Sunday, February 22, 2009

And the Oscar goes to: Wall St - Big 8 - BFD How to separate taxpayers from their money

Tonight is Oscar night and in "recogntion" of the 81st annual ceremony Wall St now calls payment of bonuses in cash, “awards” – very timely! I wonder if, when such awards show up in the lucky winners' bank accounts they may be any other color but green?

And of course, this script change was noted by the Academy and received a very special late inclusion in the new category for best "Dcoumentary - special effect"!

Mind you there are no Child Actors here: ADULTS ONLY!

BFD (Breach of Fiduciary Duty) in how to separate Taxpayers from their cash!

OSCAR for Best Film and Supporting Cast to:

The Big 5 banks and Wall St brokerage firms.
Supporting cast (the food chain)
(Sleeping most days except 2 - pay day and bonus day)
Mortgage brokers
Real Estate Appraisers
Mortgage Lenders
Real Estate Agents
The Federal Reserve, Mr Greenspan, Mr Bernanke, Mr Geithner SEC, FINRA (NASD)
Congress both the Senate and House
State securities administrators
State insurance regulators
Delinquent borrowers (not all are victims)
Negligent masquerading advisers
And let’s not forget Fannie and Freddie
And the Hedge Funds – dancing to the music of the night

The Media - TV, Financial Newspapers, Magazines and others for journalistic amnesia & vigorous cheerleading while the Wall St BONUS parade was marching by

They and we could all take a reminder and life lesson from Jerry Lewis, winner of the Oscar for Humanitarian award whose introduction included “I shall pass thru this world but once, any good that I can do...”

and hold on tight to your cash; in the meantime the BIG 8 will be holding onto that Golden Statue - good thing for them it's made of gold!

Monday, February 16, 2009

Stock Brokers - ONLY getting "awards" Execs say $5 Billion payouts NOT "Bonuses" - Smith Barney & Morgan Stanley & Merrill Lynch

Update #3 - May 26, 2010 at top
Update #2 October 19, 2009 - near the end.

But Registered Rep magazine May 2010 reports that bonuses don't keep all brokers tied to the mothership.

See Story here

Update #1 Feb. 22, 2009 - begins here:
Investment News reported Morgan Stanley, Citi executives in charge of bringing together brokers from the two firms stated
"In a nod to today's touchy political environment regarding executive compensation, financial advisers at the firm borne out of a joint venture between Morgan Stanley and Smith Barney will not receive retention bonuses, instead they will receive "retention" awards in cash.

An exective stated "please do not call it a bonus...It is not a bonus; it is an award, and it recognizes the importance of keeping our team in place as we go through this integration."

Hmmmmmm...does it smell like cash, does it feel like cash in the wallet, does it show up in a bank account as cash, must be, in the latest compensation parlance from our friends on Wall Street not Cash, rather they are just "AWARDs".

REALLY? Are these awards - shareholder approved? board approved? Love to see the minutes and votes. Since we are in the era of buying stocks at among the LOWest price opportunity of never-been-seen-before-proportions why not, what is the downside of paying in stock rather than in cash? Why not, eating a little home cookin' would appear to be among the best way to "keep the team in place"

And the best way to conserve US TAXPAYERS DOLLARS bestowed upon your doorsteps.

Begin original post:
"Thank you, thank you, muchas gracias, happy new year of the ox, again thank you so much US Taxpayers for your continued confidence and helping me to be a lucky broker at Merrill Lynch, Smith Barney and Morgan Stanley; thanks to your generosity I and my colleagues will be splitting over $5 Billion in cash so that I may continue to service your account at my new firm or new combined powerhouse."

Wall St brokerage firms will soon hand out "retention" bonuses called forgivable loans. Stock brokers will soon receive over $5 Billion as inducements to stay put; that's correct, inducements to keep their jobs; really? what other job holder gets such treatment? This writer has some experience when it comes to such deals.

