Posts Tagged ‘finance’

In the City of God St. Augustine narrates an anecdote,( which in all probability was drawn from Cicero-de republica)), where Alexander the Great confronts a pirate. When that king had asked the man what he meant by keeping hostile possession of the sea, he answered with bold pride, ‘What thou meanest by seizing the whole earth; but because I do it with a petty ship, I am called a robber, whilst thou who dost it with a great fleet art styled emperor.’ Augustine’s argument is that, in fact, the existence of justice is the only qualitative difference between legitimate and illegitimate coercive power: “Justice being taken away, then, what are kingdoms but great robberies?”

Isn’t this anecdote relevant even these days?

Have you noticed how law is weighted in favor of majority than small in numbers? Let me give an example: the President of a nation with his superior numbers may invade a country and in the ensuing war the casualties mount. Is he hauled before the law of the land and tried as a warmonger? On the other hand a man gets into a brawl after drinking one too many and kills one. Do you think he shall escape the law because of he was drunk? The President whose rhetorics led to a war situation and after so many provocations ratcheting between the two states, shall become all the more laudable despite the deaths of some 20, 000 deaths. He may even win a second term for the many advantages of war being added to the Treasury of the State. He may retire with the aura of a statesman. Not so with the individual who killed another one in a drunken stupor. Certainly he shall be squeezed dry in the rigmarole of legalities that face him and its trauma haunt him for the rest of his life.

Now we see similar situation in the world of finance. One of the few things not in dispute in the criminal case against Abacus Federal Savings Bank is that it began with a mortgage closing on Friday, Dec. 11, 2009, for a two-family home in the Bensonhurst section of Brooklyn.

On May 31 of 2012, the Manhattan district attorney’s office announced criminal charges against the bank and 19 former employees, some facing up to 25 years in prison. “Mortgage fraud became institutionalized at Abacus Bank,” District Attorney Cyrus Vance Jr. said at a news conference. Abacus, like many banks, had sold its loans to Fannie Mae (FNMA), taking the proceeds and lending them back out to earn more interest. The huge government-backed company in turn bundled those mortgages into securities it sold to investors. Abacus lied about applicants, Vance charged, because otherwise its loans wouldn’t have met Fannie Mae’s income requirements, and the bank depended on Fannie’s money for a significant chunk of its profit.(bloomberg businessweek of Jan 31,2013/drake bennet)

But why was that bank prosecuted and why was Goldman Sachs or Chase not prosecuted? Legal authorities consider it not feasible to go after companies of a certain size, while Abacus is a small fry and easier to succeed if they threw the book at them. While it may be more satisfying to go after the bigger companies, to quote a SEC commissioner who talked about “shot selection,” like in basketball, bureaucracies go for the baskets with the greatest chance of scoring.

It’s not just about poor people. The agencies hesitate before they decide to proceed against a well-heeled, well-defended company [against which] they’re going to have to fight for years and years and years just to get the case in court.

This situation isn’t anything new. It goes back to the Clinton years: Clinton signs on to welfare reform, Clinton and the Democrats begin to court the financial services sector and begin to adopt deregulatory policies.

So now you have political consensus in both parties on both issues; both have the same approach to poverty, to people at the bottom, and they have the same approach to enforcement. And so what begins as deregulation of Wall Street concludes, ultimately, in potentially non-enforcement of crime; and what begins as being “tougher” on welfare cheats in the ’90s, and being tougher on the whole process of giving out benefits, devolves into something pretty close to the criminalization of poverty itself … And that’s just something that happens naturally when you have a political consensus, which is what we have now.

Holder, as deputy attorney general in the Clinton years, outlined what was actually sort of a “get tough on crime” document. He gave prosecutors all these tools to go after big corporations. But, at the bottom [of the memo], he outlined this policy called “collateral consequences,” which was — all it really said was, if you’re a prosecutor and you’re going after a big corporation that employs a lot of people, and you’re worried about innocent victims, you can seek other remedies. Instead of criminally prosecuting, you can do a deferred prosecution agreement, a non-prosecution agreement or, especially, you can levy fines.

