Uplift, Deep Cheating, and the CEO Cartel
David Brin
Salon.com
MARCH 14, 2009
..."So long as risk is effectively concealed from borrowers and lenders or actually shifted to others, risk-taking will be excessive. The initial phase of excessive risk-taking will manifest itself as an economic boom, but eventually, when actual losses begin to change the perceptions of borrowers and lenders and begin to impinge upon unsuspecting others, the boom will give way to a bust....[A] market system whose credit markets involve risks that are partially concealed from the lender and partially shifted to others will be biased in the direction of excessive risk-taking. And excessive risks are converted in time into excessive losses." --Roger Garrison
“Neither the U.S. government nor anybody else is capable of estimating the ultimate cost of bailing out such corporate giants as Citigroup, AIG, General Motors, Fannie Mae, and Freddie Mac (and the list goes on). There are two reasons for this. First, on a stand-alone basis, these companies are opaque and indecipherable entities. Financial innovation left transparency in the dust. Wall Street devoted much of its intellectual and political capital to concealing the risks it was creating. This concealment was deliberate; products needed to be priced inefficiently to produce profits.” - Michael Lewitt
Ironies abound. Though I consider myself something of an open market libertarian, I have long warned that we've been slipping into a putsch-coup by a conspiratorial oligarchy. There is, of course, no contradiction. The patron deity of capitalism, Adam Smith, declared that the very worst enemies of markets (far worse than socialism), are conniving aristocrats and top lords of finance.
Smith made clear (as I'll reiterate) that capitalism and top capitalists are often NOT the same thing. Indeed, the latter can often be lethal to the former...
Sunday, March 15, 2009
Saturday, March 7, 2009
Welfare for the Rich: Bank of America interferes with probe of Merrill Lynch CEO bonuses
Merrill Probe Stymied by Bank of America, New York’s Cuomo Says
By David Mildenberg and Karen Freifeld
March 7, 2009
Bloomberg
Bank of America Corp. is still interfering in his investigation into bonuses given to Merrill Lynch & Co. employees, New York Attorney General Andrew Cuomo told a New York Supreme Court judge.
“We respectfully request that the court reject Bank of America’s continued efforts to stymie the attorney general’s investigation,” Cuomo said in his letter yesterday.
Cuomo is probing a decision by Merrill, which lost $15.8 billion in the fourth quarter, to award $3.6 billion in bonuses in late December, days before Bank of America bought the firm on Jan. 1. Former Merrill Chief Executive Officer John Thain and Bank of America CEO Kenneth Lewis have already testified to Cuomo, and Cuomo has subpoenaed seven of the bonus recipients, a person familiar with the matter said.
Bank of America, the largest U.S. bank by assets, said it offered information on individual Merrill bonuses that Cuomo is seeking. Bank of America won’t comply with Cuomo’s request, even under an agreement to keep it confidential at least temporarily, according to Cuomo.
“Bank of America does not believe the attorney general needs the freedom to place private, personal information in the news media in order to conduct his investigation,” Scott Silvestri, a spokesman for the Charlotte, North Carolina-based bank, said in an e-mail.
Trading ‘Irregularity’ Found
The dispute with Cuomo widened as Merrill said it uncovered an “irregularity” during a review of its trading operations in London. The New York Times said risk officers discovered three weeks ago that a London currency trader who had recorded a trading profit of $120 million for the fourth quarter may instead have lost a large amount.
The newspaper identified the trader as Alexis Stenfors, 38, and said he described the matter as a “misunderstanding.” Calls from Bloomberg News to his office in London and a mobile phone weren’t answered.
Stenfors previously worked at Calyon, the investment-banking unit of France’s Credit Agricole SA, according to the U.K. Financial Services Authority’s register. He joined Merrill Lynch in 2005, and is listed as being “inactive” since Feb. 25. A spokeswoman for Calyon couldn’t immediately comment.
