Thursday, September 30, 2010

Where will it end? Prudent states vs. Sand states vs. The Fed vs. a certain Federal Reserve Bank district east of the Hudson...

Today Meredith Whitney predicted a federal bailout of certain states prominent among them California based on the sheer magnitude of the budget gap and projected deficit. Link here to video

And Bloomberg's Bob Ivry reports that Mortgage foreclosures and seizures affected over 400 hundred thousand properties in August alone with no end in sight. Complicated by "An employee of Ally’s GMAC unit said in a December 2009 deposition that he signed thousands of foreclosure documents without verifying their accuracy. Attorneys general in Iowa, Illinois and Texas are investigating. If uncovering such deficiencies halts thousands of pending foreclosures or renders void those that have already taken place, including repossessions of homes that have been resold, it could snarl courts for years and further postpone a recovery that can’t happen until real estate prices find a bottom" link here

Yet over a year ago in an email to Charlie Rose this writer suggested S15, the name for a group of states whose citizens may rise up and STAND AGAINST any such bailout - starting with Texas may form nothing short of at least fiscal secession - then what?

Thursday, July 09, 2009

Dear Charlie-

Let me seriously suggest that a new political alliance called the S15 will arise.

The S15 is the group of US states – which have been prudent in the past and are four:
1) Seeing their constituents’ taxes increase dramatically and going to Washington / US congress.
2) only to watch Washington GIVE – sans due diligence to parties like:
a. Wall St, - the professionals who created and enabled this financial crisis.
b. Mortgage borrowers who screwed up and are banded together by investors in MBS right?
c. States like CA – which have been and are financially and politically bankrupt.
3) not going to take it anymore - watch and enable that video ok?
4) that’s Gettysburg for you and it may in fact be a much larger group of states than 15.
5) Obama – needs to sing and dance to the music of change WE can believe in – not change just a favored few can cash in on.

The recovery – rather the only form of recovery and long term deficit reduction is this.

Taxpayers are more resourceful and the best spenders of resources.
The feds should give a tax credit for FUTURE earnings as result of that taxpayer increasing their skills by spending their own moneys to obtain education and training for a NEW job. The jobs of old ARE not efficient. Education in the sciences should receive a slight preference in the tax credit – i.e. 110% of the amount that is spent to obtain same. Upon earnings from that new job – the tax credit kicks in.

Second – as I have stated in the past – real estate will truly recover NOT from bailing out those who made poor purchasing decisions in the past period. Yes, admittedly a few, not all were perhaps defrauded – they can pursue their allegations through the plaintiffs bar – the rest may have tried to defraud lenders – lenders can ad should pursue them as they always have – why should this time be any different? Why? And political expediency is a poor excuse. Real estate investors, with longer term incentives can set a floor for all markets – provided they get a tax holiday or tax credit.

Again – in summary – let the most efficient arbiters of their own resources - individual taxpayers and independent real estate investors take the risk for potential returns – do not continue to give out cash to stimulate the economy.

Thank you.

However, perhaps Arnold or his successor (Ms Whitman or Mr Brown) will as suggested by this writer first in January 2010, updated March 2010 - Sacramento will fight the Feds like a "real man":

Updated March 3, 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:

The article 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.

FLASH - 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 (the IRS tax payment center) and 22 cents to Sacramento (the CA Franchise Tax Board payment center) 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!

Seriously ---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. Link to story here

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 at risk of being 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 yes correct, "NON" FDIC insured affiliates of certain banks and thrifts. A FOIA request #09-1132 seeking the identities of the above and amounts properly submitted by my office last June 2009 was denied. See email below from Mr Elmore July 2009

See link to table here

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 benefited.

Very truly yours,

Chris McConnell, AIFA®

And my office issued FiduciaryALERTS™ annually, 1 pagers since 2004 – so not my first rodeo, and it’s not about me being right or lucky because I’m half Irish – its about recognizing the obvious. The last one July 2008 titled “Denial of Twin-flation™ is not a prudent investment strategy” Copies available.

Chris aka McFid*

* Since 2003, when you need to know exactly what a BFD looks like. Call McFid, the Fiduciary Expert. (BFD means breach of fiduciary duty.)

Copyright © Chris McConnell & Associates 2003 to 2010 All rights reserved

Copy of email below from FDIC's Mr Elmore denying my request for identities of NON FDIC insured bank and thrift affiliates' amounts of FDIC loan guarantees.