When he wrote that, it was nearly a decade before the too-big-to-fail era, but when he came back to office [as Obama's attorney general], this idea, which initially had been completely ignored becomes the law of the land now, insofar as these systemically important institutions are concerned.

Consequently the agencies think about collateral consequences before they go against companies like HSBC and UBS because they’re worried about what the impact might be on the world economy.

What’s interesting about it is that this idea suddenly matches this thing that happened with our economy where we have the collapse of the economy in 2008, [and] instead of breaking up these bad companies, we merged them together and made them bigger and more dangerous. Now they’re even more unprosecutable than before, now this collateral consequences idea is even more applicable. And that’s the reality we live in now; it’s just this world where if you can commit an offense within the auspices of a company like that, the resolution won’t be a criminal resolution, it will be something else.(‘It’s total moral surrender’/Matt Talibbi from his book The Divide/interview with Salon/Elias Isquith)


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Sir Robert Walpole, First Earl of Oxford (1676-1745)

He has the honor of being the first Prime Minister, Primus Pares, first among equals, who served under George I and George II. Kind and a good financier he was picked out by the King George I to clean up the mess caused by the South Sea Bubble in 1720. His handling of the scandal pleased the king, who created the position to keep him as his  counselor. England weakened by war and poor accounting of finances required an able administrator and the king’s trust was amply proved right. He reformed the tarrif system and put aside one million pounds aside a year to clear the Government debts. In foreign policies he steered clear of war which was wasteful. In 1739 he had to go to war against Spain which did not go well at first. In the ensuing clamor for a scapegoat the King created Sir Robert an earl and he was forced to retire.


Anecdote: when he was dismissed from office he retired to Houghton one day he walked into his library. He picked out a book, opening it looked at the pages and silently closed it and took another. After subjecting a few books in this strange manner he burst into tears.’ I’ve lived a life of business for so long,’ said he,’ that I have lost taste for reading, and now-what shall I do?'(ack: the Oxford Book of Literary Anecdotes-ed.James Sutherland/Pocketbooks,1975)


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The best economic advice I got was from my pop who said,’Hand to mouth financial plan is your safe bet if your lifestyle is laid back.’
I knew he meant good. But I already had settled on a better course. So I said when he said once too often, ‘
But I found a better one, ’plain living and high thinking’.
I also borrowed part of my pop’s rule.
Now my hand knows at least where it is going. I have grown old on this precept.
My advice for the young is this: ‘
In these cash strapped times you should be developing new skills instead of cursing your luck.’
Set up your own job, capitalize on your plus points so you don’t have to split takings with others.
The fellow who learned carpentry made a door on the excuse,’Who knows when opportunity comes knocking at least my door must warn me instead of my nose being flattened.’
And finally, ‘To thine ownself be true.’