In the Cuomo probe, Bank of America is seeking to expand a temporary confidentiality order on Thain’s testimony to include all witnesses in the investigation, including Greg Fleming, Merrill’s former head of investment banking, Cuomo said. Fleming, who left the bank in early January to take a post at Yale University, testified this week, the attorney general said in the letter.
Not ‘Commercial Litigation’
“Bank of America is treating this matter as a commercial litigation between private parties. It is not,” Cuomo said. “Bank of America is seeking to prevent witnesses from testifying and is seeking to require advance notice of the attorney general’s investigative steps, which it is not entitled to do.”
The Wall Street Journal on Wednesday published the names of a number of the top executives and their 2008 earnings, citing documents and people familiar with Merrill’s compensation. Eleven top executives were paid more than $10 million in cash and stock last year, the Journal said. The newspaper identified the seven bonus recipients as Andrea Orcel, David Sobotka, Peter Kraus, Thomas Montag, David Gu, David Goodman and Fares Noujaim.
A person familiar with Cuomo’s investigation said that seven bonus recipients were subpoenaed in connection with the probe. The person identified the people as Orcel, Sobotka, Kraus, Montag, Gu, Goodman and Noujaim.
‘Road Map’
The information Cuomo seeks would provide a “road map” showing which business lines Bank of America considers most valuable and to assist rivals seeking to poach talented staff, the bank said in its court filings.
Cuomo’s letter said House Financial Services Committee Chairman Barney Frank will soon demand Bank of America make individual bonus information public. The bank has received $45 billion from the Treasury’s bank recapitalization program.
Cuomo said in a Feb. 10 letter that Merrill “secretly and prematurely” awarded the bonuses with Bank of America’s “apparent complicity.” After the top four recipients received a total of $121 million, the next four received a combined $62 million and the next six a combined $66 million, Cuomo said.
By David Mildenberg and Karen Freifeld
March 7, 2009
Bloomberg
Bank of America Corp. is still interfering in his investigation into bonuses given to Merrill Lynch & Co. employees, New York Attorney General Andrew Cuomo told a New York Supreme Court judge.
“We respectfully request that the court reject Bank of America’s continued efforts to stymie the attorney general’s investigation,” Cuomo said in his letter yesterday.
Cuomo is probing a decision by Merrill, which lost $15.8 billion in the fourth quarter, to award $3.6 billion in bonuses in late December, days before Bank of America bought the firm on Jan. 1. Former Merrill Chief Executive Officer John Thain and Bank of America CEO Kenneth Lewis have already testified to Cuomo, and Cuomo has subpoenaed seven of the bonus recipients, a person familiar with the matter said.
Bank of America, the largest U.S. bank by assets, said it offered information on individual Merrill bonuses that Cuomo is seeking. Bank of America won’t comply with Cuomo’s request, even under an agreement to keep it confidential at least temporarily, according to Cuomo.
“Bank of America does not believe the attorney general needs the freedom to place private, personal information in the news media in order to conduct his investigation,” Scott Silvestri, a spokesman for the Charlotte, North Carolina-based bank, said in an e-mail.
Trading ‘Irregularity’ Found
The dispute with Cuomo widened as Merrill said it uncovered an “irregularity” during a review of its trading operations in London. The New York Times said risk officers discovered three weeks ago that a London currency trader who had recorded a trading profit of $120 million for the fourth quarter may instead have lost a large amount.
The newspaper identified the trader as Alexis Stenfors, 38, and said he described the matter as a “misunderstanding.” Calls from Bloomberg News to his office in London and a mobile phone weren’t answered.
Stenfors previously worked at Calyon, the investment-banking unit of France’s Credit Agricole SA, according to the U.K. Financial Services Authority’s register. He joined Merrill Lynch in 2005, and is listed as being “inactive” since Feb. 25. A spokeswoman for Calyon couldn’t immediately comment.
