SEC Probed Stanford Companies; Red Flags Abounded
February 23rd, 2009Via: AP:
For years, there were red flags — so many they could have massed into a crimson blanket.
As with the Bernard Madoff case, the scandal surrounding billionaire R. Allen Stanford now seems clear and obvious in hindsight. Yet Stanford managed to run his alleged scheme even while the Securities and Exchange Commission and other regulators had him on their radar screens and investigated his businesses. Stanford wasn’t charged until last week.
From his tiny accounting firm’s office near a North London fish-and-chips shop to certificates of deposit promising outsized returns sold by a bank in Antigua, ample warning signs over the years suggested Stanford’s business wasn’t what it seemed.
Among them:
_A finding by regulators in June 2007 that Stanford’s company lacked enough capital to function properly as a securities brokerage firm. The company paid $20,000 to settle charges by the National Association of Securities Dealers without admitting or denying them.
_Stanford’s businesses were inspected and investigated several times, starting in 2006 by the SEC and in 2004 by the NASD, the brokerage industry’s self-policing group, now called the Financial Industry Regulatory Authority, or FINRA. NASD’s scrutiny resulted in several disciplinary actions: the regulator fined his brokerage company four times, with penalties totaling $70,000, for violations that included misleading investors in sales materials about the risks of the CDs.
_A 2006 lawsuit by a former employee alleging that Stanford’s company ran a Ponzi scheme. Two other ex-employees asserted in a suit in January 2008 that Stanford’s Antigua bank, Stanford International Bank Ltd., sold CDs based on inflated returns and had destroyed documents.
_A board of directors that included Stanford’s father, his college roommate and a family friend who remained on the board years after suffering a debilitating stroke.
_The Antigua-based accounting firm that audited the offshore bank was tiny and little known.
_A 1999 Treasury Department advisory that warned U.S. banks to scrutinize transactions involving Antigua. It said a new regulator in Antigua was essentially a captive of offshore banks it was meant to supervise. (The advisory was lifted in 2001.)
Last week, the SEC accused Stanford in a civil lawsuit of a “massive” fraud. It said he peddled sham promises and funneled investors’ money into real estate and other assets not easily turned into cash. FBI agents in Houston are running a parallel investigation.
Stanford, who was served legal papers by FBI agents last week, hasn’t been charged with any crime.
Brown: World Needs ‘Global New Deal’
February 23rd, 2009Tell me another one, Gordon.
Via: CNN:
The world needs a “global New Deal” to haul it out of the economic crisis it faces, Prime Minister Gordon Brown of the United Kingdom said Sunday.
“We need a global New Deal — a grand bargain between the countries and continents of this world — so that the world economy can not only recover but… so the banking system can be based on… best principles,” he said, referring to the 1930s American plan to fight the Great Depression.
Brown was speaking as the leaders of Europe’s biggest economies met to try to forge a common position on the global financial crisis ahead of a major summit in London in April.
French President Nicolas Sarkozy said the world’s response to the global financial meltdown had to be profound and long-lasting, not just tinkering around the edges.
“Europe wants to see an overhaul of the system. We all agree on that. We’re not talking about superficial measures now or transitional measures — we’re talking about structural measure, which need to be taken,” he said.
German Chancellor Angela Merkel, the host of the meeting, urged nations of the world to work together to fight the problem.
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“Confidence can only be restored if people in our countries feel that we are pulling in the same direction and have understood that we really must learn lessons from this crisis,” she said.
And she proposed that a new institution grow out of the crisis, “which will take on more responsibility for global [financial] mechanisms.”
The Europeans say they have agreed international financial markets must be regulated more thoroughly. That also means stricter rules for hedge funds and credit-rating agencies.
European and world leaders have been holding frequent summits as they struggle to cope with a financial crisis that has affected banks, homeowners, businesses and employees around the world.
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London will host a meeting of the Group of 20 nations in April. The G-20 includes the G-7 leading industrialized nations — Canada, France, Germany, Italy, Japan, the United Kingdom and the United States — as well as the world’s largest developing economies: Argentina, Australia, Brazil, China, India, Indonesia, Mexico, Russia, Saudi Arabia, South Africa, South Korea and Turkey, plus the European Union.