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The land that Yahoos lived in their humdrum way extended from the range of mountains to the seas and they never thought they would live to see any one who enjoyed life as they. But one night a wave of brigands came and occupied vast spaces. When morning came they were right in their midst. The Yahoos wanted to know what was the idea. One Red coated brigand said, ‘The air is free; so is the rolling sky. ’
‘Meaning?’ The Yahoos had some difficulty in understanding them.
The Red-coated brigand standing on their toes said their mission was to make them civilized as they.
‘But we haven’t seen it yet.’ The brigands laughed so much at their simplicity, ‘You must pledge your loyalty to the Big Man Across the Sea.’
The Yahoos for all their plainspeaking was fair in giving it a try. Thus Red Swallow Tail, the chief of the Brigands made them take their oath. Directly they learned all the tricks and they formed armies and they went on raiding parties. What a haul they brought! It was a flood of silver ingots and gold by pack mules! The brigands knew where to keep them. They dumped them in a fleet of ships that sailed away.
It so happened later the Yahoos needed money for building cities and harbors. The brigands in their fine red coats hemmed and hawed. At last it dawned on the Yahoos they were almost bled white by the Red coats and the BMAS across the sea.
Yahoos with infinite cunning and patience knew how to pay them back in their own coin. They formed their own militia and threw them back into the sea.
One Yahoo who showed most skill in the war was chosen to lead them.
The Headman chose his Council and first they thought was to make their land fit for them. ‘How shall we know the citizens are behind us? Of their loyalty?’some asked. The Head man answered, ‘Make each citizen put part of his wealth with us.’ Thus the Yahoos founded the National Bank where every citizen put his savings.
They knew the money would grow in time. They counted money and dreamed in gold and the promise from the Bank CEO was, ‘When you feel the pinch, bring a wheel barrow along to carry interest.’
The Headman and his cohorts having money immediately sent it out of their country, just as the Red coated brigands had done. They put all the wealth to work they told the citizenry.
They also create an elaborate labyrinth of checks and balances. How many departments and fancy titles thus were created! They hired some clever accountants of BMAS for fat fees to make the system foolproof.
But in a decade the Yahoos found their wealth had disappeared! Naturally.

Cluster Principle in wealth Management explains where conflict of interest occur in individuals their risks of being exposed of fraud or criminal negligence shall be scattered through various clusters set in place precisely to prevent it.
Inversion principle goes hand in hand with cluster principle.

Here is a piece of news that explains the Job partly.
WASHINGTON – Freddie Mac secretly paid a Republican consulting firm $2 million to kill legislation that would have regulated and trimmed the mortgage finance giant and its sister company, Fannie Mae, three years before the government took control to prevent their collapse.
In the midst of DCI’s yearlong effort, Hagel and 25 other Republican senators pleaded unsuccessfully with Senate Majority Leader Bill Frist, R-Tenn., to allow a vote.

“If effective regulatory reform legislation … is not enacted this year, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system and the economy as a whole,” the senators wrote in a letter that proved prescient.

Unknown to the senators, DCI was undermining support for the bill in a campaign targeting 17 Republican senators in 13 states, according to documents obtained by The Associated Press. The states and the senators targeted changed over time, but always stayed on the Republican side…”
(Pete Yost-Associated Press 20 Oct, 2008)

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Know Your Units

Think Metric©
How does one calculate the incalculable? Here are some novel measures that could be the answer for the wiseacres of our times who think they have seen it all but can’t say if it rocks or sucks.
Madoffian cent: the first cent that starts a pyramid scheme and also end up as the last regardless of what happens to the scheme.
AIGiga: a corporate unit that sets the perks and other benefits  for the bosses who let the demise of  the house under controlled conditions.


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The federal government is in talks to beef up its ownership stake in Citigroup to as much as 40 percent of the company’s common stock, the Wall Street Journal reported Sunday—just days after the Obama administration said it didn’t want to nationalise America’s largest banks.

Citigroup proposed the move to regulators, the Journal reported, and a Treasury Department spokesman signaled late Sunday that the government is open to the idea, even as he refused to discuss Citi directly.
The Big Bad N word
Treasury spokesman Isaac Baker told POLITICO: “… we are open to considering a request to [convert preferred stock to common shares] if the institution and its regulator believe it would promote the long term stability of that institution, and if we believe it’s in the best interest of long term stability of our economy and financial system.”

That represents a dramatic change of tone from White House Press Secretary Robert Gibbs on Friday. “This administration continues to strongly believe that a privately held banking system is the correct way to go, ensuring that they are regulated sufficiently by this government,” Gibbs said at the time. But throughout the week, stock market investors didn’t believe the denials, and continued furiously selling bank stocks out of fear that a government takeover would wipe out shareholder value. By the close of trading on Friday, Citigroup, one of the most beleaguered banks, traded at just $1.95 per share.

