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Banned
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Bernanke Is About Making you a Bagholder. I am Imploring You to Sell ASAP!
Before March 11, there had not been such a large, one day rise in the Dow 30 stock index since 2002.... in less than 20 trading days since, there have been two more huge "up" days.
The Fed, the SEC, and congress are pulling out all the stops, legal, questionable, non-transparent....you name it....to keep you from selling your investment portfolio.
To me, these official moves are blatant in an unprecedented way. They SMELL !!!!
<h3>The question is.....which is the larger problem for you.....posts and other communications like this one, or the "reassuring" moves by the Fed</h3>...owning instead of loaning, allowing a board member of the NY Fed, Jamie Dimon, to acquire Bear Stearns for the firm that he heads, JP Morgan Chase, on a weekend, with all markets closed and immediately before the Fed announced a policy change not implemented since the 1930's which allowed brokerages to pledge paper securities of many types at the Fed discount window, in unlimited amounts, for loans at 2.25 percent interest, with a year to repay.
Bear Stearns executives could not know that this favorable change awaited them if they did not agree to sell their firm to Dimon's firm. Did Dimon know this policy change was coming? He has a seat on the NY Fed's board.....
Quote:
http://www.iht.com/articles/2008/04/.../3bernanke.php
Bernanke offers bleak view on U.S. economy
By Michael M. Grynbaum Published: April 2, 2008
......"We did not bail out Bear Stearns," Bernanke said, during the question-and-answer session following his testimony. "Bear Stearns shareholders took a very significant loss. An 85-year-old company lost its independence and became acquired by another firm. Many Bear Stearns employees, as you know, are concerned about their jobs."
He said the consequences of allowing Bear to collapse would have led to broad troubles for the credit markets and economic confidence.
"The damage caused by a default by Bear Stearns could have been severe and extremely difficult to contain," Bernanke said. Later, he added, "We did what we did because we felt it was necessary to sustain the viability of the American financial system."
The chairman said the Fed was not informed of the severity of Bear's capital shortage until 24 hours before its near-collapse. <h3>BlackRock, the investment advisory firm, was hired to evaluate Bear's assets for an unspecified fee, the chairman said.</h3> According to Bernanke, BlackRock said the bank's assets could be sold off at full value if done "on a measured basis."......
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Quote:
http://www.iht.com/bin/printfriendly.php?id=11611941
Bear Stearns talks show Wall Street takes a local view
By Andrew Ross Sorkin
Wednesday, April 2, 2008
NEW YORK: Just before JPMorgan Chase announced its initial $2-a-share deal to buy Bear Stearns, Ben Bernanke, the chairman of the U.S. Federal Reserve Board, held an extraordinary impromptu conference call. The participants in the Sunday night call, who got a preview of the deal, were Wall Street's biggest power brokers: Lloyd Blankfein of Goldman Sachs dialed in from home. John Mack of Morgan Stanley rushed to the office to listen on speakerphone. Richard Fuld of Lehman Brothers, who had been directed to return home from a business trip in New Delhi by none other than Henry Paulson, the Treasury secretary, was patched in, too, among others.
The half-hour call was a rallying cry for support of Bear Stearns - and more broadly, the financial markets, which, as it was described on the call, were on the verge of a major meltdown if not for the pre-emptive steps that the Fed and JPMorgan took. "It was much worse than anyone realized; the markets were on the precipice of a real crisis," said one participant. Given that Bear held trading contracts with an outstanding value of $2.5 trillion with firms around the world, "we were talking about the possibility of a global run on the bank."
In another era, the participants in the phone call would have been an exclusive fraternity of high-powered Manhattanites. But this conversation was also filled with foreign accents - from UBS, Credit Suisse, Deutsche Bank, HSBC and beyond.
In truth, though, the call was more of a courtesy to our foreign neighbors than it was a genuine effort to gather outside views. Call it speakerphone diplomacy. The "possibility of a global run on the bank" may have been real, but the important decisions had been made long before the folks in London, Dubai and Hong Kong were let in on the secret. The chiefs of Wall Street's top banks had been taking calls from each other and the Fed all weekend.
