 2007, when the treasurer put $50 million, about 25 percent of the county portfolio, into 11 corporate bonds, 10 of them in financial firms including Lehman and Bear Stearns Cos.

“Even if it was a bad investment, I wouldn’t have known the difference; I’m not an investment expert,” Fabrizio said, adding that he relied on his hired deputy for those decisions. The deputy e-mailed competing brokers and had them fill out questionnaires, he said.

The county never sanctioned him, and he was voted out of office last year.

The Lehman loss cost the 7,000-student district in Kingman, Arizona, the county seat, almost $1 million, according to Wanda Hubbard, the schools’ finance director. The real losers are taxpayers, who will be levied more as a result, she said. The owner of a $250,000 house in the district may pay $25 extra this year, Hubbard estimated.

‘Back-Door Tax’

“It was kind of a back-door tax increase,” she said.

Officials are up against increasingly sophisticated financial products, including interest-rate swaps and so-called swaptions. A swaption grants the owner the option to force a particular party into a swap.

The Butler Area School District in western Pennsylvania paid JPMorgan $5.2 million last year to cancel such a pact. The payment was about seven times more than the district had received under the contract. Statewide, 55 Pennsylvania school districts have paid counterparties to exit interest-rate swaps since 2003, according to state records.

Some officials now say they didn’t understand the deals.

“The financial guys would come in with a lot of stuff that nobody at the district understood,” Penelope Kingman, a former member of the Butler school board who voted against the deal, told Bloomberg News last year. “Local governments are entering into these without fully understanding what they are doing.”

Market Has Grown

While such contracts aren’t traded on regulated exchanges, the market for municipal derivatives has grown to as much as $300 billion annually, the MSRB says. Derivatives are a category of contracts whose value is tied to assets including stocks, bonds, commodities and currencies, or events such as changes in interest rates or the weather.

One type of derivative, the interest-rate swap, helped put Jefferson County, Alabama, on the brink of bankruptcy.

The county refinanced $3 billion of sewer debt in no-bid deals earlier this decade, issuing variable-rate bonds that were hedged with swaps. The plan backfired last year as the global credit crisis took hold. Interest payments due on the bonds more than tripled to 10 percent, while the swap income decreased.

Last week, the former president of the county commission, Larry P. Langford, went on trial in federal court in Tuscaloosa. Langford, now the mayor of Birmingham, pleaded not guilty in December to charges including bribery, conspiracy and filing false income tax returns.

‘Political Witch Hunt’

Prosecutors say he took cash, clothes and Rolex watches from a banker who received $7.1 million in fees on debt sales in 2003 and 2004. Langford has called the case “a political witch hunt.”

The Justice Department and the Securities and Exchange Commission are investigating whether Wall Street banks conspired with some brokers to rig bids and fix prices for municipal derivatives. The probe centers on interest-rate swaps and on investments that cities, states and schools buy with bond proceeds, according to subpoenas received by agencies in Alabama, Illinois, Pennsylvania and New Mexico.

While many municipalities turn to professional consultants for guidance on derivatives, the MSRB reported in April that 73 percent of financial advisers who participated in the municipal bond market in 2008 weren’t subject to the board’s rules because they weren’t registered securities dealers.

Legislation Considered

Congress is considering legislation to regulate the financial advisers. Still, there are other gaps.

Federal law exempts the municipal market from rules regarding disclosure and enforcement that apply to companies. And transactions between broker-dealers and municipalities are rarely scrutinized by the self-regulatory agencies that banks and securities firms use to police themselves, including the Financial Industry Regulatory Authority, said Taylor, the former MSRB chief.

Finra and other regulators presume that institutional clients are sophisticated enough to look after themselves, he said.

“Typically, what happens is, nobody looks,” he said. “Finra doesn’t look, the firm doesn’t look, the city council doesn’t look and the populace, the taxpaying populace, has no idea any of this is going on.” (GR: This is a typical case of people doing something just because everyone else is doing it regardless of whether they understand what they are doing or not)

Nancy Condon, a spokeswoman for Finra, declined to comment. The Strategic Programs Group of the authority’s enforcement department in May sent letters to dealers seeking information about interest-rate swaps, structured notes and other products they may have sold.