The managing director of the International Monetary Fund and the president of the World Bank, plus the chairs of the International Monetary and Financial Committee and Development Committee of the IMF and World Bank, also participate in G-20 meetings.
And Now… The ‘Summer of Rage’ in Britain
February 23rd, 2009Please read about “Pseudo-Gangs” before you wave any signs or consider joining some dumbshit group.
The groups mentioned below are going to be crawling with counterinsurgency personnel.
Via: Guardian:
Police are preparing for a “summer of rage” as victims of the economic downturn take to the streets to demonstrate against financial institutions, the Guardian has learned.
Britain’s most senior police officer with responsibility for public order raised the spectre of a return of the riots of the 1980s, with people who have lost their jobs, homes or savings becoming “footsoldiers” in a wave of potentially violent mass protests.
Superintendent David Hartshorn, who heads the Metropolitan police’s public order branch, told the Guardian that middle-class individuals who would never have considered joining demonstrations may now seek to vent their anger through protests this year.
He said that banks, particularly those that still pay large bonuses despite receiving billions in taxpayer money, had become “viable targets”. So too had the headquarters of multinational companies and other financial institutions in the City which are being blamed for the financial crisis.
Hartshorn, who receives regular intelligence briefings on potential causes of civil unrest, said the mood at some demonstrations had changed recently, with activists increasingly “intent on coming on to the streets to create public disorder”.
The warning comes in the wake of often violent protests against the handling of the economy across Europe. In recent weeks Greek farmers have blocked roads over falling agricultural prices, a million workers in France joined demonstrations to demand greater protection for jobs and wages and Icelandic demonstrators have clashed with police in Reykjavik.
In the UK hundreds of oil refinery workers mounted wildcat strikes last month over the use of foreign workers.
Intelligence reports suggest that “known activists” are also returning to the streets, and police claim they will foment unrest. “Those people would be good at motivating people, but they haven’t had the ‘footsoldiers’ to actually carry out [protests],” Hartshorn said. “Obviously the downturn in the economy, unemployment, repossessions, changes that. Suddenly there is the opportunity for people to mass protest.
“It means that where we would possibly look at certain events and say, ‘yes there’ll be a lot of people there, there’ll be a lot of banner waving, but generally it will be peaceful’, [now] we have to make sure these elements don’t come out and hijack that event and turn that into disorder.”
Hartshorn identified April’s G20 meeting of the group of leading and developing nations in London as an event that could kick-start a challenging summer. “We’ve got G20 coming and I think that is being advertised on some of the sites as the highlight of what they see as a ‘summer of rage’,” he said.
When Consumers Cut Back: A Lesson from Japan
February 23rd, 2009See what I mean about frugality as a mode of warfare?
Via: IHT:
As recession-wary Americans adapt to a new frugality, Japan offers a peek at how thrift can take lasting hold of a consumer society, to disastrous effect.
The economic malaise that plagued Japan from the 1990s until the early 2000s brought stunted wages and depressed stock prices, turning free-spending consumers into misers and making them dead weight on Japan’s economy.
Today, years after the recovery, even well-off Japanese households use old bath water to do laundry, a popular way to save on utility bills. Sales of whiskey, the favorite drink among moneyed Tokyoites in the booming ’80s, have fallen to a fifth of their peak. And the nation is losing interest in cars; sales have fallen by half since 1990.
The Takigasaki family in the Tokyo suburb of Nakano goes further to save a yen or two. Although the family has a comfortable nest egg, Hiroko Takigasaki carefully rations her vegetables. When she goes through too many in a given week, she reverts to her cost-saving standby: cabbage stew.
“You can make almost anything with some cabbage, and perhaps some potato,” says Takigasaki, 49, who works part time at a home for people with disabilities.
Her husband has a well-paying job with the electronics giant Fujitsu, but “I don’t know when the ax will drop,” she says. “Really, we need to save much, much more.”
Japan eventually pulled itself out of the Lost Decade of the 1990s, thanks in part to a boom in exports to the United States and China. But even as the economy expanded, shell-shocked consumers refused to spend. Between 2001 and 2007, per-capita consumer spending rose only 0.2 percent.
