Wednesday, January 27, 2010
Were AIG CDS Counterparties' par payoffs to cover Leveraged Proprietary Trading bets? NOT customers' accounts?
Yet what did the Counterparties do with the payoffs?
When the counterparties got 100 cents on the dollar from AIG - where and to what use was it put? I may be completely wrong here - but I have a feeling that not one cent went to cover ANY of public customers accounts; it's possible, it was used to cover Goldman's and perhaps many others proprietary (for and only for the house) and traders cash compensation first and only.
The Committee on behalf of ALL US taxpayers-
Should ASK EACH COUNTERPARTY:
- WHAT DID YOU DO WITH THE MONEY?
- IDENTIFY THE EXACT NAME AND OWNERSHIP OF THE COUNTERPARTY ENTITY?
- AND WHAT IS THE PURPOSE OF THE ABOVE ENTITY?
- AND DID ANY MONIES LEAVE THE ENTITY UPON RECEIPT FROM AIG FPG? NAME SAME.
- AND HOW MUCH OF THE MONEY WAS USED TO PAY OR ENABLE TRADERS' BONUS COMPENSATION?
GS notably, had been for over a year in dispute with AIG over CDS and cash collateral demands - BUT made a business decision, with that very knowledge (and the awareness of the duty to mitigate damages based upon that knowledge in the event it went to litigation). So the usually sure-footed Goldman did what? You see any mitigatin' goin' on? They maintained their long running choice to continue to do business with AIG FPG.
What was it that drove that less-than-Goldman-like ill fated decision? In fact there were only 16 AIG FPG counterparties in the world; is it plausible that Goldman's mythic prescience (and supposed on going due diligence) failed in some regard to avoid what hundreds of other firms saw in AIG FPG?
We need to be reminded that 5 large players, some major Wall St firms were NOT AIG FPG counterparties:
Citigroup / Smith Barney
See page 24 of the SIG TARP audit report here for the list of the first unlucky but then very lucky counterparties - courtesy of the US Taxpayer.
Thanks to the support from their friends at the Fed and US Treasury past and present.
And dancing in the proprietary house and Counterparties traders' Cash Bonuses galore - but still a total siesta on the Taxpayers' dime.
AIG Bailout may have been sown in 2003 when the same AIG stopped insuring Wall St brokerage firms against bankruptcy / Excess S.I.P.C.
In 2003 AIG stopped insuring the Wall St brokerage firms for bankruptcy, known as Excess S.I.P.C. insurance.
Quote from AIG 2003.
''It's too much exposure,'' said Joe Norton, a spokesman for the American International Group (AIG). What exposure - was AIG concerned enough about - to exit a line of business - that over 30 years there was not one claim paid, correct not one.
"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. See NY Times article here from 2003 (not a typo) http://www.nytimes.com/2003/08/09/business/to-insurers-a-long-free-ride-is-looking-risky.html?pagewanted=1
RADIO SILENCE FROM THE NASD, THE PRIMARY BROKER DEALER REGULATOR - THEN AND STILL TODAY 2010 FROM FINRA.
After 2003 AIG FPG Financial Products Group - NOT the same as AIG's regulated and always adequately reserved Insurance life, health, property insurance businesses began selling Credit Default Swaps CDS ironically insuring many of the same risks AT the broker dealers but on a customized a la carte basis for LARGER fees for the likes of Goldman, Merrill Lynch, UBS. AIG's highy profitable securities lending unit's operations especially with counterparties bears investigation not limited to related collateral requirements and valuations.
SIFMA - formerly known as the SIA.
Published the MBS / CDO issuance tables for 2004 to 2007 by the securities industry - see here.
You will read in the footnotes that CDS enabled "Synthetic CDOs" and which firm was writing most of the CDS - AIG.
Link here http://archives1.sifma.org/assets/files/SIFMA_CDOIssuanceData2007q1.pdf
And the CDS were written on how many asset classes - ONE.
And the name of that asset class - Real Estate.
And real estate appreciates how much over the 70 years up to 2000 - about 10% annually.
