Sunday, November 1, 2009

Goldman Sachs may not limbo under FINRA's Suitability rules nor Fiduciary duty owed Pension plans

Update 1 - Dec 24, 2009.
See end of article.

November 1, 2009.
Today McClatchy News reported "How Goldman secretly bet on US housing crash"

However, ALL securities firms owe most customers a fiduciary duty as well as the protections afforded by the "Suitability" and "Know your customer" rules.

When it comes to recommendations to institutional customers the link below may provide plaintiffs' (see list at end) counsel with more footing to show that investments appear:

1) solicited by Goldman, compared to the likelihood that a customer banged on Goldman's door and demand a certain, specific derivative RMBS or CDO security? Not likely.

2) such solicitation requires a Suitability determination at the time of sale with additional duties required for institutional accounts - not with standing liability-shifting claims of "sophistication."

3) disclose information from Goldman in toto - whether from Goldman's sales team OR Goldman's proprietary trading. At some point as was reported in today's McClatchy news Goldman's CFO Mr Viniar approved both the hedging /shorting of derivatives of RMBS including the sub prime Alt-A species AND the contemporaneous solicitation, recommendation and placing of orders for sale to public customers.

Would Goldman's public customers have been informed of triple AAA ratings assigned to these securities - very likely. But would Goldman's public or proprietary sales desks have been as willing to AND inform AND provide the link to such caveats as the S&P Ratings Direct alert "Who will be left holding the bag" in when?
September 2005, yes 2005.

Who Will Be Left Holding The Bag?
Beth Ann Bovino, New York (1) 212-438-1652;
Table Of Contents
More Creative Lending
Who Holds The Mortgages?
September 12, 2005

Excerpt - the first paragraph:
It's a question that comes to mind whenever one price increase after another—say, for ridiculously expensive homes—leaves each succeeding buyer out on the end of a longer and longer limb: When the limb finally breaks, who's going to get hurt?

In the red-hot U.S. housing market, that's no longer a theoretical riddle. Investors are starting to ask which real estate vehicles carry the most risk—and if mortgage defaults surge, who will end up suffering the most. To one degree or another, it's everyone associated with those people on the end of the limb. In real estate, that means investors in the riskiest private-label pools, along with banks, insurers, and other holders of "creatively" financed loans, such as interest-only mortgages that are nearly as big as the purchase price of a property.

Said orders require a supervisors' blessing, then subsequent internal compliance and audit departments review and blessing again...really?

4) How, why, who and which derivatives were held by Goldman for its own proprietary trading accounts compared to those they decided to actively market and sell (perhaps from the same inventory) to customers would be useful; as well as the hedging for or against same. Compared also to those Goldman held for itself but sold and distributed similar securities around the globe.

5) Whether GS informed, suggested or as equally strongly recommended its customers hedge investments; compared to equally available derivative and securities risk mitigation strategies it might suggest to these and other customers as in paired trading or market neutral strategies.

6) In the absence of 6 - was it because GS could or would know that additional buyers of CDS insurance would cause the cost of same to increase...

7) so how was GS able to, much earlier than virtually the entire market and field of competition, divine and effectively trade and hedge for its proprietary accounts that the housing market would tank? It clearly points to the value of darkness and this. Like the Rothschild's couriers of over a hundred years ago - ADVANCE INFORMATION is best.

So was it the vaunted Goldman network effect of Goldman alums who serve/d in the US Treasury, or for another alum who during the relevant period served as a director on the board of Countrywide? Muckety maps (accuracy not verified) reflects the connections here (note BELOW THE MAP - the current senior adviser post where?) Goldman.

8) What is or was or should be the fiduciary duty Goldman owes/d to public customers and the investing public? See FIDUCIARY DUTY OWED TO ERISA PLANS BELOW.

What is or was or should be the priority of interests - was it first and only Goldman's traders and executives, then shareholders, partners, non-partner employees, counterparties as in LLCs or LLPs off shore and domestic and bringing up the rear AND last - public customers?

It's often useful to see if the salespeople were themselves in the moving or storage business when it comes to eating a little home cooking - did they or their families own the same types of derivatives they were actively unloading, recommending, soliciting to reasonably reliant public customers? Or were they assiduously avoiding or effectively hedged against or short same? Or was it just plain old coincidental 85 Broad luck?

9) What compensation and bonus arrangements and promotions - in effect ALL hard and soft emoluments, oft legal levers of behavior were dangled over the heads and wallets of certain GS employees?

10) Would we like to know the securities lending activities (at the security level detail) of Goldman related to certain counterparties including others in the TBTBATF (Too big to be allowed to fail club) formerly known as only the Too Big to Fail club as well as AIG and Lehman.

The securities lending market like peanut butter goes with chocolate contains VERY valuable market color on the short side. The NYSE and other open markets, are fully disclosed sources of color primarily on the long side; with the distinction that they only provide same on registered securities. In the darkness - private contracts, private placement and listed, and OTC securities; registered and unregistered can be pledged, negotiated, loaned and borrowed under the legal cover of darkness in securities lending activities; all risk capital to be sure BUT for the sole purpose of profit for the house; rarely does a public customer know enough to demand a piece of the fruit.

11) Last, despite the hard questions, intrigue and allegations - perhaps Goldman is, was and will be THAT good - showing that when you have real skin in the game - you will act as an owner to PRESERVE CAPITAL as opposed to a renter or manager of OPM (other peoples' money). After all the math of recovery to break even is made exceedingly more difficult when a 100% gain is required to offset a 50% loss.

Last two points
The following suggests the Goldman spokesman believes there was an "equivalent" understanding, access, awareness and competent independent analysis of RELEVANT information:

A Goldman spokesman, Michael DuVally, said that the firm decided in December 2006 to reduce its mortgage risks and did so by selling off subprime-related securities and making myriad insurance-like bets, called credit-default swaps, to "hedge" against a housing downturn.
DuVally told McClatchy that Goldman "had no obligation to disclose how it was managing its risk, nor would investors have expected us to do so ... other market participants had access to the same information we did."

(So were the questioned trades placed on an agency or principal basis?)

When it comes to the fiduciary duty owed to certain ERISA plans, or similar plan's assets - GOLDMAN - LIKE ALL OTHER SECURITIES FIRMS - OWES THAT DUTY TO ITS CUSTOMERS FIRST. It would appear to apply to: as reported by McClatchy:
Several pension funds, including Mississippi's Public Employees' Retirement System

California's huge public employees' retirement system, known as CALPERS

New Orleans' public employees' retirement system, an electrical workers union and the New Jersey carpenters union

Ambac Assurance purchased $923 million of Goldman's bonds; the Teachers Insurance and Annuities Association, $141.5 million; New York Life, $96 million; Prudential, $70 million; and Allstate.

Of course, all these and other parties' matters resolution depend on the facts and circumstances on the ground at the time.

The NY Times ran this article Dec. 24, 2009 - just in time for a little something under the tree - Merry Christmas right?