In the Cuomo probe, Bank of America is seeking to expand a temporary confidentiality order on Thain’s testimony to include all witnesses in the investigation, including Greg Fleming, Merrill’s former head of investment banking, Cuomo said. Fleming, who left the bank in early January to take a post at Yale University, testified this week, the attorney general said in the letter.
Not ‘Commercial Litigation’
“Bank of America is treating this matter as a commercial litigation between private parties. It is not,” Cuomo said. “Bank of America is seeking to prevent witnesses from testifying and is seeking to require advance notice of the attorney general’s investigative steps, which it is not entitled to do.”
The Wall Street Journal on Wednesday published the names of a number of the top executives and their 2008 earnings, citing documents and people familiar with Merrill’s compensation. Eleven top executives were paid more than $10 million in cash and stock last year, the Journal said. The newspaper identified the seven bonus recipients as Andrea Orcel, David Sobotka, Peter Kraus, Thomas Montag, David Gu, David Goodman and Fares Noujaim.
A person familiar with Cuomo’s investigation said that seven bonus recipients were subpoenaed in connection with the probe. The person identified the people as Orcel, Sobotka, Kraus, Montag, Gu, Goodman and Noujaim.
‘Road Map’
The information Cuomo seeks would provide a “road map” showing which business lines Bank of America considers most valuable and to assist rivals seeking to poach talented staff, the bank said in its court filings.
Cuomo’s letter said House Financial Services Committee Chairman Barney Frank will soon demand Bank of America make individual bonus information public. The bank has received $45 billion from the Treasury’s bank recapitalization program.
Cuomo said in a Feb. 10 letter that Merrill “secretly and prematurely” awarded the bonuses with Bank of America’s “apparent complicity.” After the top four recipients received a total of $121 million, the next four received a combined $62 million and the next six a combined $66 million, Cuomo said.
Monday, February 23, 2009
Taxpayer money was used to prevent regulation, destroy Freddie Mac
Freddie Mac investigating Freddie Mac
February 23, 2009
Associated Press
Lawyers hired by the federal mortgage giant Freddie Mac are quietly looking into the firm's own lobbying campaign, an effort that helped snuff out proposed new regulations before the housing market collapsed.
Freddie Mac was placed under direct government control because of its massive investment losses.
The inquiry follows stories by The Associated Press that some two million dollars were paid to a Washington lobby group which then targeted 17 Republican senators to defeat a 2005 bill that would have required the firm to sell its then-lucrative mortgage portfolios. Months later, their value had plummeted.
Also under review: six-figure payments to more than 50 outside lobbying firms and political consultants, including firms connected to former Senator Al D'Amato and former Speaker of the House Newt Gingrich.
And, the use of a Washington skybox seat belonging to the lobby group by a Freddie Mac executive.
February 23, 2009
Associated Press
Lawyers hired by the federal mortgage giant Freddie Mac are quietly looking into the firm's own lobbying campaign, an effort that helped snuff out proposed new regulations before the housing market collapsed.
Freddie Mac was placed under direct government control because of its massive investment losses.
The inquiry follows stories by The Associated Press that some two million dollars were paid to a Washington lobby group which then targeted 17 Republican senators to defeat a 2005 bill that would have required the firm to sell its then-lucrative mortgage portfolios. Months later, their value had plummeted.
Also under review: six-figure payments to more than 50 outside lobbying firms and political consultants, including firms connected to former Senator Al D'Amato and former Speaker of the House Newt Gingrich.
And, the use of a Washington skybox seat belonging to the lobby group by a Freddie Mac executive.
Sunday, February 15, 2009
The thinking behind bonuses for CEOs of failing companies
John Thain thinks he should be paid $10 million because he didn't make a BIGGER mess at Merrill Lynch. Hmmmm. Should we also reward gunslingers who tell us that more people would have been killed if they hadn't taken steps to limit the number of their victims?
