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Pastimes : Ask Mohan about the Market

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To: BubbaFred who wrote (16904)	10/31/1998 12:44:00 PM
From: Haim R. Branisteanu	Read Replies (1) of 18056

Federal Reserve 1998 Crimes!! It may sound quite extrem but I wanted it should. As to why I would like to bring up a point that for some reason nobody discussed it on this tread and in the press in general. A.G. panicked between other not that the economy was slowing but because public debt market started to price the real risk in corporate bond and asset backed securities. As a result the poor folks in need of credit needed to go to a commercial bank and borrow, at rates slighly higher than before. My question is then WHY ARE THERE BANKS IF NOT FOR LENDING MONEY?? or as lately are they suposed to speculate in swaps?? The real issue that many are missing is the fact that commercial banks are generally more vigilent in overseeing the borrowers activities, e.g. review of quarterly financial statements (audited), visit to the company every several months and so strict debt to equity ratio and the list goes on. In a nut shell better supervision on a company operation. The risk to the FED is that this loan is made by an FDIC insured bank and teh FED is ultimatly on the hook if the loan goes bust. Now lets go to the public market there teh underwriter is eager to "push" the issue and collect the fees, therefore due dilligece is inherently slopy. After the issue was distributed, nobody actually supervise the company, neither teh rules of an FDIC bank are enforced on the company which floated the debt. An independent entity such as Moody or S&P issue a rating once in a while, and quarterly financial statements are highly inaccurate and very different from those submited to the IRS. Who is getting hurt ?? Ususally our pension funds or life insurance or other financial institution on which the average citizen relies for his reteirment money. The FED is not directly responsible as in the case of a commercial bank. The fund manager must visit the company and scrutinize their operation which he rarely does, and is so, not with the same authority as an bank officer. The borrower/issuer is not constrained by strict reporting laws as if he borrowed from a bank and therefore the default is easier and happen more often. Nobody will go to jail for inaccurate financial reporting. If the loan is from a bank for sure they go!! In summary so where is the FED crime?? IMHO the crime lies with the FED that they lowered rates with the purpose to lower spreads in th public market so that more questionable debt issues should be part of our retirement money, and the public should carry the risk and burden of rouge corporation and not the FED. Sound familiar?? Oh well that was Long Term Capital strategy to. The FED bailed them out but in the case of public traded debt default we (our pension and retirement funds) will be not!! That is why IMHO the FED conduct is criminal and nobody cares!! and that is aside from having preferred treatment for those who violated the USC code. And all this not taking into account the fact that the FED is turning a blind eye to the higly speculative stock market were AMZN after constantly loosing money was upgraded by Bankers Trust (an FDIC insured institution or in other words an agent of the US Government) at over $120 per shares. From a pure legal point it can be argued that the US Government recomended to buy/invest in the highly speculative shares of AMZN. If AMZN shares tank inducing heavy losses to those owning the shares who will bail them out ??? Oh well may be some Saint <ggggg> BWDUK Haim P.S. sorry for typos

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