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Politics : American Presidential Politics and foreign affairs -- Ignore unavailable to you. Want to Upgrade?

To: Peter Dierks who wrote (34427)	3/26/2009 8:40:28 AM
From: Peter Dierks	Respond to of 71588

Have We Seen the Last of the Bear Raids? The short-sellers probably saved us five to 10 years of poor bank earnings. MARCH 26, 2009, 5:58 A.M. ET Industrial Average has rallied back more than 1200 points. So, is it safe to go back in the water? Best to figure out what went wrong first -- what I like to call a bear-raid extraordinaire. CorbisThe Dow clearly got a boost from Treasury Secretary Tim Geithner's new and improved plan, announced on Monday, to rid our banks of those nasty toxic assets. The idea is to form a "Public-Private Investment Fund" to buy up $500 billion to $1 trillion worth of bad assets -- mostly mortgage backed securities (MBSs) and collateralized debt obligations (CDOs). While it's true that private interests can conceptually help establish the right market price for these assets, the reality is Mr. Geithner's public-private scheme won't work. Why? Because the pricing paradox remains -- private parties won't overpay, yet banks believe these assets are extremely undervalued by the market. As Edward Yingling, president of the American Bankers Association, said recently on CNBC, "You have to go into the securities, examine the securities, examine the cash flow. I've seen it done, and the market is so far below what they're really worth." The Treasury can't just keep throwing money at the problem, but needs instead to figure out what's really been going on -- the aforementioned bear-raid extraordinaire that's crushed Citigroup and Bank of America and General Electric, among others. Only then can Mr. Geithner craft a real plan to fight back. In a typical bear raid, traders short a target stock -- i.e., borrow shares and then sell them, hoping to cover or replace them at a cheaper price. Once short, traders then spread bad news, amplify it, even make it up if they have to, to get a stock to drop so they can cover their short. This bear raid was different. Wall Street is short-term financed, mostly through overnight and repurchasing agreements, which was fine when banks were just doing IPOs and trading stocks. But as they began to own things for their own account (MBSs, CDOs) there emerged a huge mismatch between the duration of their holdings (10- and 30-year mortgages and the derivatives based on them) and their overnight funding. When this happens a bear can ride in, undercut a bank's short-term funding, and force it to sell a long-term holding. Since these derivatives were so weird, if you wanted to count them as part of your reserves, regulators demanded that you buy insurance against the derivatives defaulting. And everyone did. The "default insurance" was in the form of credit default swaps (CDSs), often from AIG's now infamous Financial Products unit. Never mind that AIG never bothered reserving for potential payouts or ever had to put up collateral because of its own AAA rating. The whole exercise was stupid, akin to buying insurance from the captain of the Titanic, who put the premiums in the ship's safe and collected a tidy bonus for his efforts. Because these derivatives were part of the banks' reserve calculations, if you could knock down their value, mark-to-market accounting would force the banks to take more write-offs and scramble for capital to replace it. Remember that Citigroup went so far as to set up off-balance-sheet vehicles to own this stuff. So Wall Street got stuck holding the hot potato making them vulnerable to a bear raid. You can't just manipulate a $62 trillion market for derivatives. So what did the bears do? They looked and found an asymmetry to exploit in those same credit default swaps. If you bid up the price of swaps, because markets are all linked, the higher likelihood (or at least the perception based on swap prices) of derivative defaults would cause the value of these CDO derivatives to drop, thus triggering banks and financial companies to write off losses and their stocks to plummet. General Electric CEO Jeff Immelt famously complained that "by spending 25 million bucks in a handful of transactions in an unregulated market" traders in credit default swaps could tank major companies. "I just don't think we should treat credit default swaps as like the Delphic Oracle of any kind," he continued. "It's the most easily manipulated and broadly manipulated market that there is." Complain all you want, it worked. In early March, Citigroup hit $1 and Bank of America dropped to $3 and GE bottomed at $6.66 from $36 not much more than a year ago. Same for Lloyds Banking Group in the U.K. dropping from 400 to 40. Citi CEO Vikram Pandit recently announced that the bank was profitable in January and February. (How couldn't they be? With short-term rates close to zero, any loan could be profitable). Never mind they still had squished CDOs, it was enough to get some of the pressure off, for now. Oddly, with the new Treasury plan, these same bear raiders are still incentivized to manipulate the price of swaps to depress toxic derivative prices, especially so with the government's help to get hedge funds to turn around and buy them. Perversely, they may get rewarded for their own shenanigans. This week's Treasury announcement of private buyers isn't going to magically change the depressed prices of these toxic derivatives. The Treasury needs to fight fire with fire. If I were Mr. Geithner, I'd pull off a bull run -- i.e., pile into the CDS market and sell as many swaps as I could, the opposite of a bear raid. If the bears are buying, I'd be selling, using the same asymmetry against them. Sensing the deep pockets of Uncle Sam, the bears will back off. Worst case, the Fed is on the hook for defaults, which they are anyway! With the pressure of default assumptions easing, prices of CDOs should rise, which not only gives breathing room to banks, but may actually get these derivatives to a price where banks would be willing to sell them, replacing toxic assets in their reserves with cash or short term Treasurys, which ought to stimulate lending. So are hedge funds villains? Not especially. The bear raid probably saved us five to 10 years' of bank earning disappointments as they worked off these bad loans. Those that mismatched duration set themselves up to be clawed. Under cover of a Treasury bull run, banks should raise whatever capital they can and dump as many bad loans before the bear raiders come back. Let the bears find others to feast on, like autos, cellular, cable and California. Mr. Kessler, a former hedge-fund manager, is the author of "How We Got Here" (Collins, 2005). online.wsj.com