Now, as exports dry up amid a worldwide collapse in demand, Japan’s economy is in free-fall because it cannot rely on domestic consumption to pick up the slack.
In the last three months of 2008, Japan’s economy shrank at an annualized rate of 12.7 percent, the sharpest decline since the oil shocks of the 1970s.
“Japan is so dependent on exports that when overseas markets slow down, Japan’s economy teeters on collapse,” said Hideo Kumano, an economist at the Dai-ichi Life Research Institute. “On the surface, Japan looked like it had recovered from its Lost Decade of the 1990s. But Japan in fact entered a second Lost Decade — that of lost consumption.”
The Japanese have had some good reasons to scale back spending.
Perhaps most important, the average worker’s paycheck has shrunk in recent years, even after companies rebounded and bolstered their profits.
That discrepancy is the result of aggressive cost-cutting on the part of Japanese exporters like Toyota and Sony. They, like American companies now, have sought to fend off cutthroat competition from companies in emerging economies like South Korea and Taiwan, where labor costs are low.
To better compete, companies slashed jobs and wages, replacing much of their work force with temporary workers who had no job security and fewer benefits. Nontraditional workers now make up more than a third of Japan’s labor force.
Younger people are feeling the brunt of that shift. Some 48 percent of workers age 24 or younger are temps. These workers, who came of age during a tough job market, tend to shun conspicuous consumption.
They tend to be uninterested in cars; a survey last year by the business daily Nikkei found that only 25 percent of Japanese men in their 20s wanted a car, down from 48 percent in 2000, contributing to the slump in sales.
Young Japanese women even seem to be losing their once- insatiable thirst for foreign fashion. Louis Vuitton, for example, reported a 10 percent drop in its sales in Japan in 2008.
“I’m not interested in big spending,” says Risa Masaki, 20, a college student in Tokyo and a neighbor of the Takigasakis. “I just want a humble life.”
Japan’s aging population is not helping consumption. Businesses had hoped that baby boomers — the generation that reaped the benefits of Japan’s postwar breakneck economic growth — would splurge their lifetime savings upon retirement, which began en masse in 2007. But that has not happened at the scale that companies had hoped.
Economists blame this slow spending on widespread distrust of Japan’s pension system, which is buckling under the weight of one of the world’s most rapidly aging societies. That could serve as a warning for the United States, where workers’ 401(k)’s have been ravaged by declining stocks, pensions are disappearing, and the long-term solvency of the Social Security system is in question.
Secret U.S. Unit Trains Commandos in Pakistan
February 23rd, 2009Same as it ever was.
Via: IHT:
More than 70 United States military advisers and technical specialists are secretly working in Pakistan to help its armed forces battle Al Qaeda and the Taliban in the country’s lawless tribal areas, American military officials said.
The Americans are mostly Army Special Forces soldiers who are training Pakistani Army and paramilitary troops, providing them with intelligence and advising on combat tactics, the officials said. They do not conduct combat operations, the officials added.
They make up a secret task force, overseen by the United States Central Command and Special Operations Command. It started last summer, with the support of Pakistan’s government and military, in an effort to root out Qaeda and Taliban operations that threaten American troops in Afghanistan and are increasingly destabilizing Pakistan. It is a much larger and more ambitious effort than either country has acknowledged.
Taxpayers Could Own Up to 40% of Citi’s Common Stock, Diluting Value of Shares
February 23rd, 2009But before you read about that, here’s the setup: Would CNBC Let Gasparino Say This On-Air?
Earlier this year, high-flying hedge fund Paulson & Co. retained [former Federal Reserve chief Alan Greenspan] for its “advisory board.” The firm is a noted “short seller” of banks and financial stocks – meaning it makes money when these companies’ shares fall.
The thing is, Greenspan is making public comments that inevitably influence public policy and the markets – and some of those comments may well have led to his clients making a nice profit.
In a recent speech to the Economic Club of New York, Greenspan said the recession would likely “be the longest and deepest” since the Great Depression and that Congress might have to allocate more money to save the beleaguered banking system on top of the billions already gone for the Troubled Asset Recovery Program.