In some ways, it looked like the market’s worries about nationalization could have become a self-fulfilling prophecy. The collapse of Citi’s stock price makes it much more difficult for the bank to conduct business on Monday, and could spark a broad loss of confidence in the company’s viability. It could also impact the stock price and future viability of other banks.
( Ack:Eamon Javers, Carrie Budoff Brown  – Mon, Feb 23, Politico)
Nationalisation has its backers also. Nobel prize-winning economist and New York Times columnist Paul Krugman said Sunday that bank nationalisation was “as American as apple pie” during a round-table discussion on “This Week” with George Stephanopoulos. The economist said it seems that the government has no other choice than to temporarily intervene in order to clean up banks with toxic assets and change management.
Professor Nouriel Roubini a.k.a. “Dr. Doom,” also on the round table, argued that banks ought to be nationalised.In this connection let me cite another item:
* Why This Recession Seems Worse Than ’70s and ’80s

“The current situation has nothing in common with the Great Depression,” says economist Steve Hanke of the Cato Institute and Johns Hopkins University. “The sooner they [in Washington] stop spinning the bad news story and say nothing, the sooner we’ll be more confident.”
“I don’t remember a president talking down the economy as much as President Obama,” says economist Chris Rupkey of Bank of Tokyo-Mitsubishi. “The economy is very psychological. There’s a herd instinct.”

That herd instinct kicked into overdrive after the sudden collapse of Lehman Brothers, when many say the economy fell off a cliff and a classical cyclical downturn merged with a nasty one-of-kind credit crunch. So yes, economists agree things are bad, but they need to be put into perspective.(nbc Philadelphia/news Alberto Bozzo-13 Feb,)
Yes. Try to put the consumer confidence in perspective before trying to wish away bad news by comparing with the Great Depression and recession of 70s and 80s. The world was not a global village when the Great Depression hit Americans; nor was its economy as tied into global economy as now. Each crisis is unique in its own way.
Some of them were from the eighties making lots and lots of money — for themselves, of course, but also for their investors. There were those who allowed such free-for-all even if that was a slippery slope because they were afraid of government regulation more than equity and fair play. What did keeping government from interfering entail? In their eyes pushing less advantageous to the wall was less of a moral issue than letting true American spirit of ingenuity full scope. These are the ones who cry hoarse at the mention of nationalization. In their mindset they equate with socialism. To them freeing the marketplace’s animal spirits for making money by financiers in whichever way they could, even though it bordered on criminal behavior didn’t seem to matter.
Note: WASHINGTON – Freddie Mac secretly paid a Republican consulting firm $2 million to kill legislation that would have regulated and trimmed the mortgage finance giant and its sister company, Fannie Mae, three years before the government took control to prevent their collapse.
In the midst of DCI’s yearlong effort, Hagel and 25 other Republican senators pleaded unsuccessfully with Senate Majority Leader Bill Frist, R-Tenn., to allow a vote.

“If effective regulatory reform legislation … is not enacted this year, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system and the economy as a whole,” the senators wrote in a letter that proved prescient.

Unknown to the senators, DCI was undermining support for the bill in a campaign targeting 17 Republican senators in 13 states, according to documents obtained by The Associated Press. The states and the senators targeted changed over time, but always stayed on the Republican side…”
(Pete Yost-Associated Press 20 Oct, 2008)