To: Peter Dierks who wrote (34427)	3/26/2009 3:00:11 PM
From: Peter Dierks	2 Recommendations Respond to of 71588

Conservatives' False Division Ken Blackwell Thursday, March 26, 2009 The politics of division is at play within the conservative movement. Some predominately economic conservatives are at odds with some predominately social conservatives. This internecine spat is the result of conservatives forgetting they share a common opponent. What these conservatives should firmly fix on is that they share a basic philosophy regarding the relationship of the individual to the state. Many believe the individual possesses various rights that define what it means to be an individual at a fundamental level. More than that, all conservatives believe the source of these rights is not government. Most conservatives believe that these inalienable rights—such as life, liberty and property, “are endowed by our Creator.” To some, this is a personal and eternal God expressed in a formal faith tradition. To others, this is a less-defined but faithfully acknowledged God. Some acknowledge no “god” but still believe that there is something greater than the individual or the state. While those in the second or third categories might not attend the houses of worship of those in the first category, all accept the idea that our human worth is not derived from government. The place of the individual vis-à-vis the state is the root of commonality for all conservatives, and the basic disconnect between conservatives and collectivists. Government exists not to confer rights, but instead to secure rights. Liberals, collectivists and socialists, however, look to government to fulfill all manner of basic human needs. The state takes the place of parents in the home. The state takes the place of a father in protecting and providing. The state takes the place of a mother in nurturing and caring. The state takes the place of church and home in teaching right and wrong and the priorities of life. The state takes the place of the individual in planning, preparing and persevering. Instead of saying, “God will provide,” people learn to think, “Government will provide.” The common enemy of all conservatives is the centrality of the state instead of the individual in our political system. All conservatives oppose elevating government to a place of reverence and esteem. Government must be closely watched and carefully limited. This is seen in countless social and economic issues. Many leftists oppose gun ownership because they believe a person ought to rely on government for protection and focus on contributing to a peaceful society, while conservatives focus on the duty and right of the individual to protect themselves and their families. Liberals favor higher taxes to fund socialized medicine and government-provided retirements, while conservatives favor the individual’s right to retain their own hard-earned money and decide for themselves what healthcare they want and how they should prepare for retirement. Liberals support strong teachers’ unions and massive increases in funding for government schools, while conservatives favor dollars following children who attend schools of their parents’ choice. Part of this divide between conservatives is due to the sanitizing of the public square of references to God. Not many years ago, there was no dispute between conservatives over basic talk about faith. People were not necessarily more religious. There was just a comfort level with general expressions of common faith, such as prayer, signs of the Ten Commandments, or referring to school vacation in December as Christmas Break, instead of Winter Break. But years of enforced and increasing secularism has left people of faith to their faith, but non-religious conservatives to become increasingly squeamish over even basic expressions of faith. All conservatives believe in the primacy of the individual, but such conservatism must also be rooted in the truth that the individual does not live for the state, and does not receive what is most important from the state. Blaise Pascal once said that everyone has a God-shaped hole in them. Human beings are designed with a void that only the Creator can fill. Without the Creator, people seek out things in their lives in which to put their truth and to which to give their reverence and adoration. While many secular conservatives do not agree with religious conservatives as to the nature or character of the source of our rights, they all agree that the source is not government. And it’s essential that they recognize there are those on the left seeking to drive a wedge between them. Conservatives must wake up to this common opponent, and rebuild close and open communications to work together for an agenda that promotes individual liberty by limiting the power of government. townhall.com