So goes the world of Wall Street. The Four Seasons crowd may talk a big game about being global - sending lieutenants to start offices halfway around the world - but when it comes to opening up its secret society to foreigners, doing so is still an afterthought.
It is not just a problem in business. While the Fed and the Treasury Department often check in with their foreign counterparts, they still sometimes take a view that is more local than global. Paulson, formerly of Goldman Sachs, can propose a radical plan to regulate the financial industry in the United States, as he did this week, but it doesn't address the larger problem: we're now so interconnected with the markets abroad, whether it be Japan or even Brazil, that whatever we do on our own is almost beside the point.
"We need much tighter global coordination," Bruce Wasserstein, the chairman of Lazard, told me this week. "It is myopic to look at things in a narrow box. Where we've been moving right, the EU is moving left. That doesn't seem sensible."
If the United States, for example, were to limit the amount of leverage - or debt - that investment banks or hedge funds could use, that wouldn't offer any protection from debt-fueled implosions at rival firms abroad. A blowup at a highly leveraged fund in China would still ripple across the system.
Superleveraged funds have been a major culprit in the latest downturn, because their use of debt to juice returns has amplified the effects on the downside. (Just ask investors in two of Bear Stearns's now-bankrupt hedge funds.) When things go bad, the fallout doesn't stop at national borders. A fund in London may be connected to another in Thailand and not even know it. Who would have imagined that dentists in Germany owned subprime mortgages in Texas? (They did, or rather, still do - at a huge loss.)
The explosion in the use of derivatives has only tightened the global links - and made a worldwide meltdown easier to imagine. Banks and hedge funds across the world are routinely on opposite sides of contracts tied to debt, interest rates or other, more esoteric benchmarks.
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Quote:
http://www.reuters.com/article/polit...rpc=22&sp=true
Senate panel chief questions Dimon's Fed seat
Wed Mar 26, 2008 6:32pm EDT
By John Poirier
WASHINGTON (Reuters) - The chairman of the U.S. Senate Banking Committee on Wednesday expressed concern that JPMorgan Chase & Co head Jamie Dimon held a Federal Reserve Bank of New York board seat while his bank was in talks with the Federal Reserve over a deal to acquire Bear Stearns.
Sen. Christopher Dodd made his remarks in an interview with National Public Radio.
With support from the Fed and the Treasury Department, Bear Stearns Cos Inc has agreed to be sold to JPMorgan for about $10 a share. As part of the deal, the Fed agreed to guarantee up to $29 billion of Bear Stearns' assets.
"I have great respect for Jamie Dimon, who's head of JPMorgan," Dodd, a Connecticut Democrat, said in the interview with National Public Radio.
"He also sits on the board of directors at the Federal Reserve in New York. Having decisions being made over the weekend with an institution where its leader is also a member of that board raises some serious issues," Dodd said. "It aught to be addressed."
When asked if he suspects Dimon's New York Fed board seat, which expires December 31, 2009, might have been a conflict of interest, Dodd said: "This is what we needed to talk about."
Dimon is the chairman and chief executive of JPMorgan Chase.....
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Quote:
http://www.bloomberg.com/apps/news?p...YxQ&refer=home
Fed Should Clarify Link to Bear Stearns Assets: Caroline Baum
Commentary by Caroline Baum
April 2 (Bloomberg) -- When the Federal Reserve brokered a weekend deal last month for JPMorgan Chase & Co. to purchase Bear Stearns Cos. before it collapsed, many of the terms of the agreement were murky.
The Fed made it clear it had to cough up $30 billion ($29 billion on the second go-round) for Bear Stearns's ``less liquid assets'' to induce JPMorgan Chief Executive Jamie Dimon to sign off on the deal. What was unclear was the Fed's relationship to those assets.
At the time, the Fed said it was taking control of the $30 billion portfolio, that it wasn't purchasing the assets. The Fed was assuming the risk if the eventual liquidation of the securities produced further losses -- losses that accrue to the taxpayer since the Fed turns over its profits to the U.S. Treasury. It also stood to benefit if the portfolio appreciated in value.