Mr. Chris McConnell
Chris McConnell and Associates
12121 Wilshire Boulevard, Suite 501
Los Angeles, California 90025
FDIC FOIA Log # 09-1132
Dear Mr. McConnell:

This will respond to your electronic mail (“email”) request dated June 24, 2009, submitted to the Federal Deposit Insurance Corporation (“FDIC”) pursuant to the provisions of the Freedom of Information Act (“FOIA”), 5 U.S.C. § 552. In your email, you request “the names of all institutions and amounts related thereto in the May 2009 TLGP summary.”

Please be advised that the information you have requested is exempt from disclosure pursuant to Exemptions 4 and 8 of the FOIA, 5 U.S.C. § 552(b)(4) and (b)(8).
Exemption 4 of the FOIA protects "trade secrets and commercial or financial information obtained from a person [that is] privileged or confidential." This exemption allows the withholding of confidential business information which the submitter does not customarily release to the public. Critical Mass Energy Project v. NRC, 975 F.2d 871, 879 (D.C. Cir. 1992). Exemption 4 is also available to protect governmental interests such as program effectiveness and compliance. Id. In addition, Exemption 4 protects business or financial information, the release of which is likely to inflict competitive harm upon the submitter. National Parks and Conservation Association v. Morton, 498 F.2d 765, 768 (D.C. Cir. 1974).
Exemption 8 of the FOIA protects matters that are "contained in or related to examination, operating, or condition reports prepared by, on behalf of, or for the use of an agency responsible for the regulation or supervision of financial institutions."
Since your request has been denied, you may appeal the denial to the FDIC’s General Counsel within 30 business days following receipt of this email. If you decide to appeal, please submit your appeal in writing to the Legal Division, FOIA/Privacy Act Group. Please refer to the FDIC log number and include any additional information that you would like the General Counsel to consider.

No fees have been assessed in connection with your request.
John F. Elmore
FOIA/Privacy Act Group, Legal Division
Federal Deposit Insurance Corporation
550 17th Street, N.W.
Washington, D.C. 20429
Tel: 202-898-6502
Fax: 202-898-6910

Wednesday, September 29, 2010

Hard asset crowds' gold and silver "socially useless" but oh so necessary interim prophylactic against STDs (Securities transmitted diseases)

Lord Turner UK FSA Regulator referred in 2009 to certain banks' (prop trading) operations as "socially useless" - well the same can be said for the seemingly headlong drive into precious metals.

But there is an IMPORTANT difference; protection(s) from STDs (securities transmitted diseases!) versus proprietary profits.

And the unmistakable signal - officially set in motion in 2008, but by omission, unofficially set in motion at least in 2004/5 - of a credit-induced housing bubble blessed er...transmitted through the securitization markets; fed by the spreads against money markets. In the cover of darkness of certain private OTC "markets" for same "securities."

It's not that rates were kept too low for too long - it's this, housing had increased WELL above any measure of historical average for several years UP to that point in time. Yet bankers, so called, Excel monkeys, possessed of the MOST crunched information known to man, earned the deserved moniker "masters of the financial universe" what I've called MOTFU's - YET - in the singular pursuit of CASH compensation - IGNORED - that which ALL prudent persons know; historical returns and PERFORMANCE ATTRIBUTION. LOOK IT UP. Answers to help explain why investments go up, down and sideways.

When investments are generally viewed as LONG term commitments - BUT house flipping?
Multiple property flipping, aided and abetted by real estate agents, brokers, mortgage brokers, appraisers all combined to create "known" speculation which escaped the attention of Mr Bernanke, Mr Geithner, Mr Paulson and Mr Greenspan and most if not all bankers in a certain Federal Reserve Bank District east of the Hudson leads me to reach at least one clear conclusion - they never watched "Flip this house" on HGTV.

Which leads me to ask "what exactly were they watching?"

And MOST IMPORTANT - what are they watching now?
Which leads to the as yet unanswered question (perhaps only to self) and we PAY FOR THIS?

Ending the siesta on the taxpayers' dime - one easy to read blog at a time.

Chris aka McFid*

* Since 2003, when you need to know exactly what a BFD looks like. Call McFid, the Fiduciary Expert. (BFD means breach of fiduciary duty.)