Enforcement Questions

Taylor questioned why the information-gathering hasn’t led to anything further.

“Finra wants the world to think it is doing something for investors and the good of the markets without actually bringing any enforcement actions or adopting any rulemaking,” he said.

In Orange County, the home of both Disneyland and the largest municipal bankruptcy in U.S. history, officials echoed the mistakes of 15 years ago by investing in another Wall Street innovation.

Robert Citron, who was county treasurer leading up to the 1994 bankruptcy, bought structured notes that paid off when short-term interest rates were lower than medium-term rates, and increased his gamble with funds from issuing new debt. The county lost $1.6 billion when interest rates rose.

Cost of Insolvency

Payments from the resulting insolvency still cost more than $80 million annually, about 1.5 percent of the county’s proposed fiscal 2010 budget.

County supervisors responded by creating an oversight committee to monitor the treasurer and banning investments in derivatives and the use of leverage to amplify returns.

Under John Moorlach, the accountant who exposed the bad bets and succeeded Citron as treasurer, the county later invested in structured investment vehicles, or SIVs. Banks set up the pools of loans to shift risk from their own balance sheets. They borrowed money at short-term rates to finance longer-term investments such as British credit-card receivables or home mortgages.

Moorlach said he got into SIVs, which often yielded more than the county’s other investments, after a ratings officer from Fitch Ratings told him that such exotic instruments were becoming more mainstream. (GR: The ratings agencies have been shown to be partial and bought for since many years. And yet, no government authority bothered to dismantle any of them. Quite the contrary, they sponsored and rewarded rating agencies for volume of business)

By 2007, one year after Moorlach won election to the county’s board of supervisors and was succeeded as treasurer by Chriss Street, the investments in SIVs totaled more than $800 million. They made up 14 percent of a county investment pool that manages money for the county, schools and local agencies.

‘Weren’t Paying Attention’

The county sold one SIV at $6.4 million below par last year and so far has recovered about $30 million of the $80 million it invested in Whistlejacket Capital LLC, created by London-based bank Standard Chartered Plc. Whistlejacket, which listed Citigroup Inc. debt and U.K. home loans among its assets, went into receivership last year.

“Despite the oversight, despite the audits, they weren’t paying attention — and should have been,” said Terry Fleskes, a member of an independent panel that chastised the treasurer and county auditor in June for allowing more investments in complex financial products. Fleskes is a former controller at a unit of San Diego-based Sempra Energy.

“The lessons of the past have been forgotten,” the Orange County Grand Jury said in its report. The group, which doesn’t have the authority to compel changes, serves as a kind of ombudsman to examine county policies.

‘Best Stuff Around’

The structured vehicles were difficult to evaluate, Moorlach said. He relied on rating companies, which “were treating it like it was the best stuff around.”

“I think the rating agencies have a lot of explaining to do because of the overreliance by hardworking municipal treasurers,” he said. (GR: Rating agencies can be blamed for what were clearly partial and paid-for opinions on the safety of various investment instruments. However, this fact does not detract from the fact that a Treasurer should know what he is getting himself into. This is what fiduciary duty is all about. One thing is a bank clerk peddling investments to an individual consumer whom may not necessarily know better and would fully rely on the rating agency’s advice. An entirely different thing is when a “treasurer” too relies blindly on the agency advice especially considering that even a cursory look at their prospectus would highlight potential conflicts of interest.)

A Fitch spokesman, Kevin Duignan, declined to comment. (GR: No kidding! I wonder why.)

“It’s easy to point the finger at others,” said Bart Hildreth, dean of the Andrew Young School of Policy Studies at Georgia State University in Atlanta and a former finance director of Akron, Ohio. “The rating agency didn’t authorize the allocation of the money.”

Orange County auditor David Sundstrom said the amount at risk in SIVs was nothing like the leveraged wagers made by Citron.

