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To: Bank Holding Company who wrote (190729)3/15/2009 10:01:05 AM
From: Jill
of 306829
Sometimes I think John Stewart is the only real and good investigative journalist left in this country.

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From: Drygulch Dan3/15/2009 10:08:19 AM
of 306829
What ever happened to Caveat Emptor ?

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To: Les H who wrote (190705)3/15/2009 10:16:37 AM
From: Les H
of 306829
Alan Greenspan: "Don't Blame Me"

By Edward Ericson Jr.
As a reporter with a passing interest in economics, the worship of Alan Greenspan has puzzled and irked me for two decades. The allegedly "brilliant" chairman of the Federal Reserve, who speaks with the clarity of an autistic middle-schooler, was nonetheless feted as an "oracle," first by the business press and later by the so-called mainstream media, culminating in the inevitable hagiography by Bob Woodward, Maestro.

It never made sense to me.

Despite soaring measures of GDP, general wealth and other economic indicators, I experienced the 1980s, 1990s, and 2000s as an economic struggle. So did just about everyone I know.

Everywhere I looked, people who worked for a living were losing their jobs, suffering pay cuts, scrambling to "retrain" for something more ephemeral and less associated with the production of actual goods. Getting rich, meanwhile, were people who were working an edge: swampland and time-share salesmen, politicians with cell phone franchises they won in a government lottery, hedge-funders, dotcom hotshots, outsourcers, privatizers and house-flippers.

Their business models--the ones I got to see up close, at least--seemed to have in common the provision of money for nothing. They profited from others' ignorance, or from government connections, or from borrowing huge sums of money and taking a cut. In Greenspan's economy, the winners were precisely those who did not work, who bent or broke the rules.

Greenspan's prescription: fewer rules to break, fewer regulators.

It all seemed destined to end badly, which is why I greeted the current economic turmoil with some hope. Finally, I thought, people's eyes might be opened to the fraud at the center of our economic system. Finally, Greenspan's reputation will be recast more in line with reality.

So far, nothing.

So it was with interest I read Greenspan's essay in today's Wall Street Journal (pay site), "The Fed Didn't Cause The Housing Bubble."

Perhaps because Greenspan has seldom been compelled to defend himself, he does so with the same myopia he employed in running the U.S. economy into a ditch. Like a middleschooler with an Ayn Rand fixation, Greenspan ignores the world as we know it and instead debates "my good friend and former colleague, Stanford University Professor John Taylor, with whom I have rarely disagreed."

Taylor says Greenspan should have raised interest rates in 2003, and then all would have been well. Greenspan disagrees, and on this tiny point he is credible (once you chop through his prose):

Moreover, while I believe the "Taylor Rule" is a useful first approximation to the path of monetary policy, its parameters and predictions derive from model structures that have been consistently unable to anticipate the onset of recessions or financial crises. Counterfactuals from such flawed structures cannot form the sole basis for successful policy analysis or advice, with or without the benefit of hindsight.

Naturally, Greenspan prefers the assessment by Milton Friedman:

In evaluating the period of 1987 to 2005, he wrote on this page in early 2006: "There is no other period of comparable length in which the Federal Reserve System has performed so well. It is more than a difference of degree; it approaches a difference of kind."

This leads Greenspan back to the error which actually led to this crisis--the one policy prescription to which people like Greenspan remain unshakably wed, deregulation:

However, the appropriate policy response is not to bridle financial intermediation with heavy regulation. That would stifle important advances in finance that enhance standards of living.

This unquestioned faith in the power of "unbridled financial innovation," this notion--unsupported by any evidence--that such innovation is not only an important part of the productive economy, but also crucial to "enhance standards of living," is the core of Greenspan's error.

How do we know that Greenspan's self-serving WSJ essay is short-sighted--perhaps disingenuously so? Because the record of deregulation's failure is not five years old; it is 20 or 30 years old. From the 1987 stock market crash and the Savings and Loan fiasco to the dissolution of Enron in 2001 and AIG's present predicament, the common denominator is regulatory withdrawal followed by massive looting and fraud.

The best recent illustration of this came Monday, as the Columbia Journalism Review's Elinore Longobardi unearthed a series of forgotten GAO reports warning about the dangers of derivatives.

The first report came in 1994. The main reason you never heard of it? Greenspan said it was piffle.

Here's how Dow Jones reported the thing as it spiraled into oblivion. Keep in mind, had derivative instruments been regulated in the mid 1990s and forced onto public markets, today's banking crisis would almost certainly never have happened. Neither would Enron have ended the way it did, nor would the hedge fund Long Term Capital Management been able to lever itself up to the point where its collapse required a $5 billion bailout in 1998.

Federal Reserve Chairman Alan Greenspan was asked at a derivatives hearing before Markey's House Telecommunications and Finance Subcommittee last week to assess the chances that a derivatives-caused mess might lead to a taxpayer bailout. "Negligible," replied Greenspan, who with that one word squeezed the air out of the GAO's laboriously constructed bailout scenario. There was no more talk of a taxpayer bailout at the hearing, or elsewhere.

Would that Alan Greenspan's error were his alone, and not the bedrock principle of the Republican Party, and most of the Democrats as well.

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To: Jill who wrote (190736)3/15/2009 10:24:11 AM
From: nextrade!
of 306829
It's an unbelievable f-you to every American and to the new administration. It's beyond my comprehension.

but rather, a f-you to every American from this administration ? ! ?

