Sunday, September 27, 2009
Today Mark Hulbert - STRATEGIES - NYTIMES - writes about how 2 Swiss finance professors have concluded that CEO pay has not been a major factor in our great recession. Their study, the Stutz-Fahlenbrach study, provides the specious contention that there is no empirical evidence that compensation incentatives which encouraged excessive risk taking (40-1 leveraged backed by outright lies of collaterialization) played a large role in the credit crises. Hulbert reports that, Stultz says there is little evidence that comp reform would have helped head off the crises. Further he quotes Stultz, "neither bank CEOs nor regulators thought banks were taking excessive risks." Maybe CEOs and regulators (like Greenspan) also thought the planet was flat and that creationism made sense - if they honestly thought 40-1 leverage was a small risk! Hulbert went on to say Stultz pointed out that in 2006 a collaterialized-debt obligation with a triple-A rating didn't look like a huge risk; and quoted Stultz who said, "On the contrary, it looked like an extremely low risk asset, yet banks incurred extremely large losses on such CDOs." Not to denigrate all Swiss, but the Swiss history of bankers who have protected tax cheaters, and dictators who took money from their destitute populations to secrete it away for themselves, Bankers who fought to have kept Nazi gold for decades after Germany became a responsible and concerned member of democratic nations - makes it hard for me to accept Swiss financial objectivity.
The apparently slanted "study" from the Swiss finance professors, considering their irrelevant reasoning leading to fallacious conclusions, is a ludicrous logical absurdity. As finance professors should they not have mentioned, or known that bankers and regulators had a fiduciary obligation as well as an ability to have analyzed the substance beneath the surface of what "looked like low risk" to conclude that the high risk was fraudulently backed (contrived) to appear to be low risk so that it would appeal to investors searching for safety. No bank would have accepted the collateral Bankers fabricated to sell the geometrically leveraged financial innovated products contrived to appeal to risk averse investors so it could be easily sold!
Bank CEOs and finance professors - along with regulators need to become more familiar with the existing regulations which prohibit selling securities which cannot be fully explained! This knowledge would also be helpful to economists, rating agencies and the financial media. Congress could also use a remedial course in SEC and Fed regs. (This is what Swindled vehemently exposes and fully explains.)
A paper by two Harvard law professors, Lucian Bebchulk and Holger Spammann reached an entirely different posture toward compensation and risk taking, a posture which makes sense based on the realities of what has really taken place. Their position is that bank executives generally have an incentive for "excessive risk-taking." And this is self-evident, but a huge understatement. Incentive is far less than accurate, it is similar to observing that cancer generally contributed to the cause of death; when there was a pandemic of virulent malignant metasticised melanomas which brought a nation to its knees. The truth of reality makes it obvious that the only objective of bank CEOs was to maximize profits no matter what the cost to anyone else. Clearly there was no concern for the stability of financial markets, and no concern for investors or the fabric of our society!
There has been so much irrational, circumspect reasoning circulated to obscure the fact that Financial Darwinism has been at the core of how we all got swindled. So self-serving studies should provide no more reasurance at this time than the empty promises of collaterialized securities did in the past. The argument - I did not, they did not know there was so much risk in so much leverage, and that no one knew the promise of the holy land of collateral was a grotesque misrepresentation is nuts- and in the final analysis must be regarded as flaming BULL SHIT. It's time for plain, honest talk not more of the same delusional reasoning to excuse the rape and pillage of our economy. The financial crises is really a human tradegy. (try - email@example.com)
Wednesday, September 2, 2009
"The Case Against a Super-Regulator" OP-ED by Sheila Bair, chairman of FDIC is a strange view of reality because Bair has argued that, "the creation of a single regulator...would endanger a thriving 150-year old banking system..." With the number of failing banks climbing and the trillions spent on bailout her thriving contention is ludicrous. She did say she was for reform, and pointed out that, "The principal enablers of our current difficulties were institutions that took on enormous risk by exploiting regulatory gaps between banks and the non-bank shadow financial system, and by using unregulated over-the -counter derivative contracts to develop volatile and potentially dangerous products." Which is another way to say that it was not really the fault of regualtors. And worse overlooks the fact that although Glass-Steagall and the 1956 Bank Holding Company Act were overturned at the end of 1999 - which was a tear down of the firewalls between greed and most of my fellow Americans (who may be regarded as victims) - there were still regulations which if the Fed and the SEC had enforced would still have prevented the sale of so many securities that were "too complex to explain." Furthermore these securities did not have any collateral that would have satisfied any of the banks flipping all the so-called Complex Collateralized Debt - actually there was no real collateral, which constitutes fraud in the opinion of 2 prominent Cleveland securities attorneys!
So gaps were not the problem - except gaps in the attention spans of the regulators. And my book makes all of this crystal clear; which could lead to the conclusion, based on existing regulations which have the force of law behind them, that it was a tragic violation of law to have sold these "complex innovative" financial instruments. Bair did conclude that, "We may never have a better opportunity to address root causes of this crises - and prevent it from happening again." And she is right about now is the time to address root causes, however it is essential to go far deeper into all the significant underlying factors to understand the real truth of what happened. It is necessary to understand the key role of Financial Darwinism. It is critical to reject her excuse about gaps, which sounds like denial and aviodance to me. In my opinion - based on 40 years of personal experience and 7 months of research to verify the accuracy of the observations and conclusions I share with readers in my new book - her OP-ED is self-serving and designed to protect her turf, notwithstanding her protestation to the contrary.
A Super-Regulator, or any regulator without wisdom, common sense and a great detective's concern for right and wrong is as worthless as all the regulators who failed to stop all the violations of the regs years before there was a crisis. Regulators have praised themselves for how they have performed in this crisis, but isn't it so much more important to examine what was done to prevent the crisis? No regulators cried out against tearing down the barriers against greed which worked for 50 years in the aftermath of the Great Depression. And it ought to be apparent that our regulators failed miserably to enforce existing regs. Greenspan, leader of the FED was a cheerleader for "deregulation" and did nothing to enforce existing regs; there are 1500 pages of FED bank holding company regs!The best way to understand how to plug regulatory gaps and stop this from happening again would be to read How We Got Swindled as well as to stop asking culprits for their opinions and stop listening to all the excuses and false conclusions.
Finally - ask yourself if you saw a stealth bomber sneaking across the sky at an altitude of 500 feet would you see it - just like the absolute lack of collateral was easily visable to bankers who expect infinitely better collateral from us than what they claimed was in place behind the complex financial debt instruments they were the issuers of and sold to the public - us. Banks and their regulators had to know that CDOs and CMOs were "collaterialized" by worse than junk bond debt, or absolutely worthless credit default swaps. Every banker I have known would have laughed at me if I had tried to use a trench of crappy debt or worthless swaps as collateral to obtain a loan. If my financial statement, when applying for a loan, had the speculative and imprudent leverage of so many banks, (which Bair was responsible to control) I would have been kicked out, all of us would have been. And now Bair is concerned about banks having more capital - duh. For the real truth help me get out Swindled. 216-831-6388