The Huffington Post published the following:
From the Wall Street Journal:
"Merrill Lynch & Co. chief John Thain has suggested to directors that he get a 2008 bonus of as much as $10 million, but the battered securities firm's compensation committee is resisting his request, according to people familiar with the situation.
"The committee and full board are scheduled to meet Monday to hear Mr. Thain's formal bonus recommendations for himself and other senior executives of the New York company. No decision has been reached, and it isn't known what Mr. Thain will recommend, but the compensation committee is leaning toward denying the executives bonuses for this year, these people said."
Reuters points out that several other Wall Street firms, including Goldman Sachs, will not be giving out bonuses to top executives this year. Though Thain's company was sold to Bank of America after losing a net $11.67 billion this year, Thain argued that it could have been worse.
From the Reuters story:
Thain has said he deserves a bonus because he helped avert what could have been a much larger crisis at the firm, people familiar with his thinking told the WSJ.
Members of Merrill's compensation committee agree with Thain that the takeover is in shareholders' best interest, but believe it would be foolish to ignore strong public sentiment against large compensation packages, the paper said, citing people familiar with their thinking.
The Huffington Post published the following:
From the Wall Street Journal:
"Merrill Lynch & Co. chief John Thain has suggested to directors that he get a 2008 bonus of as much as $10 million, but the battered securities firm's compensation committee is resisting his request, according to people familiar with the situation.
"The committee and full board are scheduled to meet Monday to hear Mr. Thain's formal bonus recommendations for himself and other senior executives of the New York company. No decision has been reached, and it isn't known what Mr. Thain will recommend, but the compensation committee is leaning toward denying the executives bonuses for this year, these people said."
Reuters points out that several other Wall Street firms, including Goldman Sachs, will not be giving out bonuses to top executives this year. Though Thain's company was sold to Bank of America after losing a net $11.67 billion this year, Thain argued that it could have been worse.
From the Reuters story:
Thain has said he deserves a bonus because he helped avert what could have been a much larger crisis at the firm, people familiar with his thinking told the WSJ.
Members of Merrill's compensation committee agree with Thain that the takeover is in shareholders' best interest, but believe it would be foolish to ignore strong public sentiment against large compensation packages, the paper said, citing people familiar with their thinking.
Wednesday, January 7, 2009
Bernard Madoff investors should have invested in Kiva.org or Microplace.com
A little less greed would actually have benefited Bernard Maddoff's customers. They could have made the world a better place and kept their principal secure if they'd invested with Pierre Omidyar or Sequoia Captial, or the 40-or-so other microloan investors.
Small time investors like me can invest in microfinance efforts such as Kiva.org or Microplac.com.
Investing in People
E Magazine
Making a Difference, One Small Loan at a Time
By Rona Fried
© Elizabeth Prager
The world learned about microfinance in 2006 when Muhammad Yunus, founder of Grameen Bank, won the Nobel Peace Prize. For several decades, the bank had been helping people in Bangladesh rise from poverty by giving them tiny loans, most under $200. Now the Bank has $520 million in outstanding loans to small businesses in poor countries.
Microfinance—offering loans, savings accounts and other basic financial services to the poor—has proved to be a critical lever in helping people to help themselves. A woman might borrow $50 to buy chickens so she can sell eggs at the local market. She can sell more eggs as her chickens multiply, and soon she can sell the chicks. She shares knowledge with her neighbors, creates jobs and raises the standard of living for the community.
Women receive the most loans because studies have shown they are more likely to reinvest their earnings in the businesses and in their families. They also tend to take fewer risks with their business and are more careful to repay loans. Whereas only 4% of the poorest people in Bangladesh pulled themselves above the poverty line without credit services, 48% did so with loans from Grameen Bank over an eight-year period...
Small time investors like me can invest in microfinance efforts such as Kiva.org or Microplac.com.