“The controls compared to pre-bankruptcy are incredibly strong,” he said.

Out of SIVs

The county has exited all of its SIV investments except Whistlejacket, in which it has notes in a restructured successor that’s being liquidated. Taking into account interest earned, the county hasn’t lost on the SIVs, said Deputy Treasurer Keith Rodenhuis. Interest totaled $58.6 million, with $50.2 million in capital still outstanding in the Whistlejacket successor. County officials expect to get that money back in time, he said.

While Moorlach said Orange County did what it could, sending an analyst to London to investigate one SIV and examining financial reports, the investments may have been a mistake.

“If something’s taking up so much of your time, maybe it ain’t worth it,” he said in his Santa Ana, California, office, overlooking a courtyard where volunteers from local churches serve hot dinners and distribute essentials like socks and toilet paper to a 40-deep line of needy people.

King County, Washington, the home of Seattle, has recovered less than half of $207 million that it put into four failed SIVs. It sued rating companies in federal court this month, saying it was misled by their assessments.

No Clue

“There’s a basic rule of finance: Don’t get into anything you don’t understand,” said Michael Granof, an accounting professor at the University of Texas in Austin. “Many municipalities had no clue as to what they were buying.”

Apache County, Arizona, an area the size of Maryland where 70,000 people live among vast mesas dotted with shrubs, stuck to safe investments, such as U.S. Treasury securities and federal agency bonds. It just didn’t know how to value them.

County treasurer Katherine Arviso, a school administrator on the Navajo reservation for 40 years until she won election in 2004, said she arrived to find investment records packed away in boxes.

“I had to put the whole office back together,” she said.

Then came an August 2005 letter from Piper Jaffray Cos.’sBradley Winges, the head of sales and trading for the Minneapolis-based firm’s public finance group. He wrote that the firm had reviewed trades in the county’s account and found unacceptable commissions. The firm credited $247,060.79 to the county’s account.

Eventual Refund

Piper Jaffray eventually refunded $472,060.79, according to a settlement obtained by Bloomberg News under the state public records act. That’s more than double the $194,870 that the county, one of the poorest in the U.S., spent on immunization, teen pregnancy prevention and home health care last year. Apache County’s per capita income was $8,986 in the 2000 U.S. Census, less than half the U.S. figure, $21,587.

Three days after sending the letter, the firm fired broker Eric Ely, according to Finra records. Ely didn’t return telephone messages or respond to an e-mail seeking comment for this story.

From Oct. 20, 2003, to June 29, 2005, Ely executed 103 trades for Apache County, buying and selling bonds, according to a subsequent investigation conducted by Edward “Buzz” France, a former deputy county attorney.

Estimated Commissions

In a presentation to county supervisors, France estimated that Piper Jaffray earned commissions of just over $1 million on $158.6 million in principal, an average rate of 0.638 percent. Investment bankers told France the commissions should have been no more than 0.3 percent.

“Our clients’ interests come first,” Piper Jaffray said in a statement. “Four years ago, we discovered a situation in which we believed one employee had run counter to this guiding principle, and we proactively and quickly worked to rectify any client impact, and terminated the employee.”

There was no need for so many trades if the goal was steady, reliable returns, said Charles Anderson, the former manager of field operations for the tax-exempt bond division of the Internal Revenue Service.

A reasonable commission for the $158 million of securities that Apache County purchased would have been $50,000 to $100,000, said Thomas Tucci, head of U.S. government bond trading at RBC Capital Markets Corp. in New York, one of 18 firms that trade directly with the Federal Reserve.

Not Unusual

Basic financial mistakes trip up many local governments, said Kevin Camberg, a partner with Fester & Chapman P.C., a Phoenix accounting firm that has checked the books of Apache County and others in Arizona for the state auditor.

“It’s not as unusual as it should be,” he said.

France, the county investigator, never determined how Piper Jaffray was chosen to handle Apache County’s investment fund. The treasurer at the time, Betty Montoya, declined to comment on the selection process for this story.