That doesn't pass the lender duck test. Lenders don't profit from the appreciation of an asset against which they extend credit. Only an equity owner does.
<h3>``They get the residual -- that almost always defines ownership,''</h3> said Paul DeRosa, a partner at Mt. Lucas Management Co. ``The disclaimer of ownership is purely semantic.''
<h3>If the Fed is the residual owner of these securities, which seems likely based on its assumption of both risk and reward, it could be in violation of its charter. According to the 1913 Federal Reserve Act, which has been amended over the years, the Fed can buy U.S. Treasury and agency securities, foreign government securities, bankers acceptances, bills of exchange, certain municipal debt, foreign currency and gold. </h3>
Ownership Society
Nothing in there about collateralized debt obligations, private mortgage-backed securities or other derivatives of questionable quality.
Of course, if the Fed structured its loan as a ``discount'' -- the Fed is authorized to discount drafts, notes and bills of exchange, redeeming them at maturity -- then it would be a lender and a residual owner, said Vince Reinhart, former director of the Fed's Monetary Affairs Division and now a scholar at the American Enterprise Institute in Washington.
Most of today's loans from the Fed are ``advances,'' secured by ``acceptable collateral'' (the level of acceptability keeps declining). The collateral is returned to the borrower after a specified time.
If it seems like a distinction without a difference, it is.
``From an economic perspective, they are the residual claimant,'' Reinhart said. ``They have equity ownership.''
In the spirit of increased transparency, why can't the Fed come out and say that?
Fact(less) Sheet
On March 24, the New York Fed posted a summary of the terms and conditions of the loan on its Web site. In essence, the Fed created an off-balance sheet vehicle -- specifically a Delaware limited liability company -- to hold illiquid securities, and with no capital, funded by a $29 billion loan from the Fed and a subordinated $1 billion loan from JPMorgan, Reinhart said.
The Fed is nothing if not a quick study.
BlackRock Inc. has been retained as the manager.
The summary outlined the maturity of the loan (10 years, renewable at the discretion of the New York Fed); the interest rate on the loan (the primary credit rate, currently 2.5 percent, on the Fed loan; the primary credit rate plus 4.5 percent for JPMorgan); and the repayment terms. It skirted the ownership issue other than to say in the last line that ``any remaining funds resulting from the liquidation of the assets will be paid to the New York Fed.''
Legal Cover
Watching the evolution of Fed policy in the last six months from focused on inflation to fearful of systemic risk; the series of aggressive, rapid-fire rate cuts; the creation of an alphabet soup of new lending facilities; and the orchestration of a fire sale of Bear Stearns to JPMorgan, one has to wonder about the Fed's M.O. It all has a make-it-up-as-you-go-along quality.
Faced with what it thought would be a series of cascading financial failures if Bear Stearns went down, the Fed probably knew what it wanted to do, knew it had to do it quickly, and then had to figure out ``how to get it done within the confines of its legal structure,'' DeRosa said. ``The Fed used legal sleight of hand to reconcile what they wanted to do with what they're permitted to do by law.''
<h3>Bernanke is sure to be grilled about his actions when he testifies before the Joint Economic Committee of Congress today and the Senate Banking Committee tomorrow.</h3> A wee bit more transparency would be nice.
Then again, if the Fed is acting first and finding legal cover later, there's a benefit to keeping the details murky.
(Caroline Baum, author of ``Just What I Said,'' is a Bloomberg News columnist. The opinions expressed are her own.)
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Bernanke appeared and was questioned for hours by members of the house and the senate.... but, he wasn't "grilled"....far from it. Your representatives don't want your to sell, either!
The "Insurance" the brokers bought to "dress up" the paper they sold into the market received an investment grade rating from the credit rating firms. The firms that sold the insurance don't want to pay the claims, because they are unable to pay....they did not have cash reserves set aside in anywhere near the amount necessary to adequately cover their risks as their insured portfolios grew and grew. The credit rating agencies have not yet adjusted credit ratings downward on huge amounts of "insured" investment instruments to a level that reflects reality.