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Decadence of Rome can be summed up in the adage ‘All roads lead to Rome’. The empire was only concerned of taxes, luxury and essential goods streaming in from every road. The wealth of course went into the state coffers and into the pockets of a few families. The empire wasn’t concerned as much about the poor,  workmen and slaves while the few had too much of power, riches and privileges.  The sting of such sweet life that a superpower nation offers to citizens is a price too dear. It saps the moral fibre of each member of the select few. Rome’s fall was hastened by their flouting of some simple home truths. Character of every citizen must add up fairly even handed and nation’s health is made by just laws. Rome allowed certain group uncontrolled power to run the empire.
The same we see now in slightly modified form, noticeably in unrestrained free enterprise of finance. Those who have mishandled the trust of a nation shall gamble away unrepentant, if they get another chance. A gambler’s compulsive nature they will show. Recently I read of some US banks warning that they may not be able to give a proper account of the bailouts they have had. What with such a crisis in consumer confidence at the present we expect the Banks would treat any bailout as manna from heaven. Instead we have here an example of custodians of Nation’s financial health making a mess of money given out to them.  I can only compare it to the expression, ‘ casting pearls before swines’. It is, I suppose, rooted in human nature to be lackadaisical of whatever freely given because of some deeply ingrained wrong habit. The man  in the receiver. A child who gets always into trouble may be helped by another. If such help has come unstintingly it is almost certain he even when old shall go on making mistakes. He may even by experience think the world owes him at least that much. Is it not a moral sickness? Similarly one who has always had support of his class and some who are powerful develop habits that can only spell disaster for so many. The custodians of nation’s wealth having handled money in a very-free- for- all- and- greed- is -good atmosphere are more likely to be less than scrupulous on the commodity of trust in particular. Mr. Bernard Madoff  knew he could get away with his alleged ‘swindle’ under the cloak of philanthropy.  Worse still he knew the regulators would not find him out.  Yes in an insulated bubble of greed the regulators, politicians and crooked capitalists are all patriots of another kind. They beat the drum and wave the flag of their country.  The ilk of Alan Greenspan, Cox, from their positions of  trust and  responsibility  all assure the nation’s wealth is showing great flexibility. Which nation do they serve? These serve a land where money is the only constitution and rule of law is proved by profits. Whereas patriotism of the common man is paid in blood, tears and sweat. When such things become well entrenched in nation’s life remember Rome.
Playing within the system to which only a few are admitted is sure to come unstuck sooner or later.

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Madoff’s alleged $50 billion fraud hits other investors.

“Madoff’s investors included captains of industry, corporations — some of which are publicly traded — that used Madoff almost as a high-yielding cash management account, endowments, universities, foundations and, importantly, many high-profile funds of funds,” said Douglas Kass, who heads hedge fund Seabreeze Partners Management.

“It appears that at least $15 billion of wealth, much of which was concentrated in Southern Florida and New York City, has gone to ‘money heaven,'” he said.

A Ponzi scheme is an illegal investment vehicle that pays off old investors with money from new ones, and is dependent on a constant stream of new investment. Because the invested capital is not earning a sufficient return on its own, such schemes eventually collapse under their own weight.
The two most prominent hedge funds that invested with Madoff were the $7.3 billion Fairfield Sentry Ltd, run by Walter Noel’s Fairfield Greenwich Group, and the $2.8 billion Kingate Global Fund Ltd, run by Kingate Management Ltd.
Prior to Madoff’s arrest, investors had wondered how he was able to generate annual returns in the low double digits in a variety of market environments. Many questioned how U.S. regulators were able to ignore numerous red flags with regards to Madoff’s operations.
Investors overseas were reeling from the alleged fraud.

Benedict Hentsch, a Swiss private bank, said it had 56 million Swiss francs ($47 million) of exposure to Madoff’s investment advisory business. UniCredit SpA’s fund management unit, Pioneer Investments, has exposure through its Primeo Select hedge fund, two people familiar with the matter said.

Bramdean Alternatives Ltd said almost 10 percent of its holdings were exposed to Madoff, sending shares in the UK asset manager crashing.

CNBC Television reported that Sterling Equities, which owns the New York Mets baseball team, had accounts managed by Madoff.
Everyone loves a winner even though he later turns out to be a crook.  The system as it is set in place in the USA as well as in other developed countries when so many winners of Madoff’s ilk fold up and wipe out the entire savings of so many cannot do much. They come out with statements that a crisis was waiting to happen. Is that all Capitalism can do? As early as May 2001, Barron’s reported that option strategists for major investment banks said they could not understand how Madoff managed to generate the returns that he did. Yet the climate of self delusion had hit the Regulators, investors and financial pundits that they once again have got it wrong.( quoted from Reuters news-Jon Stempel and  Christian Plumb)

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