And how much did real estate appreciate in many major markets - 20, 40, 60% annually.
For how many years? - 3 to 4 years running, 2004, 2005, 2006. 2007.
And how many mortgages were issued to speculators / NON principal residences - 20%
And the long historical average of same was what? 5%
And Fannie Mae published this information when? 2005
And S&P wrote "Who will be left holding the bag" when? 2005
Link here http://www2.standardandpoors.com/spf/pdf/media/wyss_091205.pdf
And certain Wall St brokerage firms engaged in massive LEVERAGED PROPRIETARY TRADING at over 20 or more to 1.
And leverage has NOTHING to do with facilitating customers' trades.
And leverage has ALL to do with cash bonus paydays for proprietary traders.
And AIG FPG was not the ONLY writer of CDS.
And JP Morgan, Citigroup / Smith Barney, Morgan Stanley, Wells Fargo, GE Capital, Berkshire Hathaway were NOT AIG FPG CDS counterparties. Why, what, when and how did they know to avoid AIG FPG?
Mr Geithner stated he had to treat each AIG FPG counterparty equally, yet was this really equal treatment considering that at least 5 major players were NOT - perhaps because they did their due diligence and avoided AIG CDS?
Link here http://www.sigtarp.gov/reports/audit/2009/Factors_Affecting_Efforts_to_Limit_Payments_to_AIG_Counterparties.pdf See page 24 for the list of amounts paid and the counterparties.
Concentration, Speculation and LEVERAGE enabled solely by those who had the most information, created, traded and valued derivative securities privately in OTC markets, defined and controlled certain markets and are the SAME parties at any point to have said NO.
But they didn't...now we are still trying to understand what and why? It's called compensation.
Joseph Stiglitz put us all on notice when he published "Asymmetric Information Advantages" skew ALL markets' efficiencies; especially LEVERAGED private OTC markets and private OTC securities and related contracts.
A continuing but perhaps unavoidable siesta on the US taxpayers dime; unfairly the ultimate counterparty.
Tuesday, January 19, 2010
Goldman’s LB to FCIC – nobody knew "minute by minute” Where is compliance with Suitability & Fiduciary duty owed to pension plan and other customers?
Which Goldmanites is Mr B referring to such that they didn’t know “minute by minute” what was going to happen? Are we to believe that Goldman had its LPT traders selling its top of the line “housewares” product to Institutional accounts like ERISA and other types of pension benefit plans? And if so – what were the incentive compensation policies for same? In contrast to the reasonable beliefs and/or expectations from its customers?
Traders trade for the house, Sales people, series 7 licensed, sell to customers.
Further we would assume Goldman’s traders are NOT the one and the same GS sales people – different business cards, traders wear jeans, sales people wear suits with neckties, yet where did the salespeople get the “houseware products” – perhaps from GS’ very own LPT desk?
Were customers deserving of full or any market color whether from the GS sales desk and leveraged proprietary trading (LPT) desk? Was GS taking an opposite view or contra position at the same time they sold or distributed “product” to customers from inventory? Did Goldman share ALL the information they could have with customers? One example, 2005 (not a typo) vintage stands out from an S&P Ratings Direct titled “Who will be left holding the bag?” http://www2.standardandpoors.com/spf/pdf/media/wyss_091205.pdf
wonder if GS had any reaction to that one; informed its customers, counterparties, securities lending units or more importantly took any ACTION?
Or was Mr B referring to his firms "High frequency trading" HFT during his FCIC testimony? Was LB conflating his firm’s proprietary operations in contrast to duties owed to customers?
Heres a recent article about HFT about Goldman and many others: http://advancedtrading.com/algorithms/showArticle.jhtml;jsessionid=5AIIS154RVBOTQE1GHOSKHWATMY32JVN?articleID=220301041&pgno=1
Goldman's Housewares - were they in the "moving, storage business or both"?
Clearly when the Gummint - gave CASH to the likes of GS - it would seem to imply it was for housewares in stock yes? Otherwise - what was the purpose of CASH to only "certain" firms?