Copyright © Chris McConnell & Associates 2003 to 2010 All rights reserved

Tuesday, September 21, 2010

Why the Fed decided to keep rates near ZERO - it has NO choice, it's still in major Denial, a BFD* & boxed in BIG time

There's at least 8 reasons:
  1. If they raise rates - it makes dollar-based assets more attractive; spurs demand for dollars and contradicts the Admins' ill advised public valuation demands upon China's Yuan.
  2. If they raise rates - the who-knows-what 200 stories tall, $2T MBS derivatives-laden inventory on the books at the Fed will, like birds this time of year, head south pronto. And I might add, at the risk of pointing out the obvious, surface conflicts of interest when the Fed holds said "securities" sure to be exacerbated** by the looming prospect of more quantitative easing "QE2". **Derivatives are NOT like the 1980s' condo's in Houston, which you may recall - the city bulldozed i.e. the Fed can't bulldoze securities out of existence - after all they paid 100 cents on the dollar CASH (US taxpayer Cash) for this you know what.
  3. If they raise rates - holders of ALL bonds, fixed income, derivatives values will also take a major hit.
  4. If they raise rates - banks will cease to enjoy the artificial LIFE-SUSTAINING-GOING-CONCERN GIFT of at least 300 bps+ spread from the norm.
  5. If they raise rates - what happens to price of oil? Holding all else the same, oil is priced in dollars, and tends to go up as value of dollar goes up.
  6. If they raise rates - US exporters lose relative currency advantage, since we know that domestic demand is as it should be, flat on its back. After copious drawn-forward consumption in the hockey stick era, driven by steroidal cash-out-refi's during the unmistakable real estate bubble from 2004 to 2007. Within these comments posted by Edward Hugh, excerpt here: "Traditionally the solution to this kind of problem would be to induce a devaluation in the respective currencies to restore competitiveness, but in the midst of an effectively global crisis doing this is very difficult, and only serves to produce all sorts of tensions. As Krugman once said, “to which planet are we all going to export”.
  7. If they raise rates - they would be admitting the economic and financial truth. How's that? If US debt was priced fairly in a fully disclosed, non - conflicted, non-political fashion - it would signal to global creditors a more accurate reflection of the real state of all gummint financial conditions. Such recognition may have a very desirable silver lining - FORCING Congress and elected representatives to work together in all levels of gummint to take a REAL look and make the hard choices among an increasingly dwindling set of policy alternatives.
  8. The paradox the Fed must navigate and coordinate is this - we could grow our way out of this BUT whither final demand?
  9. How do we create, spur sustainable final demand, in which the Fed is powerless. It requires a fiscal act because in the end it all comes back to investing in education and training of ALL willing and able people. Such investment, NOT as gummint handouts rather a partial income tax abatement for wage or self employment income in the first 3 years of a NEW job or business.
Any reactions, questions, comments, suggestions or corrections always appreciated. Any one got an idea to share - hit me back.

Ending the siesta on the taxpayer's dime - one easy to read blog at a time.

Chris aka McFid*

* Since 2003, when you need to know exactly what a BFD looks like.

Call McFid, the Fiduciary Expert.

(BFD means breach of fiduciary duty.)

Copyright © Chris McConnell & Associates 2004 to 2010 All rights reserved

Thursday, September 9, 2010

The Fed, The US Treasury, Treasury Bonds, Wall St / Primary Dealers and the "F" word

Is the Fed not just boxed in but about to get itself, the US Treasury and its Wall St bankers in a stew whose broth is made of the "F" word? What's that F word? Just fiduciary duty - as may be contemplated in the nascent Dodd Frank Act.

It seems that Wall St - scuse me - now banks (Bank Holding Companies) - are not doling out cash for new loans but are amassing more and more cushion; that only cash can provide. See recent Huffington Post article here
Nov 8, Updated and confirmed by this Bloomberg report that banks are buying ever more record amounts of US Treasuries - met with frustration by Mr Bernanke; is this a surprise? Past (parties, people, peformance) as they is prologue.

Cash, in the eyes of these bankers, appears has certain advantages. Their concerns are helped little by the when-not-if financial fire storm that will likely take place when the first sovereign or US state, city or county et al "formally" defaults; in the parlance walks away. That event seems the spark for the firestorm only LOTS OF EXTRA CASH on the balance sheet (and on deposit) can withstand. Said another way - these bankers - and for that matter most of the rest of corporate America have voted. And their vote is that they DO NOT BELIEVE IN THE ECONOMIC RECOVERY and/or
perhaps it's really because they are not long BBI - see Bernanke Believability Index blog here

Alas it's been a long wonderful mutually beneficial relationship. When the gummint needs cash it rings up the group of 18 Primary Dealers and presto - there's a bid for the latest US Treasury issuance. In return, the 18 PD's enjoy and continue to enjoy that underwriting monopoly. It's not that there's a lot of money to be made - but when an investor wants US Treasury's in size - they have to go to one of the 18 PD's; and lately investor demand is the MOST robust in HISTORY.

