Sunday, September 21, 2008

US Treasury Bailout for MBS - NO!

Chris McConnell & Associates
Independent Qualified Fiduciary
Audits Training Expert Witness

Rather a better solution requires the Financial Services Industry; FSI to propose, implement and accept the risks of a multi-year solution; but not the US taxpayer; however cloaked.
1) VOTE No to government bailout, US Treasury plan.
2) The financial services industry, FSI inclusive of commercial & investment banks, broker dealers, insurance companies, credit ratings agencies created the problem; an artificial “market” for Mortgage backed securities, MBS.
3) FSI accepted the fruit from leveraged gains of the past - not the US taxpayer.
4) Therefore the US taxpayer should not bail out these entities.
5) The US Treasury plan simply does not address an inescapable issue; real estate values have been and remain dislocated from personal incomes.  Further, regrettably the US’ jobs picture is negative and getting worse; overcapacity exists in most industries, notably the Financial and real estate related industries.

An FSI – based solution has the best chance of success, in keeping with a self policing / self regulatory regime / market – based approach
There is no perfect solution, however, a better use and alignment of interests / resources, free market approach, best chance of success is an industry (Financial Services Industry) solution including the credit ratings agencies (S&P, Moodys, Fitch, et al) and hedge funds.
Temporary, extraordinary waiver of anti-trust regulation may be required.
ALL of those parties need to band together now – as they ALL did in the past in creating this “artificial” market for toxic MBS securities, derivatives and insurance thereon.

The FSI collectively is in the best, most advantaged position to model, price & evaluate risks of RMBS & CMBS and derivative securities.

The Cause - No one in FSI raised their hand in the past did they?
The outsize FSI profits were earned in the full light of day of boards, officers, auditors, regulators, shareholders and debt holders.
The FSI didn’t complain in the past when the models were showing huge "paper" profits; paying out vast sums to officers and employees.
Same profits INCLUDED a CEO’s personal certification of internal controls.

Closing comment – greed and or failure to admit mistakes, take losses
Many have criticized Wall St. CEOs, like Richard "Dick" Fuld that he or LEH board could have, in the recent past, raised capital and increased the chance of his firms’ continued survival.
Similarly, AIG, by way of example, but not in isolation, could have, in the past 12 to 24 months sold off or at least reduced some of its concentrated holdings in its non-Life, Property / Casualty FPG (Financial Products Group) correct? Rather they decided to hold these contracts; the epitome of self interest, hubris and ultimate greed!

Lastly where is the voice, the voices of self - regulation?
Those loud voices of SIFMA (the creation of the SIA and BMA), ICI and US Chamber of Commerce NOW?
Let them:
Stand up
Raise their voices
Take responsibility now
accept fiduciary responsibility to the US taxpayer
i. A more impressive, peerless collection of intellectual capital does not exist.
ii. Let’s see if they have, when times are tough, collectively the character to propose and implement a prudent plan of action;
iii. In the sole interests of the US taxpayer, as fiduciaries should.

The VERY LAST WORD - Leverage & Margin
Drastically reduce it – come on, 2 to 3% margin on MBS and related is like an Indy race car, trying to maintain speeds of over 200 mph on city streets; endangers innocent bystanders, indeed plainly perilous and reckless.

Stocks require initial margin of 50%; some have more; but when it comes to MBS and related securities, derivatives margins could and SHOULD BE raised to levels that approach prudence.

With over 25 years combined securities and expert experience Chris McConnell & Associates provides independent, conflict-free fiduciary training, audits, expert witness and litigation support in FINRA (NASD), ERISA and 401k plans, Non-profits, Foundations and Endowments; Trust, Estate & Probate and Marital Dissolutions regarding issues of fiduciary duty, suitability, diversification, employment benefits and compensation for the financial services industry.


If you would like more information about this topic, request a CV Brochure or to schedule an interview kindly contact Chris McConnell, AIFA at (310) 943 – 6509 or visit

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