Perhaps those housewares were temporarily out of season?
ALL Customers owed Suitability determination by registered reps
Goldman’s sales people are registered reps, like many others – holding at least a series 7 licenses – and as a result owe all customers a suitability determination at the point of sale.
CONTROL over an account is also a critical determinant in the nature, timing and extent of that suitability determination; if not a fiduciary duty to that account. When it comes to selling, providing customers "desired exposures" and/or advising Pension Plans Goldman’s sales desks owe, it seems to me, the higher fiduciary duty IN ADDITION, correct in addition to a suitability determination.
Considerations Regarding the Scope of Members' Obligations to Institutional Customers
And Goldman may be reminded of FINRA’s special INSTITUTIONAL suitability rule excerpt The link to the rule known as IM-2310-3. Suitability Obligations to Institutional Customers http://finra.complinet.com/en/display/display_viewall.html?rbid=2403&element_id=3638&record_id=4315
The two most important considerations in determining the scope of a member's suitability obligations in making recommendations to an institutional customer are
1) the customer's capability to evaluate investment risk independently and
2) the extent to which the customer is exercising independent judgment in evaluating a member's recommendation.
A member must determine, based on the information available to it, the customer's capability to evaluate investment risk. In some cases, the member may conclude that the customer is not capable of making independent investment decisions in general.
In other cases, the institutional customer may have general capability, but may not be able to understand a particular type of instrument or its risk. This is more likely to arise with relatively new types of instruments, or those with significantly different risk or volatility characteristics than other investments generally made by the institution. If a customer is either generally not capable of evaluating investment risk or lacks sufficient capability to evaluate the particular product, the scope of a member's customer-specific obligations under the suitability rule would not be diminished by the fact that the member was dealing with an institutional customer. On the other hand, the fact that a customer initially needed help understanding a potential investment need not necessarily imply that the customer did not ultimately develop an understanding and make an independent investment decision.
The above requires, in my view, that before recommending or soliciting a transaction – GS needs to assure itself, after undertaking a due diligence process (in addition to FINRA Rule 405 commonly referred to as the "know your customer rule - every trade, every order, every account, every time", to protect the customer, be sure that the customer has independent means, capacity and has itself understood the risks and rewards of the subject trade. And when it came to transactions involving Goldman’s private label derivatives (perhaps colored by on and off shore affiliates, certain counter parties' indicative collateral valuation, prime brokerage / hedge fund customers or on and off shore securities lending parties) what further duties or disclosures may have been in order? Stay tuned sports fans.
Surely as Mr B must of course, realize that nearly ALL securities sold to customers from inventory are “solicited” by some highly trained and supervised salespeople. And surely Mr B would agree generally a customer’s, especially a pension plan’s purchase of any derivative MBS or related security is usually something to be treasured, a keepsake, but not always, held for longer time periods (not to be traded).
In other words the pension plan is trying to do what is fundamental to its existence, match cash flows from investments to payments needed to fund expected liabilities. And prudently fulfill with brokers' assistance, its fiduciary duty for one purpose only – provide the promised benefits to the beneficiaries of the plan.
I and a few others are just curious to learn if there were EVER any convos regarding how certain GS housewares were directly benefitting the plan's actual beneficiaries.
The same info?
A critical distinction regarding Mr Viniars’ assertion “that they all had access to the same information” - Uh GS’ leverage ok – not only not permitted at Pension plan customers; but omits / hides an essential underpinning for the VERY same derivatives' values – subtract the GS leverage and these securities are worth you know what!!! Less.
GS was allowed to and used leverage in its LPT operations but pension plan customers are NOT permitted to use explicit leverage – a critical difference.