See there's this little thing - that's come up - the 18 PD's are torn now, just now, never a worry before. When the authors of Dodd - Frank inserted that F word thingy; it may have dawned on the 18 that underwriting, distributing aka "selling" US Treasuries may NOT necessarily (any longer) be IN THE BEST INTERESTS OF THEIR CUSTOMERS. Perhaps US Treasuries with longer than let's say 5 years maturity or maybe even 3 year bullets have a question mark - may not be best for customers? We'll see.
When fiduciary duty applies it requires the HIGHEST commercial standard of care.

The F word has burdened the 18 PD's - prospectively - as well. Fiduciary duty has this thing called due diligence - before and after selling - scuse me - recommending an investment. Accordingly, faced with 1) the extra work load, 2) the surprises which may pop out of the Fed's "200 stories tall" $2T plus balance sheet chock full of you know what the details of which the deceased Mark Pittman instigated a lawsuit against the Fed and Bob Ivry and Bloomberg can't wait to get their hands on and 3) the undeniable UNFUNDED, ON balance sheet past promises at Treasury - not to mention 4) the OFF balance commitments - let's just say that the devil may care attitude of the past - is - scuse me all F'd up. Thus far, ONLY the Fed, US Treasury and here's the source of potential entanglement otherwise known as information asymmetry definitions here, certain parties, of whom the 18 PD's are believed a subset to the extraordinary suite of relief KNOW what may be on the Fed's balance sheet - which merely makes it a matter ultimately of questioning the currency. Let's hope there's no rain in the forecast - as there seems little to no dry powder left for such contingencies.

Not wanting to see their little stash of cash evaporate in defense of their sales
of US Treasuries
to certain if not most customers - the 18 PD's just may continue to fight the F word.

Ending the siesta on the US taxpayers dime - one little easy to read blog at time.

When you need to know exactly what a BFD* looks like - call McFid, the fiduciary expert.
* BFD means breach of fiduciary duty.

Sunday, September 5, 2010

Will the Prudent Investor Act suffer the same fate as Lincoln's Abolishment of Slavery Act? MPT near 75% of the way there.

Douglas A Blackmon, authored recently "Slavery by another name: The Re-enslavement of American Blacks from the Civil War to WWII"

Mr Blackmon stated today on C-Span that for nearly 80 years the DOJ's policy was hands off in terms of prosecuting any slave owners until 5 days AFTER the attack on Pearl Harbor, December 7, 1941. FDR's advisers feared a propaganda backlash from Japan; criticizing the US for not enforcing an 80 year old law protecting the rights of blacks when the then US Attorney General issued a memo to all the US Attorneys (and AUSAs) to prosecute same; ONLY in 1942, according to Mr Blackmon was the first slave owner prosecuted and convicted in Corpus Christie, Texas.

Abraham Lincoln proclaimed by executive order the Emancipation Proclamation, "freeing some slaves" in 1862 see link here
The Fugitive Slave Act was prior law effective 1850 see link here

The Uniform Prudent Investor Act (UPIA)
The National Conference of Commissioners of Uniform State Laws adopted the Uniform Prudent Investor Act in 1994. Since then over 45 states have adopted its provisions including the District of Columbia and the US Virgin Islands.

The FiduciaryALERT for 2010 was issued in a recent press release here

I write that in 2010, 16 years AFTER the adoption of UPIA that the main parties to its recognition and implementation have chosen to argue, resist and/or selectively, arbitrarily deny its existence; and remain fiduciary - remote.

It's worth noting that Dr Harry Markowitz developed Modern Portfolio Theory (MPT) in? The 1950's and the Uniform Prudent Investor Act is BASED upon and REQUIRES the use of MPT. Dr Markowitz' presentation in 1990 upon receiving recognition as a Nobel Prize winner in Economics, nearly 40 years AFTER his work is here

My hope is that Congress, the securities industry, its self regulatory arms NYSE, FINRA and its Federal regulator the SEC and state securities agencies FACE the law and implement the protections intended for investors, citizens and future generations' prosperity.

Ending the siesta on the Taxpayers' dime - one easy to read blog at time.