Saturday, October 31, 2009

Cal National Bank's $500MM Preferred Shares in Fannie & Freddie WORTHLESS but AIG's CDS TBTF counterparties made whole

When it comes to bank's management safety and soundness decisions this one seems to draw a line; was it more safe and sound to invest a bank's funds in preferred shares of large, (correct me please if I am wrong here) AAA - rated Government sponsored entities with a long standing "open market - priced" belief of an implicit (if not explicit) government guarantee or as the TBTF club did, hedge large, excuse me but I'm not off first base when I suggest grotesquely large, leveraged, primarily off balance sheet DERIVATIVE investments in RMBS, CDO's, CPDO's and CMBS with credit default swaps (CDS) issued and backed by an unregulated company? Yes an UNREGULATED company, perhaps even an off shore entity.
As an aside were they perhaps taking legal advantage of lower than IRS off shore corporate tax rates or more loosely regulated and enforced capital requirements?

AP and the LA Times reported the death of Cal National was brought about in part due to $500 million virtually WORTHLESS investment it held in preferred shares of Fannie Mae and Freddie Mac as reported also by the LA Times.
Read AP story here
Read LA Times story here,0,5224531.story

Uh lets do a side by side - Fannie and Freddie were both GSE's (government sponsored entities with the long standing implicit government back stop), it's preferred securities were at one time not long ago rated triple AAA by all major rating agencies, and paid timely dividends.

AIG was the largest insurance company in the world and according to Hank Greenberg's statements on the Charlie Rose show September 17, 2008 was a "national asset" - yes - true statement - and pleaded for more time (and implied as we learned long ago time is money).

AIG, the regulated insurance company, however was NOT one and the same entity issuing the credit default swaps - although the name was the same - the sameness I believe ended there.

I shouldn't and I don't normally but I can't resist - so I'll stick my neck out on this and hazard a guess that its traders may have intimated that CDS were "backed" by AIG and certain off shore entities including the likes of the Greenberg - controlled CV Starr entities) it was not AIG but AIG Financial Products Group; a separate, not the same, NOT AIG the world's largest insurance company, NOT AIG the "national asset" but this: a distinct cat of a different unregulated stripe, not including the securities lending unit of AIG FPG (of which we'll likely never fully know what was going on there as it's not tightly regulated when it comes to registered securities let alone unregistered securities), not sure what rating they possessed it all - but I'm guessing again but reasonably certain that it was not or ever AAA rated; if at all; it was not or ever a Government sponsored enterprise - it was and still is a PRIVATE ENTERPRISE; Off Shore enterprise, not sure what AM Best rating they possessed, if any how's that for supposed due diligence by the TBTF club? - however, probably not top notch; although we can see similar mono line insurers like MBIA, AMBAC, FGIC, and a host of others and this: the ABSENCE of emergency, extraordinary government support. Yes the ABSENCE of government support.

What was it about AIG's CDS that were more WORTHY of over $182B of US taxpayer / government bailout dollars than Fannie and Freddie's securities - could it be the Too Big to Fail TBTF Club members? Ya think?

Could it be the TBTF club allied / aligned themselves post the Bear Stearns rescue in March 2008, then after the cool, balmy, soothing breezes of summer-in-the-Hamptons vacations were over spied the chess board and which pieces needed moving and leveraged themselves against the weak independent Lehman Brothers. Could it be that Mr Fuld thought it would be as it always was - when others in the nascent TBTF club were no longer dealing them cards let alone from the same deck of cards?

At least it appears to this writer (and I did get hit in the head playing soccer a week or so ago) that private insurance contracts were IN FACT MORE worthy of government support than the preferred shares of the GSE's - calling a spade a shovel and so should more of those watching the US Taxpayers' and future generations' purse.

But we can see that the FDIC TLGP program is supporting over $248B in debt - some issued by NOT FDIC INSURED - correct NOT FDIC insured affiliates of 32 banks and thrifts. See the FDIC's TLGP September 2009 report here AND READ the FDIC's footnote very slowly and carefully - "The amount of FDIC-guaranteed debt that can be issued by each eligible entity, or its cap, is based on the amount of senior unsecured debt outstanding as of September 30, 2008
Unsecured debt and the date - September 30, conveniently AFTER the AIG CDS counterparties bailout; but then maybe it's just a coincidence huh?

As stated here before Membership and Affilation has its privileges! Why do we enable same with radio silence? Raise your voice - just once it won't hurt, it won't kill you, you might even feel al little better (I can guarantee this: you won't feel any worse), your voice may inspire one more. Then it may just turn into a loud roar of disgust, CLAWBACK and CHANGE WE CAN BELIEVE IN.

Monday, October 26, 2009

Taxpayer funds wasted on the Financial Crisis Inquiry Commission-TBTF Club members should pay

Certain Wall St (and banks, insurance companies and entities like GE Capital; collectively the Financial Services Industry - FSI) have ALREADY published ALL that needs to be reviewed to discover who and what (voluntary, sheer, unvarnished profit-seeking only) behaviors caused and led to the announcement of "crisis" in 2008; as if it were occasion for a Hallmark Card or a Kodak moment.

Annual Reports, Compensation policies and Bonus payments.
Shortly the video called Wall St on LSD will reveal why - any interested party could have and should have been on notice of a changed Wall St.
It's not simply about a breakdown of Glass Steagall - separating commercial from investment banks - it's that certain Wall St / FSI - added a third NEW and very profitable layer - THE ICING ON THE CAKE - PROPRIETARY TRADING.
The Cake's three layers:

  • Commercial bank - obtain a bank charter, accept customers' deposits, loan out, earn a spread, avoid large losses by diversifying among same.
  • Investment bank - underwrite and sell securities, earn fees from mergers and acquisitions, earn fees and commissions for services provided to public customers.
  • Proprietary bank - typically form off balance sheet, special purpose entities officially known as QSPE's or VIE's, leverage assets (from layers one and/or two above) into OTC securities or derivatives, issue short term asset backed commercial paper ABCP, (money market funds buy this stuff), earn a spread. Add more "assets", requiring MORE leverage, use proprietary valuations (so called mark to model), earn greater sums, pay out greater CASH bonus compensation.
There's NO need to erect a new edifice as political cover in this commission.

"Too big to fail" otherwise known as the legal oligopolization, permanent enshrinement of certain Wall St firms - is an invention of K St. lobbyists. TBTF is what is known as treating the weeds instead of the roots of the problem analysis and solutions. It's a shame and a missed opportunity since if the insolvent were ALLOWED to fail it would likely have revealed the roots of the crisis - leverage, swaps, derivatives oft hidden in the proprietary (for the house ONLY) trading book.
TBTF is a barrier to entry - a barrier which protects the TBTF club members; some more than others; some have outperformed (mythically and magically) for years; can't be smarter people; can't be transparent markets (as in some cases they constitute the market of information about that so-called "market"); can't be hard work - but likely to be information advantages and access thereto. Who, what and where are the sources and signals of information? Let's just say it's a network effect. Nodes of which may appear as in the Galleon matter - where executives alleged $250M was paid to Goldman Sachs and/or Morgan Stanley (where Galleon was purported to be among the top five hedge fund customers) for what's been termed valuable "market color." Was this ALL the information - winks, nods, silent answers, "information" shared? Who will ask probing questions and connect the dots?
Read story here

Other "Inventors" include Mr Paulson and Mr Bernanke as in the "Emergency" stabilization acts forced upon Congress last fall; tell me something - HP and BB had NO idea what was happening BEFORE the "crisis" occurred?