Let's get straight away to the lucky ones - Bank of America (NYSE:BAC), facetiously, just in case, the colors of the computer workstations are not exactly what the brokers had hoped for, will give out over $3 Billion IN CASH to its newly acquired herd of Merrill Lynch brokers. And, facetiously, due to the rather lengthy new name of the newly combined Morgan Stanley Smith Barney sales force will receive payouts over $2 Billion IN CASH, reports say; after all having to answer the telephones with that new moniker does actually take a little more time away from watching and managing customers' accounts; perhaps the bonuses may have the soothing effect that only coin in the pocket delivers; but only the brokers get the bonuses; the sales assistants get to answer the phones at the same old salaries.

These loans are forgiven, correct forgiven.
Annually, according to reports, over the next seven years. Each year 1/7 of the loan amount and interest thereon is reported as W2 income to the broker; that means the broker pays income tax on the amounts reported on the W-2.

If a broker leaves before the end of the 7 year period, the broker must pay back the amount of the loan back to the brokerage firm, less previously forgiven amounts.

When it comes to disclosures to customers.
Brokerage firms are generally required to inform customers of any additional compensation paid to its brokers. This expert wonders how, especially in times like these, brokerage firms will spin and communicate or update ADV brochures, part II's of this mega - compensation under principles of fair dealing pursuant to NYSE, FINRA and or SEC Investment Advisory rules and regulations. We may be waiting for some time before that happens; in the mean time don't forget to keep an eye out for that "thank you" note in your mailbox.

Updated October 19, 2009 with a recent excerpted quote from Investment News by Mary Schapiro, now chair at the SEC (formerly chair of NASD / FINRA).
In regard to recruited brokers who upon signing on are given "FORGIVABLE loans"
(I maintain both FORGIVABLE loans and RETENTION AWARDS OR RETENTION BONUSES should be disclosed to customers - what's to hide?)

In a short open letter to b/d CEOs, SEC Chairman Mary Schapiro “reminded” executives of their supervisory responsibilities. She said her friendly reminder comes in response to press reports about firms offering “large up-front bonuses and enhanced commissions for sales of investment products.” Recruiters disagreed about what kind of impact the warning might have—one recruiter said firms might change the way they structure their recruiting deals, but others said that firms would probably just review their deals and put more compliance controls in place. The letter comes as b/ds, especially wirehouse firms, continue to offer huge recruiting bonuses to top producing reps at rival firms. The recruiting deals at the four wirehouses (UBS, Morgan Stanley Smith Barney, Merrill Lynch and Wells Fargo Advisors) range between 200 and 250 percent of trailing 12-month production, and often include components that reward advisors for bringing over certain percentages of assets, and meeting pre-established production targets. For example, an advisor might be awarded 20 percent of the total deal when he begins generating 100 percent of his trailing 12 months production.

Wonder if Ms Schapiro read ever the SEC Tully report from 1995 (not a typo).
Warren Buffett served on the commission with Mr Tully.
See text here

Sunday, February 15, 2009

America (the US Dollar) needs ROMNEY not Geithner

Romney (or someone like him) has the guts and experience to get the job done; example, not perhaps not totally perfect but forward thinking Massachusetts' health care program.
Mr Geithner is a creature (product) of the NY Federal reserve - keeper of the status quo of Wall St, NY banks; prior to that at the IMF (mostly US banks) and before that US Treasury.

To my knowledge, subject to correction, never spent a day in his adult life running a commercial business; seemingly unable to subject said institutions to the oversight they and stakeholders must and should experience.

Add up all the delinquent mortgage borrowers, it’s in the millions.
Add up the on-time payers, current mortgage borrowers it’s a lot more; estimated to be 10 times more.
Add up the very solvent US banks = an overwhelming majority of the 9,000 or so banks in the US (reference: Mr Sorrentino's interview on Bloomberg TV past Friday).

What do these solvent banks have in common? One thing, among several is this - they “know” their customers; because they have a personal or community relationship.
Let the BIG 5 banks solve their own problems – they were all self created, because of 1 thing – taking on way above market risk and massive, undisclosed LEVERAGE, in greedy pursuit of massive profits. Not one bank claims to be a victim of extortion or blackmail correct?

The solution is this:
Put all the parties who were dancing to “music of the night” (from phantom of the opera)

to the delinquent mortgage problem in a football stadium in every county and let them solve their own problems; whether they created it, fell victim to it or invested in it; that’s a start for accountability and REAL CHANGE WE CAN BELIEVE IN.
Government sponsored bailouts upon the backs of US Taxpayers and future generations of taxpayers is simply throwing good money after conscious, knew-what-they-were-getting-into bad (borrowing, lending and investing) decisions; the rest of the country has got to get back to business.