Sunday, January 17, 2010
LPT Nano-economy blows up the Real Economy - how Wall St's traders mined, then blew up Main St and should go to JAIL
Certain, not all, Wall St firms, leveraged proprietary trading (LPT) desks' compensation policies may have inadvertantly (law of unintended consequences) but never the less pitted one trader AGAINST (not for) his colleague across the room and set the stage for the explosion which has rocked Main St for many years to come. LPT traders were rewarded with more cash the larger their own trading book's profits were compared to another trader across the floor. And see this excerpt from the NY Times April 18, 2010 But this camp clashed with Goldman sales staff who were working with hedge funds that wanted to bet against subprime mortgages. Mr. Birnbaum told the team to stop promoting bets against some mortgage investments since such trades were hurting the market and Goldman’s own position, according to two former Goldman employees.
But a few desks away, Mr. Tourre and Mr. Egol were quietly working on the Abacus deals. Full story link here http://www.nytimes.com/2010/04/19/business/19goldman.html?th=&emc=th&pagewanted=print
The nano-economics (and darkness) of each sponsor's OTC LPT book individually AND together wth other's LPT books sent false asset signals to each other, created a false market - how and why?
Can you spell L-E-V-E-R-A-G-E in the D-A-R-K-N-E-S-S?
How would LPT trader A seek to outperform LPT Trader B?
Leverage, like an athlete's use of steroids to get an edge, accelerate performance - only to suffer, and often die prematurely show distinct parallels to a proprietary trader's book, rolled up into the trading desk then LPT unit. How?
It's critical to understand the explosion so let me first illustrate how PT became LPT with an oversimplified example.
First – an important caveat.
Not ALL banks, brokerages or insurance companies ARE in trouble / or received US Taxpayers’ bailouts. NOT all banks, brokerages or insurers are on the FDIC or regulatory watch list ok? ONLY a handful of institutions ARE in trouble – why?
The ABUSE of leverage, swaps and derivatives. These certain few banks are concentrated where? The NY Federal Reserve district - overseen at the time by Team Geithner while he reported to Mr Greenspan, then Mr Bernanke formed LFIG (Large Financial Institutions Group). The brokerage firms were subject to oversight, regulation by the SEC - after 2004; when the SEC invented - upon the intense lobbying of same - to be called CSE's - Consolidated Supervised Entities - a root of Mr Wallison's FCIC questions Wednesday. CSE's ended the decades old calculation of required minimum net capital - and ushered in - ONLY for the "largest MOST sophisticated players" an ALTERNATE minimum net capital based upon? The broker's own proprietary valuation models.
See the NY Times article, audio/video of this fateful SEC hearing from? 2004.
NO ONE put a gun to the head so to speak to any of these few banks or brokers to be SO leveraged in their own LPT units – much of it off balance sheet and/or off shore.
They decided - on their own to take way above industry average risks and knew exactly what they were doing and why? It’s called CASH bonus compensation based upon “Marked to proprietary models Asset based compensation - thanks to the above 2004 SEC new CSE” period.
Subtract out the CASH compensation paid to traders, what would you have? It's the central point of analysis – it’s the motive.
Explaining Leveraged Proprietary Trading (LPT) - a basic carry trade - with leverage.
Example 2004 to 2007 “hockey stick era” - an oversimplified but representative example. A PT desk sees in the market AAA rated long maturity “bonds” with a coupon of 7%. The short term (money market) borrowing rate is 2%.
That desk will then borrow at the short term rate 2% invest those proceeds into the longer dated bonds at 7% - pocketing the 5% difference. To insure the principal & interest of the long bonds they enter into a credit default swap CDS – in this example at a cost of 50 bps. So subtract that from the 5% - net profit is 4.5%. If this trade was for $100 million face amount - in the basic UN leveraged example – profits would be $4,500,000 ($100 million x 4.5%).
Then the PT desk says – wow – if we can do this dollar for dollar (unleveraged) - what will profits be if we leverage this strategy (becoming LPT)?
They borrow the same $100 million at 2% short term but instead of buying the exact same amount of bonds - buy 20 times or $2 Billion. So the profit on same – everything being equal becomes $90 million (20 times $4.5 million). The profit margin is a cool 45% - $90 million divided by $200 million. Later these LPT units did not bother looking so much to other's derivatives - they simply went long their own brand; perhaps concealed from competitors, counterparties and CUSTOMERS.