There is no need to waste US Taxpayers money on such a commission.
NO one put a gun to the head of ANY banker and forced them to lend money to a borrower.
  • NO one put a gun to the head of ANY Wall St firm to BUY ANY mortgages let alone Sub Prime mortgages then create Sub Prime Mortgage backed securities.
  • NO one put a gun to the head of ANY Wall St firm and told them they could not independently seek other opinions of credit worthiness / credit ratings / credit default.
Wall St invented, traded, valued and participated in the above - VOLUNTARILY - NO ONE PUT A GUN TO THEIR HEADS - THEY DID IT TO THEMSELVES. If you're looking for a smoking gun - look no further than CASH bonuses paid out to proprietary traders, managers, executives, officers and others.

AND SHOULD HAVE, COULD HAVE ASKED and modeled "WHAT COULD GO WRONG HERE" - BUT APPARENTLY DIDN'T. One would think that somewhere along the journey (at the rate of over $350B a year the FSI spends on "systems") that would have come up no?

It's very important to point out one thing: NOT all banks are on the FDIC watch list for a reason; they practiced, (by resisting the temptations, oft ridiculed) not just talked safety and soundness of unsustainable asset / collateral valuations during the hockey stick era.

Want more information about the long term ANNUAL returns from real estate? Try mid to high SINGLE DIGITS - during the hockey stick era 40%, 50%, 60% over 100% ANNUAL PRICE APPRECIATION IS EVIDENCE OF ONE THING:

Go look at pages 16 to 18 in this link from Ibbotson (Morningstar)
Or witness that investor-owned properties made up about 5% of the mortgages issued for years, then doubled then doubled again such that investor-owned properties became 20%.

So why do investors own anything? Primarily, in hoped for price appreciation coddled along with IRS Code section 1031 higher-priced properties required in exchange - Congress didn't know or foresee or those at the NY Fed did not know or foresee? It's a built in escalator for an asset bubble, same dog different color as in asset - based / mark to model compensation for prop traders.

The cause of this crisis is NOT (as Mr Wallison, AEI and member of the Financial Crisis Inquiry Commission) 25 million mortgages (and as Mr Bernanke would have the Morehouse College audience believe last April) - although erudite, glib and plain spoken; it's about the profit-driven bankers who made the loan approvals AND every single out stretched hand / investor in mortgage backed securities RMBS, CMBS and related derivatives CDO's, CPDO's and CDS down the line; ALL OF WHOM COULD HAVE SAID "no" - BUT THEY DIDN'T.

Barry Minkow, Fraud Discovery Institute, a speaker in 2004 at the California CPA Corporate Governance Conference held out the form - taxpayers use Form 4506 (Request for Copy or Transcript of Tax Form pdf request link here where mortgage applicants authorized the IRS to send the borrower's tax returns directly to the lender for what purpose? INCOME (can you spell) V-E-R-I-F-I-C-A-T-I-O-N?

Hmmm...what a novel idea, then something BASIC clearly changed at only certain financial institutions from the safety and soundness embodied in that practice BUT not by all.

And apparently, it was undeserving of recognition; a Hallmark card or Kodak moment; but it could have - FOR SEVERAL YEARS RUNNING IN THE FULL LIGHT OF DAY including personal certifications as required by Sarbanes Oxley - BOARDS, AUDIT COMMITTEES, EXECUTIVES, MANAGERS, INDEPENDENT AUDITORS, REGULATORS, INSTITUTIONAL SHAREHOLDERS AND THE FINANCIAL MEDIA; and in reverse the very proprietary traders whose compensation derived 100% from certain not safe, not sound, not prudent proprietary leveraged speculative investments.

I have a modest suggestion - make the TBTF Club members - NOT the US Taxpayers - pay the full costs of funding this new commission; and allocate such costs among the TBTF club members based upon any / all emergency aid or support as in the FDIC's TLGP and resultant compensation the TBTF member expects to pay out in 2009 compensation; after all the bailout was "Emergency" - so too now the US Taxpayer asks the FSI to make a modest gesture in return.

Wednesday, October 7, 2009

The Clawback; it's a bitch Coalition

GET US Taxpayer Bailout money back (and then some) from Wall St
UPDATE #1 - and any / all economic benefit thereon - namely a piece of record 2009 CASH bonus compensation.

If not for US Taxpayer bailout certain, not all, Wall St. firms and banks were bankrupt last year.
And should have been forced to file as did Lehman or a similar special BK as GM later did.

See quote from Thomas Bowman, Acting Director of OTS, in Reuters April 2009
In defense of the OTS, Bowman said WaMu and IndyMac were not the largest American banks to fail last year."We did not regulate the largest institutions to fail in 2008," Bowman said. "We regulated the two largest institutions that were allowed to fail." The biggest institutions that failed in 2008 -- at least theoretically -- were regulated by the Office of the Comptroller of the Currency, said Bowman, who identified them as Citigroup (C.N: Quote, Profile, Research, Stock Buzz) and Bank of America (BAC.N: Quote, Profile, Research, Stock Buzz). The OCC, also an agency within the Treasury Department, is responsible for overseeing national banks.
Citi and Bank of America "got a systemic risk finding which allowed (for) open bank assistance, which allowed Treasury, the Fed and others to provide them money to avoid that failure," Bowman said.

Certain payments going back 6 years can be clawed back
When in BK certain transfers can be rescinded – including dividends, and certain compensation.
This link discusses Madoff – but applies to any bankruptcy.

Clawbacks are remedies under Sarbanes Oxley Section 304.

Foward to your friends including your elected officials.
More than the righteous, religious and disappointing film from Michael Moore's Capitalism, it's a love story - take action NOW!

Want to know more:
What was known, knowable, unknown or unknowable among US agencies, officials, SEC, and NASD now called FINRA within that which was forseeable

Bernanke papers and speeches link

AIG stops insuring Wall St brokerage firms against bankruptcy in 2003 (not a typo)

SEC allows (certain firms on) Wall St to use new (proprietary) models to value house' trading book 2004 (not a typo) final rule Effective August 2004
in particular READ the comment from Paul Wilkinson

Wall St and financial services industry annual IT spend - wanna guess how much?
If you guess any less than $300 Billion (not a typo) a year (yes annually) - you're a little short

It's not about being right, lucky - it's about one thing. Recognizing the obvious.
And in particular, Bernanke's papers were cited in other Fed "asset hangover" research as early as 1992, wrote or delivered speeches years BEFORE the so - called financial crisis washed up on shore last Fall. And the NY Fed carved out a new Commercial Paper category for Asset backed commercial paper in April 2006

Friday, September 25, 2009

Schumer IndyMac Summer 2008 letter - the only one?