When will America wake up?

You want a little clue? Go look at the Wall St IT budgets

There is no question that Big 8 Banks including former Wall St investment banks and broker dealers – are for-profit businesses.
That means – every dollar spent is expected to generate profits correct? No argument there.

The best place to begin to look for causes of this toxic asset problemo.
IT computer, data & information systems (there goes that word again) dollars spent - past 5 years - 2004 to 2008 should suffice.

1) What was the size of the budget in total for each firm – worldwide?
2) Subtract out what was spent on mandatory compliance and regulatory.
3) What amount is left over? This is called the discretionary part of IT.
4) How much was expended upon proprietary trading and analysis - systems, people, software and hardware?
5) There is no question, totally discretionary, totally profit-driven, proprietary trading desk IT systems dominate monies spent by Big 8 on Wall St and hedge funds.
6) Such budgets dwarf the IT budgets of most countries combined.
7) There is more computing power devoted to securities analysis than many other worthy causes in the world combined.
8) The answer lies within right? (facetiously) ONLY after intense analysis - the computers bought (and held) the toxic assets and added the leverage huh?

Or so the sheep are led to believe – the systems caused the problems.

One minor catch, Systems are void of emotions. And systems do not get paychecks.
Must be - somehow - as improbable as it might appear - greed – got into the “systems”.

Who might have contributed that?
Facetiously - surely it must have been the US Taxpayer and future generations; because make no mistake my friends we are – being de-frauded, ripped off in the largest ponzi scheme to hit B'way - think mega-Madoff; while the music is still playing - help yourself to a little Wall St music.
Darkness is the operative term here as it explains much of the problemo - most of these investments were created, traded and valued in the DARK, in Wall Street parlance, Over the counter (OTC).
But for the bonus checks - they were paid in the full light of day; authorized and blessed by CEOs, Auditors, Boards, SEC, State banking and securities regulators. almost forgot the parade-watching business media; no one, I repeat, no one upon receiving a bonus check ever raised their hand and said it's too much huh?

I couldn't resist to add to the entertainment of the "financial theater" we are already paying for; this one is free.

SO! while our pockets are being fleeced the Wall St and Big 8 bank CEOs and cronies:

  • Keep their jobs and not insignificant paychecks; oh that’s because they’re gonna fix the (their own self created) problemos – NOT;
    Get to keep all the bonuses paid out in past years based upon phony / perhaps fraudulent securities valuations;
    They get bailed out by us because they invented the “too big to fail” illusion;
    That’s ok here’s a few hundred billion $ from the taxpayer;
    To the banks - you don’t have to reveal what’s on (or excuse me, what’s off) your books; just take the money; "we HAVE to do THIS deal to reassure the world's investors"
    Warren buffet, middle east and Asian sovereign and government investment funds got better due diligence than we did,
    US Treasury officials committed arguably the largest breach of investment fiduciary duty in the history of the world.
    Keep their jobs and not insignificant paychecks; oh that’s because they’re gonna fix the (their own self created) problemos – NOT;

Where was the prudence? Show me and the US taxpayers.
If there’s such long term value – where are all the insider stock purchases of Big 8 banks CEOs and cronies? Show me.
If there’s even more value – where are all the private equity buyers? Show me.
That’s ok we’re the sheep; go ahead keep picking our pockets
The conclusion of this type of treatment by authority - is there may not be as many sheep left as expected - only wolves.
Wolves are predators and travel in packs.

To the US Senate: Systems don't get paychecks, people do.

Mr Geithner, US Treasury secretary and others testified for many hours before the US Senate.
He was asked repeatedly:
  • what led us to this point?
  • how did we get here?
  • to this crisis, this whatever you wish to call it, etc.
Mr Geithner and others answered "The SYSTEMS FAILED US".