To: Peter Dierks who wrote (34427)	4/6/2009 7:43:31 PM
From: sandintoes	2 Recommendations Read Replies (3) \| Respond to of 71588

THE DECLARATION OF INDEPENDENCE HAS BEEN REPEALED By DICK MORRIS Published on DickMorris.com on April 6, 2009 On April 2, 2009, the work of July 4, 1776 was nullified at the meeting of the G-20 in London. The joint communiqué essentially announces a global economic union with uniform regulations and bylaws for all nations, including the United States. Henceforth, our SEC, Commodities Trading Commission, Federal Reserve Board and other regulators will have to march to the beat of drums pounded by the Financial Stability Board (FSB), a body of central bankers from each of the G-20 states and the European Union. The mandate conferred on the FSB is remarkable for its scope and open-endedness. It is to set a "framework of internationally agreed high standards that a global financial system requires." These standards are to include the extension of "regulation and oversight to all systemically important financial institutions, instruments, and markets...[including] systemically important hedge funds." Note the key word: "all." If the FSB, in its international wisdom, considers an institution or company "systemically important", it may regulate and over see it. This provision extends and internationalizes the proposals of the Obama Administration to regulate all firms, in whatever sector of the economy that it deems to be "too big to fail." The FSB is also charged with "implementing...tough new principles on pay and compensation and to support sustainable compensation schemes and the corporate social responsibility of all firms." That means that the FSB will regulate how much executives are to be paid and will enforce its idea of corporate social responsibility at "all firms." The head of the Financial Stability Forum, the precursor to the new FSB, is Mario Draghi, Italy's central bank president. In a speech on February 21, 2009, he gave us clues to his thinking. He noted that "the progress we have made in revising the global regulatory framework...would have been unthinkable just months ago." He said that "every financial institution capable of creating systemic risk will be subject to supervision." He adds that "it is envisaged that, at international level, the governance of financial institutions, executive compensation, and the special duties of intermediaries to protect retail investors will be subject to explicit supervision." In remarks right before the London conference, Draghi said that while "I don't see the FSF [now the FSB] as a global regulator at the present time...it should be a standard setter that coordinates national agencies." This "coordination of national agencies" and the "setting" of "standards" is an explicit statement of the mandate the FSB will have over our national regulatory agencies. Obama, perhaps feeling guilty for the US role in triggering the international crisis, has, indeed, given away the store. Now we may no longer look to presidential appointees, confirmed by the Senate, to make policy for our economy. These decisions will be made internationally. And Europe will dominate them. The FSF and, presumably, the FSB, is now composed of the central bankers of Australia, Canada, France, Germany, Hong Kong, Italy, Japan, Netherlands, Singapore, Switzerland, the United Kingdom, and the United States plus representatives of the World Bank, the European Union, the IMF, and the Organization for Economic Co-operation and Development (OECD). Europe, in other words, has six of the twelve national members. The G-20 will enlarge the FSB to include all its member nations, but the pro-European bias will be clear. The United States, with a GDP three times that of the next largest G-20 member (Japan), will have one vote. So will Italy. The Europeans have been trying to get their hands on our financial system for decades. It is essential to them that they rein in American free enterprise so that their socialist heaven will not be polluted by vices such as the profit motive. Now, with President Obama's approval, they have done it.

To: Peter Dierks who wrote (34427)	4/17/2009 5:54:48 PM
From: TimF	1 Recommendation Respond to of 71588