It's that simple - wonder if Senator Schumer ever came across similar information upon any other financial institution and kept the letters to himself?

See Housing Wire report here
See NY Times related story link here

To be fair the subsequent US Treasury Office of Inspector General found that the letter was a "contributing factor" in the timing of IndyMac's collapse, but that "the underlying cause of the failure was the unsafe and unsound manner in which the thrift was operated." It seems however not everyone knew what Mr Schumer's office believed they knew, since the IndyMac depositors showed up en masse and withdrew substantially more (try a B$) than before the letter was publicized.

And Bloomberg gives a little more color regarding OTS resentment over the Senator's interference in the regulatory process

Schumer's letter alleged that OTS had fallen asleep and failed for years to detect "the profligate lending practices at Indymac and others including Countrywide" - and "If OTS had done its job as regulator and not let IndyMac's poor and loose lending practices continue, we wouldn't be where we are today,'' Schumer, a New York Democrat, said in an e-mail yesterday. `Instead of pointing false fingers of blame, OTS should start doing its job to prevent future IndyMacs." One may wonder if certain investors in Indymac-originated mortgages were themselves underwater; when a FDIC resolution and loss sharing may have helped same investors out a little more than others...we may never know or...

Yet back to the headline this may partly explain why similar letters were not penned or released: According to the NY Times archive:
As a result, he has collected over his career more in campaign contributions from the securities and investment industry than any of his peers in Congress, with the exception of Senator John F. Kerry of Massachusetts, the Democratic nominee for president in 2004, according to the Center for Responsive Politics.

The Wall St Journal gives more here:

Today Rep. Barney Frank's Financial Services Committee conducted a hearing titled Federal Reserve Oversight. Mr Alvarez, GC at the Fed testified; a goodly portion of his questioning concerned Fed disclosures or the lack thereof and one question in particular centered on whether a Congressional request for an audit of an open bank institution should as the law states now, require approval of the Fed before it could begin. I wondered how Senator Schumer's letter regarding Indymac fit within the four squares of that line of questioning...hmmmm.

Just a simple question - of what's known, knowable, unknown or unknowable in the spectrum of foreseeability; apparently something in particular caught the Senator's attention. And apparently NOTHING since has ignited the Senators pen.

Open letter to Ken Feinberg re: the purpose of compensation and its nexus to fiduciary duty

The guiding and ONLY principle in establishing a compensation policy for the financial services industry including securities, banks and insurance companies and entities like GE Capital should be priority then alignment of interests of parties thereto. It helps to begin and include the social, industry, entity, vendor levels for and on behalf of whom? The customer which in many cases includes beneficiaries of fiduciary accounts; trusts, IRAs, 401k and pension plans, eleemosynary organizations charities, non profits, foundations, endowments and homeowners associations.

Friday, September 25, 2009

Dear Mr Feinberg,

From the early 1980’s thru today my fiduciary expertise stems from deep analysis, design, supervision of a major securities firm's compensation plan and internal accounting policies including proprietary trading at the “firm” entity level through distribution by a financial adviser, then into the customer’s account. Profitability to the firm is implicit every step along the way until we recognize – THE CENTRAL QUESTION - where does the fiduciary duty to the customer begin? You might be interested to know that in the past some firms’, not all, trading desks were agency – not profit centers; but clearly that was the past.

Also not all derivatives nor entities which invest in them are "bad" (as one measure only, over 90% of FDIC insured institutions are NOT on the watch list) rather I focus my remarks on professionals at certain institutions including traders, managers, executives, boards, outside auditors and primary regulators which implicitly or overtly sanctioned massive leverage; compounded by the utter failure to diversify collateral; however this stands in stark contrast to the similarly massive cash bonus paydays enjoyed by same during the "hockey stick era."

As such I am keenly interested in your process as “Pay Czar”, upcoming proposals and potential clawbacks of previous cash compensation. In some instances, in addition to my comments to the NY Times see below (which the moderator did not post) there may be instances of past fraudulent “conversion” as detailed below but summed up here:

Proprietary asset valuation models and parties thereto had motivation to do what? Over mark assets, add significant leverage, such that leverage both blessed such marks and signaled other market participants that asset marks were fair and thereby caused the conversion of same into what? It appears that traders and related parties created and inflated a set of assets (one form of currency) (RMBS, CDO's, etc.) knowing their compensation was payable in what? CASH, legal tender. CASH Compensation; when other means and forms make for better alignment and are preferred – for instance, compensating traders in the currency of the particular asset or index based upon same.

Secondly – although “legal” as per the SEC’s April 2004 decision to permit CSE’s to use proprietary valuation models in determining minimum net capital, seems to have gone off track causing certain, not all, off balance sheet, special purpose entities’ proprietary traders to improperly mark assets. Only traders can know or feel liquidity at the position level especially when nearly all of the subject securities are / were ‘created, issued, traded and valued” where? In the privacy and privilege of darkness of certain over the counter markets.

Third – if banks, broker dealers’ charters of authority are based upon serving public customers’ interests FIRST then the existence of “proprietary” trading in ANY security or market seems contrary. Flash trading seems only the most recently revealed, publicized example; hijacking of information. Proposed solution – dislocate proprietary purposes from agency intent – many principal agent conflicts as relates to the public customer will be a thing of the past – so that public customers can have “reason” (firewalls or Chinese walls are ineffective, rather tangible organizational separation) may be the solid evidence, not just hope, to again reasonably believe, rely upon and repose their full faith and trust in the institution of the capital markets, Wall St, the entity and individual adviser in particular.

Four – CASH compensation resulted for traders, managers and executives yet what is the purpose of such off balance sheet special purpose entities; how were public customers or the public in general benefiting from such private arrangements. Among other considerations the UK minister's "socially useless" theory is applicable here.

Five – LEVERAGE – explicit and implicit leverage should (and should have been) be reported to a public, observable market clearing entity. Such reporting can be best done at the entity level through trade level – on a generic asset level basis; similar to some of the long used conventions used to mark retail customers’ option order tickets – opening, closing, long, short, cash or leveraged which attach to and remain with the trade as it clears in addition to certain CFTC trade reporting conventions; additional thoughts are too long to write here.

Six – LEVERAGE – in off balance sheet vehicles, special purpose entities seems to have caused an unmonitored “stealth” money supply enabled by proprietary traders’ inflated asset marks and valuations; that disease was then transmitted into the money markets including commercial paper, asset backed commercial paper and repo's.
(a cut and paste from the NY Fed website) -
Major Change to Outstanding Calculations (April 10, 2006)
On April 10, 2006, the Federal Reserve Board made major changes to its CP outstanding calculations.