Er, Excuse me - a few minor questions if I may:
  • Did the systems get the paychecks?
  • Did the systems get the bonus checks?
  • Did the systems buy new houses, refi cash out, go on vacation, buy new shoes, buy the 80 th new shirt?
Just to be double sure.
Do the systems have social security numbers?
Should they? Perhaps they should.
Did they get 1099's or w-2's or k-1's?
Perhaps the US Senate will look to re-open it's confirmation hearings.
Perhaps that will be in another life's reality.

It appears based on the unrefuted testimony of these experts, now US government employees, that perhaps systems should be eligible for social security cards; that would have the added benefit of adding more workers to the "social security" system and of course, soon they would be eligible to vote; so that's another benefit - more voices in our democracy - what's wrong with that?

Maybe if the systems have such power and might, perhaps we collectively, can collaborate to get the systems to work for free 24/7/365 and WE ALL can take a vacation; I wonder if the "systems" will not fail us as they have in the past and include Congress? And the SEC. And the tangle of bureaucracy and systems masquerading as civil servants.

The principal - agent problem:
Illustrated by limerick:

There once was a man named Bin Laden,
Who was tracked and hunted by Pakistan,
While the hunting took place, the taxpayer forked over $10 Billion per annum;
Close but n'er did Pakistan find its quarry.
Aye, Aye, Aye
The taxpayer is represented by the systems.
Aye, Aye, Aye
give me another verse that's just like the other verse and I'll find more countries to to hunt this man for you.
And as long as your money's still good.

to wit:
Systems will likely continue to fail lest incentives and interests thereto are in proper alignment.
You see very straight forward that it's all about what's best for the principals, beneficiaries and generations (including current and future) of our collective "systems".

Thursday, February 12, 2009

Bailout: The creators of crisis not capable of the cure

Financial theater is one way to describe today's line - up of no less than 8 bankers (including the newest two, Mr Blankfein and Mr Mack).

I'll be very brief; if any taxpayers, senators, congressman believe the pablum spewed that these SAME CEO's who CREATED the crisis by piling on debt and leverage onto their own balance sheets - upwards in some cases of over 30 times equity. (Note: this is reported leverage - not the same as actual given the impairments and asset write downs which should have been booked long ago; therefore "actual leverage" is estimated to be well over 50 time equity.) If anyone actually believes that the foxes will fix and restore the economy - you have to be pretty gullible.
I'll tell you a story - I'm from New Jersey, whose nickname is the "Garden" state; however in business I tell my clients that I want to be like I'm from the state of Missouri, whose nickname is? The "Show me" state. By the way, "gullible" is not found, anywhere in the definition of prudence.

These SAME CEO's are the very ones even today who 2:
1)have not told us how they used / spent TARP money
2) have not told the markets what assets they hold on their books
* Let me be even more BLUNT - TODAY - no one, I repeat, no one (not Mr Bernanke, not Mr Geithner, not Mr Paulsen); knows the total extent and nature of the assets held by these banks. Stunning - today the 8 CEO's testified "safety and soundness" was the MOST important factor in decisions concerning their bank; fascinating - really; what did they know and when did they come to this conclusion? It surely could not have been in 2004 to 2007, of course; that's when the bonuses were somewhat higher. Pity the poor CEO's bonus haircuts in 2008.

Again, let's call a spade a shovel because that's what it is - the sooner the US Taxpayers see the last show of financial theater the country will be better off.

Bloomberg had Mr Sorrentino, president of the nations' community banks on today; how refreshing he was; 98% of the banks are healthy (as this blogger pointed out last October) - the "too big to fail" doctrine is total hogwash - likely invented by someone at the big banks who was getting a "too big" paycheck they were looking to protect.

Mr Reid, praised the three Republican Senators who voted in favor of today's economic stimulus as true patriots. True patriots, if they are in fact true, would recognize that any programs which backwash thru DC are in fact a clear demonstration of waste of taxpayer funds. Leave the stimulating in the hearts, minds, and more importantly, the wallets of each taxpayer - the best economic decision is almost always the "local" decision - keep Washington out the economy; they can't even tell who the bank robbers (er incapable,inept CEO's) are AFTER they return to the scene of the crime!

Another and the last way to put this is the mantra - if you want different outcomes you need to change your inputs; I cannot imagine a more dire financial and economic circumstance; not with standing Mr Obama's campaign promise "Change we can believe in" - I say "show me".