Investing in People
E Magazine
Making a Difference, One Small Loan at a Time
By Rona Fried
© Elizabeth Prager
The world learned about microfinance in 2006 when Muhammad Yunus, founder of Grameen Bank, won the Nobel Peace Prize. For several decades, the bank had been helping people in Bangladesh rise from poverty by giving them tiny loans, most under $200. Now the Bank has $520 million in outstanding loans to small businesses in poor countries.
Microfinance—offering loans, savings accounts and other basic financial services to the poor—has proved to be a critical lever in helping people to help themselves. A woman might borrow $50 to buy chickens so she can sell eggs at the local market. She can sell more eggs as her chickens multiply, and soon she can sell the chicks. She shares knowledge with her neighbors, creates jobs and raises the standard of living for the community.
Women receive the most loans because studies have shown they are more likely to reinvest their earnings in the businesses and in their families. They also tend to take fewer risks with their business and are more careful to repay loans. Whereas only 4% of the poorest people in Bangladesh pulled themselves above the poverty line without credit services, 48% did so with loans from Grameen Bank over an eight-year period...
Tuesday, January 6, 2009
Bernard Madoff tries to squirrel away some valuable assets
Bid to Revoke Madoff’s Bail Cites His Gifts
By ALEX BERENSON
January 5, 2009
Contending that Bernard L. Madoff sent at least a million dollars worth of jewelry as gifts to family members and friends last month, federal prosecutors asked a judge on Monday to revoke his bail and send him to jail.
Mr. Madoff, who has been free after posting bail of $10 million when he was charged last month with securities fraud, remained free after the hearing pending a ruling by the magistrate judge, Ronald L. Ellis of United States District Court in Manhattan...
United States Attorney Marc O. Litt asked for revocation of Mr. Madoff’s bail, arguing that the gifts violated conditions that barred him from disposing of any of his assets.
The newly aggressive stance by prosecutors appeared to represent a serious deterioration in relations between the government and Mr. Madoff, who is said to have confessed to a huge Ponzi scheme last month and had seemed to be cooperating with investigators trying to unravel the fraud. In an interview on Monday evening, a lawyer for Mr. Madoff backed away from earlier statements that Mr. Madoff was helping investigators.
While Mr. Madoff faced the potential loss of his freedom in New York, the Securities and Exchange Commission came under heavy criticism from lawmakers in Washington.
At a hearing Monday afternoon, members of a House committee questioned why the agency had not uncovered Mr. Madoff’s fraud long before early December, when he is said to have confessed it to F.B.I. agents. The S.E.C.’s inspector general, H. David Kotz, promised a full investigation.
At the court hearing in New York, Mr. Litt told Judge Ellis that Mr. Madoff and his wife, Ruth, had mailed packages of valuables in late December to his sons, his brother and friends. Since mid-December, Mr. Madoff has been under house arrest at his luxury apartment on the Upper East Side of Manhattan, guarded by private security guards paid for by his wife.
By sending the packages, Mr. Madoff violated the terms of his bail agreement with the government, Mr. Litt said...
Monday, January 5, 2009
Let Big Oil pay for auto bailout
Ruben P. Hernandez of San Diego sent this suggestion to the San Diego Union Tribune:
Let Big Oil pay for auto bailout
January 5, 2009
In 1908, Henry Ford introduced the Model T, which got 25 miles to the gallon. Today, Ford makes an SUV that manages about 16 miles to the gallon. As a result, oil companies have made an outrageous amount of profits for 100 years. Instead of having the same chumps (taxpayers) bail them out, let the oil companies bail out the auto industry.
Let Big Oil pay for auto bailout
January 5, 2009
In 1908, Henry Ford introduced the Model T, which got 25 miles to the gallon. Today, Ford makes an SUV that manages about 16 miles to the gallon. As a result, oil companies have made an outrageous amount of profits for 100 years. Instead of having the same chumps (taxpayers) bail them out, let the oil companies bail out the auto industry.
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