Seven – extensive research from public records including AIG’s (and Travelers and Radian) 2003 (not a typo) to exit broker dealer excess SIPC, after 30 years of NEVER having paid out on a claim, a quote from the AIG, yes AIG spokesman “It’s too much exposure” yet at the same time AIG Financial Products Group was doing what? Underwriting more and larger credit default swaps and related counterparty insurance; we know now lacking adequate underwriting capacity. As to why the primary regulators including the NASD (now FINRA), the SEC or state securities administrators failed to inquire or investigate remains to be seen; with the essential inquiry being “what is ANY / NEW too much exposure?” The link to the NY Times article from August 9, 2003 is here:

Eight – subject to proof, certain broker dealer entities may have improperly benefited at public customers’ expense by shifting customers' monies from money market mutual funds into entities’ affiliated banks’ deposit accounts then “loaning” it out not to public, arm’s length third parties but perhaps proprietary and/or controlled entities. It is believed that the emergency, extraordinary CASH infusions were necessitated due in part by the hidden UNregulated actions of certain sponsors of SIV's (structured investment vehicles). As a result – you might be interested to reference certain non, yes non FDIC insured affiliates of certain Banks and Thrifts have received support through the FDIC’s TLGP program; for which my office submitted a FOIA request #09-1132 which was denied by FDIC office of general counsel.

Link to the FDIC TLGP table here
32 such institutions including Banks, Thrifts and NON FDIC insured affiliates of same received $248B over 52% of outstanding program support as of August 2009.

Nine – FiduciaryALERTS™ one pagers, were issued annually by my office since 2004 urging review and caution with hedge funds, fixed income and real estate due to concerns not limited to explicit and implicit leverage and lack of transparency. Including one from May 2006 entitled "What do Johnny and Elvis have in common?" (Johnny being the deceased Johnny Carson) - both their estates announnced plans to do what? Sell, yes sell certain real estate holdings.

February 22, 2009 comment to NY Times:
Thank you for your comment. Comments are moderated and generally will be posted if they are on-topic and not abusive. For more information, please see our Comments FAQ.
February 22, 2009 5:10 am

There may be two additional ways to seek recovery of "executive pay" and other types of Wall St. distributions; 1)it's possible that some broker dealers - in the past, may not have met minimum net capital requirements had their assets been marked to "true markets" rather than their own proprietary models; hence, at least dividend payments to shareholders (including executives) would have been disallowed. 2)Subject to proof, it's possible that some parties to transactions of what are now deemed "toxic assets" may have engaged in less than transparent or fraudulent acts. Today some banks, if not for taxpayer dollars, would be insolvent' and in the absence of private buyers, forced into BK. and we were reminded that BK trustees' claims or clawbacks for prior and proven fraudulent conveyances can go back 6 years - correctomundo! Clawback - it's music to my ears and may provide the US taxpayer much needed relief that ultimately justice will have been served. Last - let me be the first to raise my hand to volunteer to help in any and all recovery.
— fiduciaryexpert, Los Angeles, CA

PS: The entities themselves are and have been in the “know” as the annual estimated IT budgets for the Financial Services Industry is over $350 Billion (not a typo) and I believe that may not include GE Capital. Among other questions, what is the proprietary trading IT spend over the past several years? See link here

PPS: Hedge Funds and similarly unregistered and unregulated entities must be part of some form of at minimum generic but descriptive position disclosure in addition to disclosing valuations of same as proprietary, public market or derived. Only one example of a present UNFAIR advantage is that over mutual funds. Mutual funds MUST disclose holdings and amounts thereof every 6 months; hedge funds do not and are not required to disclose their playbook. Since both vehicles compete, sign and signal in the same capital markets they should be regulated more evenly.

PPPS: When will the securities industry and regulators prominently disclose to public customers that year after year the majority of active investment strategies fail to deliver even bench mark return, risk or diversification benefits? See the SPIVA study at S&P.

Monday, September 21, 2009

"Brookings Ben" -admits OTC derivatives "liquid" pre-Lehman; "Emergency, Extraordinary" Bailouts = unexpected; ergo Regulators' excuses do not add up

Referring to off balance sheet trades; really, Ben?

See video here

I'm exceedingly curious - SHOW ME how and what data you reviewed to make that statement. "That prior to Bear Stearns or certainly the Lehman-induced financial market crisis last September YOU KNEW that these OTC derivatives markets were liquid."

1) If you "knew" said markets were "liquid" that means you were aware and watching and exercising some level of prudent safety and soundness supervision correct?
2) At what point did you first become aware or had concerns; especially in light of your 2006 public comments detailed below?
3) Given what you profess to know NOW - what was THEN known, knowable, unknown or unknowable?
4) Last, since you knew said markets - Why did you need to propose emergency, extraordinary measures to send US Taxpayer cash to certain (certainly not all) financial institutions? Any reasonable conclusion would seem to be that YOU indeed did not know even the basics.

Based upon whose collateral (underlying real estate) valuations? Recall that the SEC allowed brokers to use their own valuation models back in 2004?
Based upon or more accurately in contrast to your, yes YOUR speeches related to the housing and related markets in 2006. The WSJ headline peeped on October 5, 2006 (not a typo) "Bernanke suggests sinking housing market could dampen growth" Uh, you do read the venerable journal and have penned an Op-Ed or two - but silly me I didn't happen to catch any correction or retraction.

OTC Derivatives market Liquid? Based upon what data?
The US taxpayers would like to know EXACTLY that markets' so called "liquidity" stats?
Trade volume, dollar volume, and types of securities traded in 2008 compared to any previous period - lets say any year after 2003 ok? Let's not forget to take a look at the related Repo, CP and ABCP (Asset backed commercial paper) issuance from certain parties. The NY Fed specifically carved out a new data category for ABCP when and why? In 2006, see any connections here?

Liquidity for Ben, came from where?
Look no further than the above mentioned PROPRIETARY valuation models AND the massive credit induced leverage often in financial institutions' controlled proprietary off balance sheet vehicles financed by what - also as above, look at the mammoth increase in the short term paper markets (Repo's, CP and ABCP). Leverage reported as much as 20 or 30 to 1 (Mr Buffett is quoted on Bloomberg a few months ago ..."Right and intraquarter it was a little more than that"; when underlying collateral valuations were not rising, rather declining. (Read your own speeches and media quotes). What game were you watching? Several credit ratings agencies issued reports such as 2005 (not a typo) by S&P titled "Who will be left holding the bag?"
See link here - S&P removed that one but you can email for the pdf document.

It's not a question of intellectual capacity ok?
Intellectual capacity you have more than most (recall the awe inspiring Smartest guys in the room at Enron and the Nobel Prize winners and one former Fed Governer who drove Long Term Capital into the ground), however awake, alert, both eyes open, both hands on the wheel at all times especially while the car reaches hyper NASCAR speeds with no brakes and watch out for that curve and the WALL - !!!

BB was asked how will the Fed develop tools, if any, to determine where a or the line may be drawn for two different but related measures of a financial institution (broadly defined); illiquidity and insolvency.

The height of a principal agent problem at the head literally and figuratively of the Federal Reserve, US Central Bank - another fact and no wonder Ron Paul has come out with "The End of the Fed"

Monday, September 14, 2009

Leverage blessed leverage for certain banks' prop trades and hedge funds

When regulators look to address the fix they need look no further than what HAD always been observable - leverage. Mr Benanke, Mr Paulson, Mr Geithner were each aware of same during the hockey stick era 2003 to 2007 and did what? NOTHING. Mr Geithner protected his NY Fed turf by creating LFIG (The Large Financial Institutions Group), Mr Bernanke gave several prescient speeches as early as 2006, Mr Paulson did what he knew how best to do - a deal for the Street.