Quote:
http://www.bloomberg.com/apps/news?p...YC4&refer=home
Security Capital Defends Merrill Contract Termination (Update4)
By Christine Richard
April 1 (Bloomberg) -- Security Capital Assurance Ltd., the bond insurer sued by Merrill Lynch & Co. for seeking to cancel coverage on $3.1 billion in collateralized debt obligations, accused the brokerage firm of ``blatantly'' ignoring terms of the policy.
Merrill Lynch ``undertook a rushed campaign'' to find third parties willing to take on the CDOs so it could avoid further losses, violating terms of the agreement, Hamilton, Bermuda-based SCA said today in a response to the Merrill Lynch lawsuit.
Merrill Lynch, the third-largest U.S. securities firm, sued SCA's XL Capital Assurance unit in March to force the company to honor the default protection on the CDOs, which repackage bonds and other assets into new securities. Losses on CDOs have prompted Merrill Lynch to write down the value of its assets by $25 billion, including $17 billion in the fourth quarter.
``Determined to get these CDO risks off its books at all costs before the third quarter of 2007 closed, Merrill Lynch made the decision to blatantly ignore its prior commitments to XLCA,'' SCA said in a statement today.
Merrill Lynch ``is confident that the credit default swaps are fully enforceable and we will continue to seek a court order to that effect,'' William Halldin, a spokesman for the New York- based securities firm, said today in an e-mailed statement.
Projected losses on CDOs have led to at least four bond insurers being stripped of their top AAA credit ratings. The CDOs, which repackage mortgage bonds, buyout loans and other assets into new securities with varying risks, also have been the biggest source of the more than $232 billion of writedowns and credit losses reported by the world's largest banks and securities firms since the beginning of last year.
Counterclaim
Merrill Lynch sued XL Capital Assurance in a Manhattan federal court. SCA today said it filed a counterclaim seeking damages of at least $28 million from Merrill Lynch and asking the court to absolve it of any obligations related to the contracts.
``On behalf of our policy holders and shareholders, we intend to defend the terminations vigorously and look forward to presenting our case to the court soon,'' SCA said.
The company's financial guarantee subsidiaries -- XL Financial Assurance and XL Capital Assurance -- were cut six levels to a below-investment-grade rating of BB by Fitch Ratings last week. The rating had been as high as AAA in January. Moody's Investors Service and Standard & Poor's each downgraded the company from AAA in February.
SCA competitor FGIC Corp. said it's walking away from an agreement to provide $1.9 billion in guarantees on mortgage- linked securities because Credit Agricole SA and IKB Deutsche Industriebank didn't live up to their side of the deal.
The debt that Merrill bought protection on from XL last year includes classes of: West Trade Funding II Ltd., Silver Marlin CDO I Ltd., and Jupiter High-Grade CDO VI Ltd. The credit-default swaps offer payments if the securities aren't repaid as expected, in return for regular insurance-like premiums.
To contact the reporter on this story: Christine Richard at crichard5@bloomberg.net
Last Updated: April 1, 2008 18:37 EDT
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The SEC is complicit on the coverup of how poorly capitalized the banks and brokerages currently are....the SEC is guiding these firms to disguise the true value of the assets that they are stuck with....refusing to sell at market prices:
Quote:
http://norris.blogs.nytimes.com/2008...w-ignore-them/
About Floyd Norris
Floyd Norris, the chief financial correspondent of The New York Times and The International Herald Tribune, covers the world of finance and economics.
March 28, 2008, 6:21 pm
<h3>If Market Prices Are Too Low, Ignore Them</h3>
The Securities and Exchange Commission is out today with a <a href="http://www.sec.gov/divisions/corpfin/guidance/fairvalueltr0308.htm">letter</a> to companies that own a lot of financial instruments whose current market value must be reported to shareholders. For more than a few companies, disclosing market values is neither easy nor convenient.
The issue is the application of SFAS 157, which governs the way companies compute fair value of assets, assuming they have to do so anyway. (Banks and brokers have to do that a lot, but I won’t go into the details of when they can avoid it.) The rule took effect on Jan. 1, although some companies adopted it last year.