Had the county checked Ely’s licensing history with Finra, which oversees almost 4,800 brokerage firms, it would have found previous allegations of infractions. Since 2002, investors have been able to access BrokerCheck reports of disciplinary histories online, said Condon, the Finra spokeswoman.

Ely paid $80,000 toward a $260,000 settlement of a customer’s 1989 complaint of “unauthorized and unsuitable transactions,” according to Finra records. Ely worked for Merrill Lynch & Co. from 1983 to 1990, the records show.

Settlement in Wyoming

In 2002, Piper Jaffray reached a $42,500 settlement of a customer’s allegations that Ely had purchased and sold securities contrary to Wyoming state law or local investment policy, the records show.

Ely, now affiliated with Public Asset Management Group in Greenwood Village, Colorado, and First Financial Equity Corp. in Scottsdale, Arizona, continued seeking business with small local governments. The broker gave a speech called Investment Management Alternatives for the School at a meeting of the Montana Association of School Business Officials in June 2008.

“He said he was interested in all the smaller players,” said Dustin Zuffelato, who attended as business manager of the 2,400-student Columbia Falls School District Six in Flathead County, Montana.

Zuffelato recommended that his school board consider investing about $8 million with Ely. The board declined, citing the logistical hurdles of switching investments from a pool managed by the county treasurer, he said. Zuffelato said he didn’t check for complaints against the broker first.

Investing 101

In June, the broker appeared again at the Montana schools conference, this time teaching a class called Investing 101.

In Springfield, Calvanese, the former city treasurer, said brokers told him he was investing in money-market funds.

City officials could have learned that they were really buying securities that bundle various issuers’ bonds or loans, or both, if they had insisted on seeing disclosure documents about the securities. Calvanese said in an interview that he rarely looked at such documents, which outline risks.

Calvanese was fired after the CDO investment came to light. He has filed suit challenging his dismissal.

Springfield officials and the Massachusetts attorney general argued that the city was misled by its brokers from Merrill Lynch, who sold it financial instruments that violated a state restriction on public investments. Calvanese said the brokers assured him the transaction complied with state law.

Merrill Lynch, now owned by Bank of America, returned the $14 million the city had invested, and agreed to pay an additional $300,000 in July.

A $75,000 portion of that money was set aside for educating municipal officials on investment management.

To contact the reporters on this story: Peter Robison in Seattle at robison@bloomberg.net; Pat Wechsler in New York at pwechsler@bloomberg.net; Martin Braun in New York at mbraun6@bloomberg.net

GR: The moral of the story is that for as long as things are going in one direction, nobody can be bothered to go and look at the detail. Those that do are considered party poopers and those that opt out of what everyone else is doing are routinely blamed for substandard performance and may even lose their jobs. On the other hand when public finances are being squandered and pillaged at the highest echelons of government, how can lower ranking administrations officials be blamed for doing what their bosses are doing? Acting on principle and moral standing will very easily make your life impossible during the blow off phase of the inflationary dynamic.

More Greenspan antics

October 23, 2009

I seemed to have missed this:

http://www.bloomberg.com/apps/news?pid=20601083&sid=acrGvxBXPDfk

The gains are “strictly a monetary phenomenon,” Greenspan said today at an investment conference in New York. Rising prices of precious metals and other commodities are “an indication of a very early stage of an endeavor to move away from paper currencies,” he said.

!!!!!! If ever anything was, THAT WAS A STUNNER!!!!!!!!

In a prior life (prior to being put in charge of the economy) Greenspan actually believed in sound monetary policy in which gold would play a role. You can see one of the papers he’s written in the late 60s in the right hand column of this blog. For whatever reason, the minute Greenspan was appointed by Regan, he seems to have sold out or, at the very least, to have abandoned his beliefs although he never gave an explanation as to why.

Now he comes out with this? Along with the pearl he proffered recently saying that big banks should be broken up? I really can’t say whether Greenspan suffers from a medical condition or some other condition that makes him flip-flop like that. Maybe it is sheer opportunism. I don’t know. What I do know is that this statement is fairly big news for world currencies and for the economies of the world. Hat tip to “Mugwamp” on Voy to have dug out this article that I missed.