When it comes to leverage, for the uninitiated leverage equals borrowed money and when Wall St and certain banks lever they do so for whose benefit? The house, I repeat the house. Not you, not me; but their own traders and executive CASH compensation, last shareholders then somewhere somehow the bond holders of these institutions forgot how to perform due diligence and general creditors and got what they deserved. Mr Buffett in only his sage way, stated a few months back when it comes to leverage, "If you don't owe anyone money guess what ? ( I added that piece) you can't go broke." True then, true today and true tomorrow.

But back to the headline, this writer has maintained that the very increase in leveraged holdings in particular in mortgage backed (and related derivative) securities (for that matter it could have been any asset), gave the rest of the participants IN THAT MARKET signals that they too could and/or should hold even more of the SAME.

After all there must have been more sameness, just like milk right? More homogeneity so relying upon similar data, crunched through similar internal models measuring volatility and correlation to warn when danger (less liquidity) was approaching. However, just as few could react in time to avoid the deadly Indian Ocean tsunami which struck the day after Christmas 2004 the same could be said for certain banks' proprietary trading desks. The question to have been asked was NOT whether a potential tsunami required measurement it was the when not if occurrence of a large earthquake that caused the waves that required measurement. Such that the same underlying mortgage collateral is AND was undeniably in a when not if state.

Leverage, Darkness, Derivatives, Internal Models, CASH Compensation
It's more than a fascination; fascinatin' stuff in certain parts of the country; how could certain
banks and brokers churn out record after record "profit" and pay terrific sums in CASH compensation if they truly competed in transparent markets? Drum beat please...answer? Leverage. And darkness. And derivatives. These securities were largely created, traded, valued over the counter (dealer darkness, indicative levels based upon cherry picked, disclosed trades) and trader CASH compensation upon same; not to you, not to me. I'd be more fascinated to learn how these traders invested these CASH bonuses (and more recent bonus replacement salary increases) - especially the amounts funded by taxpayers - writ you and me.

Another principal agent conflict of interest on the taxpayers (unleveraged) dime; I only wish it was a dramatization.

Wednesday, September 2, 2009

AIG to pay CASH (from US Taxpayers) for "Brokers' Retention Bonuses"

As reported here Feb 2009 - on top of the past TARP recipients "Retention Awards" over $5 B (not a typo) including to brokers and financial advisers at Merrill Lynch, Smith Barney and Morgan Stanley but not Wachovia - this time, as reported today in Investment News AIG's broker dealers will issue "the newest such Retention Bonuses" in amount which is unknown.

See full story here

Wonder where all that CASH is coming from - but there is a better way to pay - pay it in AIG Stock - not US Taxpayer cash!

Tuesday, September 1, 2009

NFL Coach Dennis Green's 2007 rant applicable to Financial Services Regulators

NFL Cardinal's coach Dennis Green's 2007 post game interview was decried as a rant by many in the media; yet this writer lauds it as an example of a clear headed admission of mission not accomplished but NOT for lack of trying.

Coach Green –
“We knew who they were…
they were who we thought they were,
they were who we thought they were
That's why we took the damn field
AND we let’em off the hook.”

During the hockey stick period 2003 thru 2007 same could apply to all those Federal Reserve officials (Greeenspan / Bernanke and Geithner), US Treasury (Snow/Paulson) and US Congress members, committees and subcommittees, staffs, FSI lobbyists, GSE’s, FINRA (NASD), SEC and NYSE.

Today Bloomberg reported that Mr Tarullo is to be Mr Obama's first Fed Reserve Governor appointee; further revealed that Mr Geithner formed LFIG yes LFIG read on for more (can you believe this? why not everything else was at the height of incredulity!)

Is “monitor” an action verb? Apparently not during 2003 thru 2008 in the lexicon of Mr Geithner.

Bloomberg story excerpt

...The existing structure relies on hundreds of examiners from the 12 district banks, from San Francisco to Boston, visiting lenders overseen by the central bank. Examiners make recommendations on individual banks rather than focusing on the system as a whole.

Treasury Secretary Timothy Geithner fought an earlier attempt to strengthen the role of the Fed’s Board of Governors in bank supervision.

As firms from Bank of America Corp. to JPMorgan Chase & Co. became larger and more complex earlier this decade, former Fed Governor Susan Bies wanted to create centers of expertise and accountability for particular markets and potential dangers, such as derivatives trading and settlement.

Geithner, then New York Fed president, wanted to preserve his bank’s responsibility for activities inside specific firms and capital-markets surveillance. A compromise was reached in the form of a panel known as the Large Financial Institutions Group, staffed by both Fed board and district bank officials, which coordinates supervisory decisions on the biggest lenders.

Full story link

As this reader has asked many times – show me and the US taxpayer what were the top 3 accomplishments, if any of Mr Geithner while he served as President of the NY Fed from 2003 thru 2008? What questions were asked by the Senate confirmation panel in contrast to same?

In particular, what was known, knowable, unknown or unknowable by Mr Geithner and his staff of hundreds of well paid PhD’s? How many man hours were devoted to studying and analyzing data? What conclusions were formed in contrast to that which we now know was what? Knowable.

As in supervision, oversight and monitoring – in regard to certain banks and broker dealers – did the responsible parties know who they were? I assume the answer should be yes, so, our regulators (our appointed protectors) "knew who we thought they were" AND...? Did the hordes of supervisors "take the field"? Did the supervisors "let’em off the hook"?

Go ask Coach Dennis Green how much tape he watched to COME to know da Bears then ask any of the regulators and Congress how much “tape” they watched of certain of the Financial Services Industry which now that I think of it could be more accurately called the Financial Self-Services Industry huh?

Saturday, August 22, 2009

Rx for Disclosure - Known, Knowable, Unknown & Unknowable

Chuck says "Talk to Me"
I reply "OK I'll try my best - you too".
"Let's have a two way conversation, some call it dialogue."

Then because I saw your ad I switched my account to your firm then...

When it comes to obtaining CASH in exchange for securities there is a fundamental issue.

Everyone knows what CASH is, it's money, it's currency and it's the ONLY legal tender.

Anything other than currency is not CASH.

There is no doubt there is more and more information collected today than ever before, no doubt financial institutions collect and analyze more information today than ever before; FACT: the estimated annual IT expenditures of the financial services and securities industry is over $360B (not a typo) see link here:

There is no doubt that an increasing share of that amount is devoted to what? Proprietary trading for the house' employee's compensation THEN what's left over the house' shareholders' profit. Public customers are not and are specifically excluded in the chain; Wall St is that great washing machine of obtaining CASH from customers in exchange for securities; yet when it comes to the trading of same the same firms batteries of computer aided trading wring every last fraction (reference hyper speed flash trading news of late) for their own pockets first.

To which this writer has asked which comes first? Public customers' interests or employees / agents and shareholders of the appliance maker? Isn't it all about the "beneficiary"?