Some trading desks were (at accurate but not reported marks) levered at 40, 50, 60 or more to 1. See leverage estimates as of Dec 2007 on page 4 or 13 of Mr Bass' FCIC report here: http://www.fcic.gov/hearings/pdfs/2010-0113-Bass.pdf
LPT Trader question to self - would I rather get bonused on $4.5 or $90 million? So you can see the cash bonus figures dancing in the heads of these individual traders.
This game continued and was enabled, in part by the underlying bonds being created, traded and valued where and by whom? In the cover of darkness of dealer to dealer OTC private and proprietary markets - ALL set by "the traders" - thank you very much. We know that these dealers created their own private label securities which were in many cases ONLY tradable upon THAT dealer's desk; an affront to basic price discovery (and in my view subjects that dealer to an even higher suitability standard if not fiduciary standard). In part because THAT dealer defined the market for that brand of security whether MBS, CDO, CPDO or whatever they decided to name a pool of derivatives.
The LEVERAGED strategies’ profits, in part, were recycled (and signaled) through the direct issuance of Asset Backed Commercial Paper (ABCP) in the money market. April 2006 NY Fed carved out a new category to track ABCP – why? Perhaps because ABCP was oft issued by sponsors’ OFF balance sheet entities, special purpose entities like SIV’s. See NY Fed Commercial Paper link here http://www.federalreserve.gov/releases/cp/about.htm then page down to the April 11, 2006 announcement regarding ABCP.
Retail money market funds, seeing the higher yields on AAA rated ABCP compared to other MMF eligible investments jumped for the higher yields to reward / attract MMF shareholders. But apparently, did not perform basic due diligence as to why a AAA rated piece of paper paid 50 bps more. NOTE: A better use of any TARP funds should have gone direct - I repeat direct to the shareholders of these MMF - as rightly or wrongly they were assuming the safest investment posture in stark contrast to the massive speculation and risk inherent in the issuers of CP and ABCP. AND it tells us why / where did all the US taxpayer TARP funds and related Federal Reserve, NY Fed and FDIC direct and indirect support go directly to the LPT sponsors?
Answer - to cover up their own margin / collateral calls!
Even more the FDIC TLGP $313B (not a typo) includes support for NON FDIC insured affiliates of certain banks and thrifts - true not making it up. See the recent FDIC TLGP report here http://www.fdic.gov/regulations/resources/TLGP/total_issuance11-09.html
Bank Deposit Sweep Account litigation: Some brokerage firms, about 5 or 6 - diverted hundreds of billions of their customers money market funds into their own affiliated banks; wonder if any of these dollars were loaned out at arms length to businesses? The diversion is not in question; what is in question is did the brokerage firms breach their fiduciary duty to customers. See link to a June 2007 article here in Investment News http://www.investmentnews.com/apps/pbcs.dll/article?AID=/20070611/FREE/70611006&ht=bank
We can see that this game continues until? The value of the underlying collateral comes into question; home values and the continued timely payments of principal and interest thereon by homeowners and real estate investors / speculators; not with standing CDS itself an OTC customized bespoke transaction; in other words in DARKNESS.
Darkness for the benefit of which parties? Not customers, not public investors and not US taxpayer – the erstwhile underwriter of same bailout.
And Fannie reported in 2005 – that speculative borrowers represented 20% of mortgages – QUADRUPLING from the historical 5%.
Sponsors continued to book record paper profits through 2007 – and pay record CASH bonuses and were slow to mark down value (or may have never marked down – instead off loaded >$1T to the Fed) of so-called AAA rated “long” collateral. The Fed – which is THE LAST TO KNOW (and based upon Mr Rosen’s testimony, that the Fed even when they ought to know, ignored Mr Gramlich’ work in 2006) because it is NOT the creator of trading data, rather receive only “after- the-fact” recorded history means that the SPONSORS – KNEW first – but did what?