Barney Frank's Insane Muni Bond Guarantee The Wall Street Journal shreds Barney Frank's proposal to create an FDIC-like federal insurance program for municipal bonds. It’s a devastating critique that is made all the easier by Frank’s crazy talk about the program costing the federal government nothing at all. Politicians tend to like insuring assets because they can pretend insurance is free—they don’t have to borrow or raise taxes to pay for it. By the time the bills come due, the politician may have moved onto greener pastures and the public will likely have forgotten the promises of free money. At best, the price of insurance simply gets passed onto future generations. The best—or worst—example of this process is the implicit guarantee of Fannie Mae. For years politicians pretended that the implicit government guarantee was not only costless, it was actually saving Americans money by reducing their mortgage costs. When this scheme to provide “free” insurance for Fannie’s debt fell apart, the costs of bailing out Fannie wound up being more than all the mortgage cost savings. Part of the reason these plans don’t work is that insurance affects behavior. As the Journal points out, federal bond insurance would encourage catastrophic moral hazard: local politicians would rack up debt that taxpayers would be forced to make good on down the road. Faced with the choice of cutting spending, raising local taxes or shifting the burden to the federal government, the choice would inevitably be to tap the insurance. Politicians would deny that this was irresponsible—after all they paid insurance premiums into the plan. Why shouldn’t they tap it? As the Journal says, one Fannie Mae is enough. Let’s not create a nation of local disasters. businessinsider.com Barney Frank's Double Indemnity Mr. Frank wants to put a public safety net under municipal bonds. Barney Frank's track record as a financial analyst is, shall we say, mixed. The House Financial Services Chairman said for years that a collapse of Fannie Mae and Freddie Mac would pose zero risk to taxpayers. For most people, a mistake of that magnitude would trigger introspection, if not humility. But not the sage of Massachusetts. He's cooking up another fantastic subsidy -- and like the last one, he swears taxpayers won't feel a thing. In his words, "it would cost the federal government zero." Uh oh. Mr. Frank believes state and local governments are paying too much when they issue debt because rating agencies don't give them the ratings Mr. Frank feels they deserve. So last year he pushed a bill to effectively force Standard &Poor's, Moody's and Fitch to raise their ratings on municipal bonds, but the legislation got sidetracked amid the financial turmoil. Now Mr. Frank is back, bigger than ever. He'd like to create what he calls an FDIC-like federal insurance program for municipal bonds. Jurisdictions issuing debt would pay premiums into the insurance fund, and in return the federal government would guarantee the debt against default. Private companies already insure municipal bonds -- companies such as MBIA, Ambac and Berkshire Hathaway. And you may recall that last year the big bond insurers caused considerable angst when their exposure to mortgage-related debt called into question their ability to meet their muni-bond obligations. MBIA, in response, recently fenced off its muni-bond business from its other obligations. If Mr. Frank really believes that state and local governments have been forced to overpay for this insurance, one has to assume his federal program would charge lower premiums and so undercut its private-sector competitors. The government can charge low premiums without putting taxpayers on the hook, he argues, because the risk of default is so low. Or is it? The payment history of municipal bonds seems to support Mr. Frank. But then the triple-A ratings assigned to many mortgage-backed securities were also based on backward-looking models that failed to anticipate today's housing bust. The muni-bond performance record is also mostly the history of uninsured bonds. But the very existence of insurance can change the behavior of the policyholder or beneficiary -- watch Barbara Stanwyck and Fred MacMurray in the 1944 classic "Double Indemnity." If a state or locality knows someone else will make bondholders whole, they are far more likely to default than an uninsured issuer would be. Many states and localities have run up huge pension and health-care obligations to retirees that will come due over the next few decades. And many of those obligations were underfunded even before the bottom fell out of the stock market. When those bills hit, cities will have to choose among raising taxes, cutting benefits or stiffing bondholders. In some states, such as New York, retiree benefits are constitutionally protected, and taxes are already chokingly high. So stiffing the bond insurers will look pretty attractive. None other than Warren Buffett devoted several pages in his latest Berkshire Hathaway shareholder letter to precisely this kind of risk: "When faced with large revenue shortfalls, communities that have all of their bonds insured will be more prone to develop 'solutions' less favorable to bondholders than those communities that have uninsured bonds held by local banks and residents." He continues: "Losses in the tax-exempt arena, when they come, are also likely to be highly correlated among issuers. If a few communities stiff their creditors and get away with it, the chance that others will follow in their footsteps will grow. What mayor or city council is going to choose pain to local citizens in the form of major tax increases over pain to a far-away bond insurer?" This goes double if the insurer is Uncle Sugar. Mr. Buffett concludes: "Insuring tax-exempts, therefore, has the look today of a dangerous business -- one with similarities, in fact, to the insuring of natural catastrophes. In both cases, a string of loss-free years can be followed by a devastating experience that more than wipes out all earlier profits." The difference, in this case, is that bond insurance, and especially federal bond insurance, would have helped create the "natural" catastrophe by encouraging jurisdictions to rack up obligations that taxpayers would be forced to make good on down the road. As for Mr. Frank's contention that muni-bond insurance is too expensive, Berkshire Hathaway is charging two and three times historical rates -- and Mr. Buffett is still worried. One Fannie Mae debacle ought to be enough for any career, but Mr. Frank wants taxpayers to double down on his political guarantees. There are currently some $1.7 trillion in municipal bonds held by the public, and Barney thinks we can insure them at "zero cost." Considering the source, and the potential size of the bill, someone in Congress needs to sound the alarm. online.wsj.com