When it comes to disclosable information the headline above applies.

When sellers / distributors of investments offer anything for sale; all aspects of the investment's or offering's prospectus, markets, AND ANY changes thereto should be prominently disclosed.
Brokerage firms and advisers have a duty to use care - such care requires initial AND ongoing diligence and investigation upon same.

After all, as many have pointed out this is a free country - to which I say correct; no brokerage firm or adviser is forced or compelled to offer or continue to offer (FOR SALE TO THE PUBLIC) ANY particular investment or service.

What's clear is this: the line needs to be more clear or cleared up as to what's available, offered, solicited, unsolicited.

The reference and inspiration for this piece was the recent Charles Schwab Op-Ed in the Wall St Journal regarding the Auction Rate Securities (ARS) inquiry initiated by David Cuomo, NY Attorney General - see link here.

Monday, August 10, 2009

Excess SIPC - six years ago and a missed Red Flag for Madoff victims

Today is August 10 , 2009 - six years ago yesterday, the NY Times reported "A long, free ride was ending". After 30 years of never having paid out on a claim some of the country's largest insurers including AIG announced their exit from underwriting EXCESS SIPC insurance for many Wall St securities brokerage firms. A quote from the AIG spokesman went like this - "Why is AIG exiting? It's too much exposure"....really I'm not making this up.

An excerpt..."But no other part of the surety bond business has been affected as extremely as coverage for the brokerage houses. The insurers have not trimmed coverage or raised prices; they have simply gotten out. ''It's too much exposure,'' said Joe Norton, a spokesman for the American International Group." The link to the NY Times full story

Huh? Too much exposure to what? Recently, FINRA, the former NASD has been running radio ads announcing, in so many words how they help protect investors accounts. To which one might ask when a group (AIG, Travelers, Radian), not just one insurer, ends insurance coverage whose sole purpose is to protect customers' accounts over and above the SIPC limits should the primary regulator inquire as to what prompted the withdrawal and what is the NEW cause for concern inside broker dealers that's "too much exposure?"...perhaps the NASD was on vacation that day...after all the story ran on August 9, 2003, a drizzly, overcast Saturday in the Business section, buried on page 5 at the bottom. When it was more relaxing to enjoy that warm cup of coffee then skip to the Weekend section. Maybe it was me or maybe I was lucky that my breakfast order was taking a little longer to arrive...I may have never flipped to page 5.

Why EXCESS SIPC matters to the Madoff victims.
Lack of it was one of a number of RED FLAGS.

Affluent investors, not just those of Mr Madoff who knowingly or unknowingly became "customers", would be concerned and generally aware of this type of insurance coverage, let alone professional, intermediary advisers including accountants, CPA's, lawyers, business managers and consultants. The lack of it, considering the sums many customers entrusted and turned over and the prominence of some customers, is one thing...astonishing. See the link to fiduciary liability exposure at

A FiduciaryALERT™ was posted in 2004 urging caution and review with hedge funds citing among other items, the above Excess SIPC insurance coverage cancellation.

Another facet of this story seems to have been unreported when it comes to AIG's FPG underwriting derivatives credit default swaps of many of the same brokerage houses proprietary (not customers) trading positions; perhaps, subject to proof, the very exposures AIG's Mr Norton, said were "too much". Yes too much for the regulated AIG insurance operation, but seemingly appetizing for the UNregulated AIG FPG.

Sunday, August 2, 2009

Congress should make self employment income tax free - for the unemployed - for now

Today the NY Times ran an article Unemployment Benefits expiring soon for thousands; and if emergency legislation is not passed over 1 million will be off the roles, however, for the convenience of certain elected officials that also means that they will NOT be counted in the Unemployment rate. 37 comments were posted - a few empathetic, several offered advice on how to cope but many lambasted and ridiculed some just less fortunate.

A modest Employment benefit proposal comes to mind - Congress, may consider this.
AMERICANS FOR TAX FREE SELF EMPLOYMENT. Everyone, especially those currently unemployed and each of their dependent children could perhaps be incented at the margin with zero, tax free income from self employment - knock on doors, every business needs more sales reps, you never know the places you'll go, what does it take to get started, gain a foothold, for kids - washing cars, mowing lawns, baby sitting, tutoring, teach someone for a fee especially older adults how to use software, or introduce them to all the new services, tools available on the internet, starting and promoting an internet business or someone else's business, creating a new service for others in their communities, organizing office files, shredding.

Think, what are you good at? What can you do better, faster and cheaper than everyone else?
If you're a master at certain video games - you could charge a fee to teach others how to play like you. Paypal makes it easy

What's the price or value of your service? Is it worth $10 or $30 per project? Since theres 20 working days each month that could be $600 extra each month and $7,200 a year.

Be a concierge for service for certain groups of people who have more money than time to do things - for example, pick up / drop off laundry, post office, dry cleaning, meds, groceries, be a reliable, available bike delivery / messenger for local restaurants or businesses, distribute menus, flyers for same. Advertise your new service on Craigslist for free, for example, to do research of whatever you are good at (don't worry about what others might be good at ok?).

Look up and visit with you local Chamber of Commerce officers at their business, knock on doors again - learn about how and why they started their business - learn their stories and you might find a connection to your feelings too. Be willing as many have, started in the "mailroom", worked harder than everyone else and rose to run a department or even their own shops.

Are you subtly letting the job market drive the bus of your life or is there perhaps a way for you to take a little more control, eventually take command and responsibility for your life and set a life long lesson in place for your kids to repeat or are you dooming them to a life of feelings of dependency upon others when self determination is always the best solution?

As a self employed person you decide who your customers are, how hard you will work to earn someone's business, when you work, how much you will work for and very importantly, you are in 100% in control of the quality of service. What's not to like about that and a Government that's willing to bootstrap you.

Is the desperation, despair and depression the governments' plan for your feelings or ....?
It's better than sitting home feeling helpless, hopeless, powerless, sorry for yourself and infected and under the control of the job market. You write your job description, you decide how hard you wnat to work, the feelings you have are caused by you, there is no law or rule that dictates your feelings - only you can decide to feel and act differently. Diversify your ideas a bit - try to get 2 or 3 ideas going - be open to change. So keep doing what you're doing and tomorrow do a little more and soon you might start feeling better. Of course, no one need wait for Congress - now is always the best time to positively change your life.

You're in business.
The simple IRS site to apply for and get instantly - yes instantly a taxpayers' business ID (EIN) is at,,id=102767,00.html

Saturday, August 1, 2009

Compensation - for the house or customers' benefit matters - Print "Pay BOX" on customers' account statements, what's to hide?

When it comes to parsing out the interests and compensation of ALL personnel in the financial services industry (FSI) including Wall St securities broker dealers, commercial banks, finance companies and insurance companies strongest consideration regarding compensation regulation, if any, should hinge on one question.

The question.
Whose interests are directly supposed to benefit from the activity?