Like Kubler-Ross' 5 stages of “dying” - they hoped it would not come to pass, then denied it, importantly never accepted it; then turned their OWN counterparty failure emergency into what our trusted friends in the financial MEDIA whipped up into? The official Hallmark card event "financial crisis" popularized as an ECONOMIC emergency – when the sparks were KNOWN by whom and when?
2006 if not 2005, ALL I repeat ALL self created, self inflicted only AFTER their narrow self – interests were protected.
And with respect to Mr Blankfein’s FCIC testimony this past Wednesday “(individual) GS traders did not know minute by minute” of course not, in classic principal agent conflict, why would they want to question then extinguish the VERY party of leveraged, proprietary models' ASSET values allowing the extraction of the preferred and different currency - CASH bonuses?
But a suggested litmus test for LB's testimony – WHAT positions were the one and the same Goldman holding – long or short – minute by minute in its own LPT and related and possibly conflicted on and OFF shore securities lending units? In contrast to contemporaneous representations / sales / transactions with customers. In concert / contrast with counterparties' units. See the previous blog post here about Goldman's customers' potential litigation. http://fiduciaryforensics.blogspot.com/search?updated-min=2009-01-01T00%3A00%3A00-08%3A00&updated-max=2010-01-01T00%3A00%3A00-08%3A00&max-results=46
IMPORTANT - there is NO need whatsoever, repeat NO need at all, as LB would have the FCIC believe, for ANY leverage when it comes to making a market or helping customers execute a trade or as LB has cleverly coined "put on a desired exposure" - it's time for Mr B to stop conflating (confusing and or intimidating the FCIC) and to call a spade a shovel - because that's what it is.
LPT units and trader's book profits and CASH Compensation.
And for whose benefit? And in the role of a REGULATED financial intermediary - whose interests were placed first? Compared to customers, public investors and US taxpayers? Compared to the fiduciary duty owed to most customers; especially as Joseph Stiglitz has pointed out in markets characterized by "asymmetric information" largely if not completely defined and/or controlled by the sponsors.
And I hope that ONE THING IS CLEAR – leverage at the LPT level of 20 or more to 1 on top of leverage at the homeowner level zero down = 100 times leverage equals minimum 2000 times leverage - went BANG! Now is it clear why leverage and darkness are the ROOTs?
IMPORTANT - many of these Wall St firms, when sued by a customer for bad advice or unsuitable investments vigorously defend themselves based upon the customers' ratification - you see anyone reminding these firms of their own self R-A-T-I-F-I-C-A-T-I-O-N? Time to look very closely in the mirror.
No one ever put a gun to the head of ANY banker to extend a mortgage loan or add leverage to an LPT unit – they did it as adults, professionals, armed with over $1B / daily with full information - see link here http://www.celent.com/124_483.htm , knowledge, capacity and knew the risks, repercussions but cried out – for what? A CASH bailout.
In many, but not all, cases look at the dearth of insider ownership and dispositions of stock – before the “crisis” but certainly after the crisis – so what did they know and how were they showing / signaling the markets in that respect? Not with a lot of confidence huh? Of course, why worry due to the sweet sound and comfort of cash in the bank.
Unbelievable – that US taxpayers are still paying for (in time and money) this easy to understand but leveraged carry trade.
A four letter word comes to mind for many of these actors – JAIL.
And they, not the US taxpayer should pay for their own prosecutions and incarceration!
Certain actors - upon conviction should - under extraordinary authority - be forced to disgorge ALL ill gotten gains along the way; now that's real change (in coin - that is - not in the currency of Obama's "change" and I voted for him) and deserved truth and payback for the financial rape of current and future generations of US taxpayers and global creditors of the US Treasury!
And one last fact don't blame it all on AIG and AIG FPG specifically - a large part yes - but when several major banks, brokerage firms and insurance companies were NOT AIG CDS counterparties - that may tell you - among other things that those who were counterparties failed in or were perhaps conflicted in their own due diligence.