You can’t lose what you never had (Capitalism – Mike Shedlock)

October 22, 2009
Definition of Illusion from Merriam Webster –
Illusion – Etymology: Middle English, from Anglo-French, from Late Latin illusion-, illusio, from Latin, action of mocking, from illudere to mock at, from in- + ludere to play, mock — more at ludicrous
Date: 14th century

1 a obsolete : the action of deceiving b (1) : the state or fact of being intellectually deceived or misled :misapprehension (2) : an instance of such deception
2 a (1) : a misleading image presented to the vision (2) : something that deceives or misleads intellectually b (1) : perception of something objectively existing in such a way as to cause misinterpretation of its actual nature (2) : hallucination 1 (3) : a pattern capable of reversible perspective

synonyms see delusion
Capitalism and free markets are today everyone’s favorite culprits. It’s the greed fostered by capitalism that has finally come home to roost. It is the irresponsibility fostered by free markets that has finally bit us in the ass.
But capitalism, let alone free markets, have never been tried anywhere ever. We like to talk about free markets but most people have no idea what a free market is. Subsidies are not consistent with free markets. Tariffs are not consistent with free markets. Government bailouts are not consistent with free markets or capitalism. Tax breaks are not consistent with free markets. SETTING INTEREST RATES BY POLITICAL MANDATE IS NOT CONSISTENT WITH FREE MARKETS!
But an unchecked fiat monetary system will inevitably lead to the distortions and the aberrations that we are witnessing today. Imposing anything in a democracy is not consistent with capitalism or free markets. Yet, our monetary system is imposed unilaterally and arbitrarily by government with the specific objective to strumentalize the inflationary dynamic for political ends. Towards the end of the inflationary cycle, any semblance of a free market or, indeed, of fiduciary duty must necessarily succumb to the logic of the inflationary dynamic.

http://globaleconomicanalysis.blogspot.com/2009/10/death-of-soul-of-capitalism.html

You Can’t Lose What You Never Had

Marc Faber and Bogle are correct that a collapse is coming. However, you can’t lose what you did not have. Capitalism did not fail, government regulation as it inevitably does, failed.

Fannie Mae, Freddie Mac, FDIC, Social Security, government bailouts of failed institutions have nothing to do with capitalism. Nor do tax breaks that favor housing over rent, nor does a government running HUG or FHA to support social goals.

The SEC took a perfectly fine credit rating system based on actual performance and turned it into sponsorship of Moody’s, Fitch, and the S&P. After SEC sponsorship, the “Big Three” got paid on the basis of the volume of business they did instead of how accurately they did business. (See Time To Break Up The Credit Rating Cartel) for details.

Virtually everything that failed can be traced back to government intervention into the free markets, especially the creation of the Fed itself.

Michael Moore, The Ultimate Irony

Blaming capitalism is all the rage. However it is not to blame, since it is not what was, or is, practiced. Michael Moore is all the rage too. Yet under a socialistic system that he espouses, Moore would likely be unable to make any polemic movies, since those are all financed by evil capitalists hoping to turn a profit on what he writes.

The ultimate irony is Michael Moore and those like him have people clamoring for more of what caused this crisis: government regulation. Meanwhile the very people Moore rails against are profiting on his misguided wisdom every step of the way.

Meanwhile I am asking Where The Hell Is The Outrage? hoping for less government interference in the free markets not more. With a certifiable socialist in the White House and a Republican party that long ago lost its ways, the odds are strong that any outrage that does get vented and acted upon, will go in the wrong direction.

That is why I agree with Marc Faber when he says “But what I don’t know is whether this final collapse, which is inevitable, will occur tomorrow, or in five or 10 years, and whether it will occur with the Dow at 100,000 and gold at $50,000 per ounce or even confiscated, or with the Dow at 3,000 and gold at $1,000.” But the end is inevitable, a historical imperative.

Ron Paul on Wall Street Fraud

For a more reasonable take on what is happening and what to do about it, please listen to Ron Paul, not Michael Moore.