Lawmakers Cash In

There is nothing like a major reform bill to bring in the cash. Besides the fact that nothing in the way of financial reform has yet to emerge from Washington over two year from the collapse of Bear Stearns, the past few months have been a free for all money raising orgy as lawmakers head into election season. The financial lobby has uncorked all the expensive wine and is pouring it down to escape regulation of their industry gone amuck.

I just read this clip from a Reuters article:

U.S. House of Representatives Speaker Nancy Pelosi may wait until after the Memorial Day holiday to name negotiators to a bipartisan committee to resolve differences between House and Senate legislation to crack down on Wall Street, party aides said on Friday. Senate leaders are expected to appoint their conferees on Monday, Top U.S. Democratic lawmakers said they saw little difference between Wall Street reform bills passed by the House of Representatives and Senate and believe it will not take more than a month to reconcile the two.

Yea, its just two short sentences but they say it all. Drag this thing out to some time in June, maybe 4th of July so we can rake in lots more cash. The entire bill is looking more like a side show, full of goons and other spectacles to make the public think something is getting done. Meanwhile, the efforts to prop up the markets until this thing passed has failed miserably.

If we could only get just a bit more cash...

Thank you Bernie

Driving and listening to NPR this evening I heard two guests talking about the Bernie Madoff guilty plea. One guest had, at best, a trailer park knowledge of the workings of the investment world and continuously refered to "her sources" an could do no more than focus on the few million dollars Bernie and his wife managed to squirrel away in her name. Listening to this woman was worse than listening to a bunch of impotent Senators talk about Wall Street bonuses. The more I listen to the "news" and "news shows" with supposed "knowledgeable" reporters and other industry appointed "experts" the more incensed I get with the ignorance being blatantly displayed about the world of international finance and the workings of unregulated funds.

Every time I hear "the SEC 'investigated' Madoff's business" and gave him a clean bill of health my eyes roll. Since when in the last 20 years did the SEC do a damn thing? Anyone who has known me for a while will remember my outrage when Eliot Spitser had to do their job for them for 5 years and the how pissed off I was when he came to DC to sit in front of our spineless, impotent government while being sneered at by the SEC for making them look like the complete fools there were.

So the media saying "the SEC did nothing to stop Bernie Madoff" is like saying its hard to light a match when it is raining. Duh. The SEC did nothing for 20 years.

Then I hear people suggesting the SEC is responsible for them loosing money with Madoff. Well this is just as comical. Madoff operated his "fund" like a "hedge fund" and from what I know, they are not regulated. The SEC only looked into his clearing operations, not his "fund". They apparently had him register as an advisor, but about that time, the SEC had started a program requiring certain Hedge Funds to register with the SEC. However, the Hedge Fund industry sued and had that requirement overturned. So if (and I don't know if this is the case in Madoff's fund) Madoff was required to register under the then "new" SEC requirement, he could have withdrawn his registration like many Hedge Funds did after the overturning of the rule in court.

So what is the moral of this story and why am I thanking Bernie? It is because as far as I am concerned, Bernie may have done more harm to the reputations of unregistered pools of cash burning every asset class on the planet then any impotent SEC or government body possibly could have. And, until unregulated pools of capital and their wrath of unregulated insurance products and the like are completely removed from the global financial system, we are going to have serious problems.

Thank you Bernie. You are scum. But the Banks, Wall Street firms, Insurance companies, and other "financial firms" that have been allowed to become "regulated banks" who have all taken taxpayer money and cannot or will not explain where it went are all the same right now. They take taxpayer money, put in a pool of cash and pay out others with it. What is the Fricken difference?

All the pigs became ridiculously over leveraged and lost the capacity to segregate any aspects of their Enron structured, far fledged, business. All of them have done everything possible, including stealing from their clients funds, instituting ridicules arbitrary fees, charging for services that were supposed to be free or included in certain types of accounts, raising interest rates or any other scheme they could think of to stay afloat.

I have personally witnessed each of these in my bank, investment and credit cards in the past 9 months. Just ask me and I will give you an example of each one listed above.

Little Video on Crises

I got this link from a friend today who is in the financial world as a career. It is a cartoon explaining the credit crises in part. Here it is

This one is not bad. I have seen worse. They missed one of the key elements in the whole thing and what actually has exasperated the problem. That is the investors actually used his earlier example of leverage to buy the CDO's, not just mortgages, to increase their returns. They did this by borrowing from the very banks that were selling them the CDO's and when the value of the CDO falls, the "investors" have to put up more collateral to keep their thin slice of equity in the game. The problem arises when they cannot any longer borrow or renew already borrowed money (usually short term borrowings to buy long term investments) and they all try to sell the CDO's at the same time creating a crash in the market which by the way was completely non transparent, hence the exorbitant profits made selling the junk.

Secondly, they failed to demonstrate how the agencies that gave ratings screwed up.

Third, they failed to demonstrate the role of "insurance" (CDS's) have played in the crises and caused bankruptcies.

Fourth, they fail to demonstrate the way Wall Street made most of their profits by not only buying mortgages but actually buying mortgage companies so they made money all the way up the food chain from the origination to the credit derivative and insurance products on the debt (I think there are at LEAST 5 layers of profit on each loan)

Fifth, they fail to demonstrate how all of this "mortgage" based debt was purchased by money market and other short term investment funds even though they were technically long term debt and how when the market for these products dried up we had near collapse of several money market funds and how the money market funds provided liquidity to the rest of the consumer credit cycle and how this collapse has effected "main street".

Sixth they failed to demonstrate how banks got into the game by creating Structured Investment Vehicles to buy mortgages off of themselves so they could make money off of themselves instead of lending it to outside investors and how this was nothing more than Enron financing (off balance sheet) that they had ultimately to bring back on balance sheets basically making them insolvent as the funds they absorbed.

I could go on and on and on. These are all not that difficult to insert in here. No cartoon video I have seen does more than a 25% job explaining any of this but at least this one gets the first part right and makes some simple concepts visual for people.

Perhaps they could go into the Trillions of dollars borrowed short term by private equity to consume ever more companies with the same debt and leverage ratios. They will be imploding as their companies fail to generate the cash flow in this weak economy to pay back the debts they took out. Some of these companies employ north of 200,000 people with a mix of companies. One of the key reasons I am still a MAJOR bear on the stock market and think after a crazy near term fall then bounce we will have a blood bath going into late spring and beyond, is these private equity guys have been off the radar but when there is a major collapse (like Cerberus from the Chrysler fiasco) of a private equity fund, the market will really tank.