See page 24 of Mr Barofsky's November 2009 SIG TARP report for those counterparties. See link here http://www.sigtarp.gov/reports/audit/2009/Factors_Affecting_Efforts_to_Limit_Payments_to_AIG_Counterparties.pdf
So a brief list of NON (not a typo) AIG counterparties would seem to include:
- Citigroup / Smith Barney
- JP Morgan
- Morgan Stanley
- Wells Fargo
- Nearly all US regional banks
- GE Capital
- Berkshire Hathaway
And as suggested last fall in an email to Mr Barofsky's office - asking the above when and why they were NOT AIG counterparties would perhaps be a non-costly and useful line of questioning - what's to hide?
The best for last - AIG stops insuring Brokerage firms Excess S.I.P.C.
Saving the best for last "the icing on the cake" - AIG stopped insuring the Brokerage firms against bankruptcy (otherwise known as Excess S.I.P.C.) in when ? 2003. Because according to the quote from AIG's spokesman "It's too much exposure" huh? After 30 years of NOT one claim paid ever; there's too much new exposure to what? And the NASD, the brokerage's primary regulator did what? Nada, nothing, zilch. See the August 2003 (not a typo) NY Times article here : http://www.nytimes.com/2003/08/09/business/to-insurers-a-long-free-ride-is-looking-risky.html
But then the pros at the unregulated AIG FPG went fast to work - trotting out as many CDS upon one and the same brokerage firms' risks how? A la carte; as in many a fine dining establishment. Not to mention the 3 to 6 bps, Mr Greenberg testified to before one Congressional committee March 2009, its securities lending unit was making - on a DAILY basis!It's past time to end the siesta on the Taxpayers' dime.
Tuesday, January 12, 2010
Today's NY Times quoted Mark Zandi of Moodys:
- QUOTATION OF THE DAY -
"If you pick almost any economic statistic -- income, house prices, construction activity -- it would tell the same story: New York has gotten hit, but it hasn't gotten creamed."
- MARK ZANDI, chief economist for Moody's Economy.
Story link here:
In the article itself reports:
"Now city officials and private economists are revising their forecasts with a drastic change in tone. The gathering consensus is that the recession is nearly over in the city and, largely because of the enormous amount of federal aid poured into the big banks, the toll on New York will be much less severe than most had feared. "
Further the article goes on to state:
Why has New York fared much better than many feared?
Economists say the hundreds of billions in loans and aid the federal government pumped into the city’s banks fueled a quick reversal of Wall Street’s fortunes. That turnaround saved thousands of high-paying jobs and the controversial bonuses that go with them, averting a sharper drop in tax collections and consumer spending that would have brought more layoffs. “A lot of us had expected there would be 60,000 or 70,000 jobs lost directly in the financial services sector,” said James Parrott, an economist with the Fiscal Policy Institute.
“Then there would have been a spillover effect,” he said, referring to the widely accepted idea that each job on Wall Street supports two others in and around the city.
Instead, employment in financial companies in the city has declined by only about 30,000 jobs, and some big banks have been hiring again. Some analysts say they think that some of the biggest banks in New York, like JPMorgan Chase and Goldman Sachs, have emerged in stronger relative positions than they held two years ago.
“To some degree, the city’s financial services sector has been strengthened by the crisis,” Mr. Zandi said.
“A lot of financial institutions in a lot of other parts of the country have evaporated,” he said, leaving the big New York banks to fill some of the lending void.
Through the infusions of capital into its banks, New York has been the biggest beneficiary of the federal assistance of the last two years, Mr. Zandi and other economists said.
“One could argue that no city in America got as much government help as New York City,” Mr. Zandi said.
Citigroup received $45 billion in aid. JPMorgan Chase borrowed $25 billion; Goldman Sachs and Morgan Stanley got $10 billion each. But each gained far more from the Federal Reserve’s policy of holding interest rates at very low levels all last year, helping them to amass record annual profits.
The bailout “didn’t prevent substantial losses,” Mr. Parrott said, “but they would have been greater without it.”
For a change, New Yorkers have no reason to complain about sending far more of their tax dollars to Washington than they get back, Mr. Parrott said. He said it was possible that New York recovered all of the surplus in its balance of payments to the federal government over the years.