If it's the "house" or as FSI describes it "Proprietary trading" or certain Off balance sheet, special purpose entities SPE's regulation, if any may be proscribed by requiring substantial personal skin in the game and any resulting incentive compensation be in the form of restricted stock, long vesting schedules, and in non transferable, non-diversifiable instruments -and certainly NOT cash. The payment of CASH compensation for asset - based investment gains at the margin of industry and market competition is tantamount to a form of illegal "conversion".

Again - ban CASH compensation for ASSET - based investment gains. Cash payment for salary (not incentive) is preferable - could start with an eye to the following as a guage - what is a reasonable living, city - indexed professional wage? Plus estimated growth in the US GDP, CPI inflation, and the FSI industry.

The unique nature of this industry MUST be understood to address the roots of the compensation question. Let us begin with all manner of principal - agent conflicts. Second, FSI measures and PAYS FOR (largely, but not exclusively when it comes to the "House" account) performance based on ASSET values, ASSET values are subject to marginal pressures, and can, as we have witnessed, leverage to the extremes. Third, the chiefs must be paid more than the warriors compensation philosophy needs to be exposed and subject to critical examination; as the chiefs generally, are popularly "elected" as only FSI's players understand, define and ultimately control the "bartering and negotiating- based" cultures. Said in the parlance of the street - make no mistake, NO FSI CEO has ever been promoted to that role or even along the way without the "blessings" of the most highly compensated talent ok? It's like what do you do when you get to a red light? Stop, it's just the way it is.

Based upon the foregoing at the end of the day, at the entity level, the inverted pyramids of compensation dollars paid compared to the aggregate talent pool must be understood.
And calendar - based "winner take all" compensation, like any new season in professional sports, is in many instances, not the appropriate measurement of performance.

If the activity is for and on behalf of public, arms-length customers, such activity should be subject to on-the-books-for-decades (for example, ERISA 1974, the Prudent Investor Act since the 1990's as has been adopted by over 44 states plus case law and regulatory opinions) fiduciary and or suitability standards of care.

And the dollar amount of any and all revenue recognized by the FS entity should be one and the same dollar amount PLAINLY printed in a box on the first page of each customer's account statement. This burden upon full disclosure will NOT take substantial time to comply. Why? For years all FS entities have disaggregated the river of revenue and rolled it up from each trade ticket, broker's book of business, each branch office, each regional office, each product or service area then up to the firms set of books. Substantial sums are and have been spent on management and accounting systems for years - so there is a robust group of data, systems and personnel to EASILY print the "Pay Box". Many of these firms participated in the SEC's 1995 Tully report, many of these firms participate today in the "McLagan"report to learn how they stack up against the rest of the players - hello to Bruce.

This brings us back to a more essential question.
When the various entities, interests participate in our "capital markets" which participants enjoy certain advantages? There are many, however, it's clear, on a comparative advantage basis that "public customers" are generally not possessed of advantages especially in light of the the broker dealers duty of best execution. Beginning with the proprietary concept I've called the "half life of information" of which Flash order trading and resulting "skimming" although technically "legal" is the most recent example. Additionally, for years the dollar amounts paid by public customers for bond mark-ups or commissions for certain mutual fund share classes, annuity, life and other insurance contracts are NOT plainly printed for the customer to see. Why - what's to hide?

Begin there - these are easy-to-require steps, which in the aggregate may begin to restore public investors' trust and confidence in the "system" heretofore known as the "Securities Industry" such that "Public securities markets evenly benefit ALL the public not just certain advantaged, less than public self interests"

Tuesday, July 28, 2009

UK Financial Institutions head Kingman faces up to 2 year "Gardening leave" - a useful hiatus / avocation for US Government officials?

The UK's Financial Times reported "It emerged that Mr Kingman (head of UKFI) had already been in talks with at least one bank — a potential conflict of interest, which means that he could be forced to take up to two years’ “gardening leave”.

It seems to me that the smell of freshly tended REAL, genuine, not artificial, fake or plastic flowers could do the US financial "system" some good. After all Mr Geithner and Mr Bernanke bemoaned that the "systems" failed us; which reasonably implies that the "systems" caused the crisis no?

Monday, July 27, 2009

Bernanke - USA Today May 2006 (Not a typo)

On the issue of risky home mortgages, Bernanke pointed out that the Fed has issued some guidance for lenders and he underscored the importance of borrowers making sure they understand how interest-only and other non-traditional mortgages work.

"We're not saying you shouldn't make these loans. What we're saying is that they be done the right way," Bernanke told the banking conference. Borrowers and lenders holding exotic mortgages could get clobbered if housing prices drop or interest rates rise sharply.

In his speech, Bernanke said federal banking regulators will press ahead on a sweeping plan aimed at improving risk management for the country's largest and most internationally active banks. Hhhhhmmmm......

The proposal, years in the making, dubbed Basel II, would instruct such banks to use complex new risk formulas to determine capital requirements. The thrust of the proposal is to promote stability of the U.S. financial system and make big banks better able to withstand any financial problems that might erupt in the global marketplace.

"No immediate crisis requires us to move toward Basel II, but the gradual evolution of market practice and the emergence of very large and increasingly complex banking organizations operating on a global scale require that we make significant changes in the way we assess capital adequacy at these organizations," Bernanke said at the conference organized by the Federal Reserve Bank of Chicago.

"Indeed, waiting for a crisis to force change would be foolish; by moving forward now [2006 mind you], we have the luxury of being deliberate in the development and introduction of a system that promises significant benefits," Bernanke added. [Emphasis added]

Full Story link

Contributing: Associated Press Writer Michael Tarm in Chicago.

But Mr Bernanke - You watched the parade that's become near the 2nd Great Depression starting when? October 2006 (WSJ) or was it May 2006 (USA Today)

Mr. Bernanke said in his recent Town Hall interview with Jim Lehrer "I was not going to be the Federal Reserve chairman who presided over the second Great Depression, and for that reason, I had to hold my nose and stop those firms from failing. I am as disgusted about it as you are, and I think it's absolutely critical as we go forward that we put in a new system that will make sure that when a firm does not succeed in the marketplace, that it fails."

Bernanke was quoted in May 2006 by USA Today (see blog entry and full story link) then later by the Wall St Journal when? October 2006 (not a typo).

Too Much-ee data?
Wonder if Bernanke is / was overwhelmed by too much financial data and impresarios (spin doctors) that the basics of financial leverage slipped by.
Or that he couldn't discern with all of those sophisticated forecasts and a few PhD's walking around that this picture reveals too little? Is it too simplisitic?
Despite Obama platform promise of transparency / disclosure FDIC's TLGP refuses to release (rejected a FOIA request log #09-1132) the names of the NON FDIC - yes NON FDIC insured recipients and amounts despite accounting for about $260B (near 60%) of that program's total as of June 2009 report.

I'm more than intrigued that the SEC would sue a CEO to recover compensation recieved while risks in financial statements were less than SARBOX prescribed. Let's wait and see when or IF the same SEC will look into recovering upon the same premise from a certain few Wall St brokers and banks....hmmmmm.

In the meantime should we care or bother? Yet again, it appears another near total Waste of US taxpayer monies; when it could or should be devoted to human health care; not certain Wall St welfare.