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From: Giordano Bruno3/15/2009 10:30:31 AM
of 306829
Accounting Rule Changes Creating False Rally in Financials

Bulls and value investors on Wall Street have been busy this weekend selling the notion that the forthcoming changes in accounting rules, and the fiscal and monetary solutions to be agreed upon at a G-20 Summit in the first week of April, make a solid case for aggressive purchases of Bank of America (BAC), Citigroup, JPMorgan Chase (JPM), Morgan Stanley (MS) and Wells Fargo (WFC). One hedge fund manager is looking at an 80-100% rise in BofA and Citi, and 30-50% gains in JP Morgan, Morgan Stanley and Wells Fargo, by the end of this month.

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To: Les H who wrote (190739)3/15/2009 10:43:46 AM
From: Les H
of 306829
Derivatives Echo Chamber
1994 GAO report foresaw a massive taxpayer bailout

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From: Travis_Bickle3/15/2009 10:44:25 AM
of 306829
I think the idea of giving scam victims more time to get refunds is probably a good idea, otherwise wealthy taxpayers might start filing "protective" refund requests for each taxable year just in case they happen to have invested in a scam ... if you've got $1,000,000 in a fund that you are scared might be hinky the money to prepare the amended return isn't much in comparison and will give you more time to play with.

On the other hand it is going to be awful hard to define "scam" in the Internal Revenue Code, I think it is just going to have to be a general rule giving all taxpayers more years to carry back losses.

Or on the third hand the government could just tell the Madoff people to go **** themselves, I'm okay with that approach too.

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To: Jill who wrote (190737)3/15/2009 10:49:56 AM
From: Dan3
of 306829
Re: Sometimes I think John Stewart is the only real and good investigative journalist left in this country.

You're being unfairly critical of John, what other country has an investigative journalist that's as good as he is?


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To: Drygulch Dan who wrote (190738)3/15/2009 10:52:31 AM
From: Dan3
of 306829
Re: What ever happened to Caveat Emptor ?

Certainly the self-aggrandizing "geniuses" at AIG, Citibank, Bear Stearns, etc. who paid themselves $Billions out of our savings never heard of it.

It was supposed to be their full time job!

And they were paid enough money to become royalty to do it.

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To: Secret_Agent_Man who wrote (190735)3/15/2009 10:58:48 AM
From: Giordano Bruno
of 306829
WSJ ups AIG bonuses to 450 million

American International Group Inc. will pay $450 million in bonuses to employees in its financial products unit. That division was at the heart of AIG's collapse last fall, which compelled the U.S. government to provide $173.3 billion in aid to keep it running.

Edward Liddy
Chief Executive Edward Liddy told Treasury Secretary Timothy Geithner in a letter dated Saturday that the next payments to employees of the financial products unit -- whose woes caused massive losses at the giant insurer -- are due on Sunday, and added "quite frankly, AIG's hands are tied."

Those payments are in addition to $121.5 million in incentive bonuses for 2008 that AIG will start making this month to about 6,400 of its roughly 116,000 employees. AIG, which was rescued in September as it faced potential bankruptcy, is also making over $600 million in retention payments to over 4,000 employees.

Together, the three programs could result in roughly $1.2 billion in retention and bonus payments to AIG employees.

Mr. Liddy wrote in the letter to Mr. Geithner that it followed a conversation between the two men on Wednesday about "compensation arrangements" at the financial products unit and AIG in general. "I admit that the conversation was a difficult one for me," Mr. Liddy wrote.

In the letter, Mr. Liddy wrote that "outside counsel" had advised that the previously agreed to payments to employees at the financial products unit are "legal, binding obligations of AIG." He wrote that there are "serious legal, as well as business, consequences for not paying."

"I do not like these arrangements and find it distasteful and difficult to recommend to you that we must proceed with them," Mr. Liddy wrote, but added, "Honoring contractual commitments is at the heart of what we do in the insurance business."

The government installed Mr. Liddy as CEO in September as a condition of the bailout. In exchange for the rescue, taxpayers got a nearly 80% stake in the firm.

Contracts sold by the financial products unit protecting other institutions against losses on securities backed by subprime mortgages have forced the company to post billions of dollars of collateral. The unit's problems were largely responsible for nearly pushing the company into bankruptcy before the government stepped in.

The payments to employees at the unit were agreed to in early 2008, before the bailout, and $55 million was paid out in December, according to an AIG document. The $450 million in payments to employees of the unit was reported in January.

But the tone and content of Mr. Liddy's letter are an indication of the politically difficult nature of making bonus payments to employees of a firm that is operating with massive taxpayer support.

In the letter, for instance, Mr. Liddy told Mr. Geithner that he will get no bonus for 2008 and said that "in response to your request" AIG is proposing further changes to bonus proposals for the company's senior partners. Mr. Liddy noted that he and other top executives will get no 2008 bonus.

But Mr. Liddy also wrote that AIG "cannot attract and retain the best and brightest talent … if employees believe that their compensation is subject to continued and arbitrary adjustment by the U.S. Treasury."

The $121.5 million in bonuses for 2008 will largely be paid in March. The top seven employees at the company won't get bonuses, and another 40 high ranking executives will get the bonuses in part in March and in part later in the year. Those payments will be linked to AIG's performance in meeting certain goals, such as implementing parts of the restructuring of the company announced in early March.

The 2008 bonuses are distinct from the $619 million in retention payments that AIG is making to 4,200 employees. Those payments range from $92,500 to $4 million, according to a December letter to Mr. Liddy from Rep. Elijah Cummings (D., Md.).

Write to Liam Pleven at

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