The rule sets out three categories of assets, with different ways to value them. Category 1 includes assets with easily observable market values. I.B.M. stock closed today at $114.57, and it is not easy to justify a different value if your quarter ended today. Category 2 is a little fuzzier, where there are observable markets that provide a good guide to prices of your asset, even though there is no direct market. And then there is Category 3, which is essentially mark to model.
In companies that adopted Statement 157 early, we have seen a lot of assets end up in Category 3. That may be proper, since there are plenty of complex financial instruments for which there is not much of a market these days. But it also provides companies with a way to fudge figures.
The S.E.C. letter asks companies for some disclosures on how they came up with those values, and on why a lot of assets may have moved into Category 3. Such disclosures can only help investors.
But one part of the letter stood out to me, providing an excuse for companies to ignore a market value if they don’t like it (italics added):
<i>“Under SFAS 157, it is appropriate for you to consider actual market prices, or observable inputs, even when the market is less liquid than historical market volumes, unless those prices are the result of a forced liquidation or distress sale. Only when actual market prices, or relevant observable inputs, are not available is it appropriate for you to use unobservable inputs which reflect your assumptions of what market participants would use in pricing the asset or liability.”</i>
That sounds to me like an invitation to fudge. Some people on Wall Street think that nearly every sale today is a forced sale. There are entire categories of collateralized debt obligations where most, if not all, of the trades, occur because a holder has received, or expects, a margin call.
What the S.E.C. should require is a disclosure when a company concludes that a market price should be ignored because it came from a “forced liquidation or distress sale.” Then there should be a disclosure of how much lower that distress price was from the value the company is using in its own valuation.
Alternatively, there could be a simple rule, at least for banks. If you will ignore this price as irrelevant when you decide whether to send out margin calls to those to whom you have lent money, then you can ignore that market price when you make your own reports. But if you won’t lend based on a valuation that ignores actual market prices, then you should not use that valuation for your own accounts.
Addendum, Tuesday April 1:
The posting should have noted that the phrases the S.E.C. used are taken from the original rule. This is not a new loophole, merely an invitation to use an existing one without being forced to actually disclose its use. It is a fair bet that the rule writers did not contemplate a market where people could claim virtually every sale was a forced sale, but they did leave the opening.
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To sum this up, huge "up" days in the market, like the three since March 11, have, in the past 10 years, occurred in a failing market index average environment, i.e., when stocks are moving in a dramatically lower direction.
Fed Chariman Ben Bernanke has been incorrect in every major prediction he has made about economic conditions, going back to early last year. He pronounced the :subprime problem" as "contained", at a cost of "tens of billions of dollars". Last week, a prediction from Goldman Sachs was that the home mortgage problem that has been the catalyst for broader credit problems will result in losses to financial firms of about $1,200 billion.
Bernanke waited until April 2, after denying for many months that the economy risked movving into recession, that there is now a real risk that it will. He told congress that the measures the Fed conducted to prevent a Bear Stearns banruptcy were within the legal framework, and it appears that they are not.....there is a lack of transparency....he admitted that Blackrock is advising on the deal for an "undetermined fee", and he permitted a board member of the NY Fed member bank to "buy" Bear Stearns on a sunday.
All of this, while the SEC sends investment firms a letter advising them on how to attempt to fool investors as to the actual worth of the firms' assets, just two months after new accounting standards took affect to stop that very practice. Congress failed to blast Bernanke on tuesday, and he has a meeting with Dodd's senate banking committee, today.
I think that your officials have broken the law in the Bear Stearns "arrangement", and in permitting unregulated investment firms access to borrowing with unapproved collateral, putting the FDIC banking depositor's insurance at risk, and the Fed's rapid interest rate cuts have destroyed the return on conservative savers accounts in banks.
Nothing will stop the ongoing decline in the markets, because the economy and the loss of earnings of the companys listed on the exchanges, and the losses from poor investment decisions and loss of insurance coverage on investments, will make it so.
Last edited by host; 04-02-2008 at 11:42 PM..
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