Whether or not that is true, economists agree that the course of this recession was radically altered by the federal aid the banks received. Few are ready to say that the recession is over in the city, but they expect the recovery, slow and halting as it may be, to begin soon.
Original post January 12, 2010.
Thought to Arnold and Mr Brown - A Freeway Series?
Since tax payments are just around the corner - perhaps the G'vner asks us California-based taxpayers to send 78 cents to Fresno and 22 cents to Sacramento (it could be held in the Wells Fargo vault "in trust" just like the Feds hold the Social Security Trust Fund - sure)...then let the Feds duke it out with the Terminator...what fun!
The open letter to Arnold follows to go after the NY Fed and US treasury to uncover the undisclosed bailout support to NY area employment in the banks, brokerage firms whose employees not only got nice paychecks all year, nice (tax-free) health care, $5B in keep-the-team-together CASH retention bonuses (paid out to the stock brokers at Merrill, Smith Barney and Morgan Stanley in February 2009) but look to CLEAN UP all that's left in the till with the upcoming record CASH bonuses.
As has been asked for decades but remains unanswered "Where are all the customers' yachts?" and tell me again why these entities exist in the first place? To serve the public's interest, customers', shareholders' or their own or did I write out of order?
VIA FACSIMILE (916) 558-3160
Governor Arnold Schwarzenegger
State Capitol Building
Sacramento, CA 95814
Re: “Fair” Federal Funds
Dear Mr Schwarzenegger,
You have reasonably, although unpopular, pointed out some unique-to-California burdens which a more leavened federal outlay formula can and should address.
It may sound extreme, however, you could request Attorney General Brown to join existing or initiate new litigation to force the Federal Reserve, NY Fed and US Treasury to disclose the full nature, extent, past and current extraordinary US taxpayer support provided to a narrow set of NY bank interests. Including any “kinder and gentler” financial accounting rules put forth by the SEC / FASB; which disproportionately benefit same NY Fed district member banks including GE Capital. Other states may find a compelling interest in joining this litigation.
NY Federal Reserve district member banks have and CONTINUE to receive the benefit of hundreds of billions of direct and indirect US taxpayer support.
Support believed to cover their own 20, 30, 40 to 1 or more leveraged proprietary trading investments in both on and off balance sheet special purpose vehicles. Importantly, NONE of the proprietary trading was EVER intended for their customers’ or the public’s benefit; subject to proof, it’s believed certain traders may have engaged in conversion of OTC “mark to model asset values” into their own CASH compensation.
Additionally, “almost zero cost money” from the Federal Reserve’s discount window borrowings are a hand out almost exclusively to maintain NY metro area employment, indeed are a type of pay off to consolidate market monopoly positions and retain their armies of proprietary traders.
The FDIC’s TLGP program has ALARMINGLY and secretly guaranteed debt in the amount of $313 B (not a typo) including, NON F.D.I.C insured affiliates of certain banks and thrifts. A FOIA request seeking the identities of the above and amounts properly submitted by my office last June 2009 was denied. See link to table here http://www.fdic.gov/regulations/resources/TLGP/total_issuance11-09.html
As a resident and business owner in California and fiduciary expert with emphasis in financial services compensation and profitability – I would volunteer my time to assist in pursuit of the above disclosures and identify the beneficiaries in contrast to California and other states & territories and American Indians and Native Alaskans which have not similarly benefitted.
Very truly yours,
Chris McConnell, AIFA®
ACCREDITED INVESTMENT FIDUCIARY ANALYST™
Note - up until Fall 2008 the monetary base NEVER exceeded $1 T.
Perhaps Bernanke's friends at the FASB / SEC will introduce new, fresh, kinder and gentler accounting treatment for the supposed AAA rated securities now owned by the US taxpayer?
Or perhaps there will be a new conduit for the Fed to stash same.
In the meantime, real unemployment in the US stands over 17% (that's over 1 out of 6 job seekers) not counting the soul-crushing endured by the "indentured class" sticking around only/primarily for the weekly scrip.