Then he told the Financial Times: “It may be necessary to temporarily nationalize some banks in order to facilitate a swift and orderly restructuring” of their troubled balance sheets.
Such a move would wipe out stockholders, sending shares of banks even lower – thus likely benefiting Paulson. It would also protect bondholders, helping another Greenspan client, the large bond-firm Pimco.
Via: Wall Street Journal:
Citigroup Inc. is in talks with federal officials that could result in the U.S. government substantially expanding its ownership of the struggling bank, according to people familiar with the situation.
While the discussions could fall apart, the government could wind up holding as much as 40% of Citigroup’s common stock. Bank executives hope the stake will be closer to 25%, these people said.
Any such move would give federal officials far greater influence over one of the world’s largest financial institutions. Citigroup has proposed the plan to its regulators. The Obama administration hasn’t indicated if it supports the plan, according to people with knowledge of the talks.
When federal officials began pumping capital into U.S. banks last October, few experts would have predicted that the government would soon be wrestling with the possibility of taking voting control of large financial institutions. The potential move at Citigroup would give the government its biggest ownership of a financial-services company since the September bailout of insurer American International Group Inc., which left taxpayers with an 80% stake.
The talks reflect a growing fear that Citigroup and other big U.S. banks could be overwhelmed by losses amid the recession and housing crisis. Last week, Citigroup’s share price fell below $2 to an 18-year low. Bank executives increasingly believe that the government needs to take a larger ownership stake in the institution to stop the slide.
Under the scenario being considered, a substantial chunk of the $45 billion in preferred shares held by the government would convert into common stock, people familiar with the matter said. The government obtained those shares, equivalent to a 7.8% stake, in return for pumping capital into Citigroup.
The move wouldn’t cost taxpayers additional money, but other Citigroup shareholders would see their stock diluted. A larger ownership stake by the government could fuel speculation that other troubled banks will line up for similar agreements.
Bank of America Corp. said Sunday that it isn’t discussing a larger ownership stake for the government. “There are no talks right now over that issue,” said Bank of America spokesman Robert Stickler. “We see no reason to do that. We believe the goal of public policy should be to attract private capital into the bank, not to discourage it.”
Shareholders’ Fears
Citigroup’s low share price already reflects, at least in part, a fear among shareholders that their stakes might be further diluted. A government move to take a big stake could backfire, potentially spurring investors to flee other banks, even healthier ones.
Research Credit: ltcolonelnemo
Roubini: The Banks That Were Too Big to Fail Are Now Even Bigger to Fail; He Sees Nationalization and Breakups Ahead
February 23rd, 2009What does this mean for the dollar? Two economics professors discuss what would be the most radical financial policy in the U.S. in the last century and the fate of the dollar doesn’t come up once?
All of this bailout nonsense seems to have been a series of shell games. The pea they’re trying to hide represents the big bomb contained on the balance sheets of the banks that we still don’t know about.
What happens when these banks are finally nationalized? What finally happens to the pea/bomb?
How do you “clean them up” as Roubini says, without the dollar collapsing?
Via: Wall Street Journal:
Mr. Roubini tells me that bank nationalization “is something the partisans would have regarded as anathema a few weeks ago. But when I and others put it in the context of the Swedish approach [of the 1990s] — i.e. you take banks over, you clean them up, and you sell them in rapid order to the private sector — it’s clear that it’s temporary. No one’s in favor of a permanent government takeover of the financial system.”
There’s another reason why the concept should appeal to (fiscal) conservatives, he explains. “The idea that government will fork out trillions of dollars to try to rescue financial institutions, and throw more money after bad dollars, is not appealing because then the fiscal cost is much larger. So rather than being seen as something Bolshevik, nationalization is seen as pragmatic. Paradoxically, the proposal is more market-friendly than the alternative of zombie banks.”
In any case, Republicans must now temper their reactions, he says. “The kind of government interference in the economy that we saw in the last year of Bush was unprecedented. The central bank — supposed to be the lender of the last resort — became the lender of first and only resort! With our recapitalizing of financial institutions, and massive government intervention in the markets, we’ve already crossed a significant bridge.”
So, will the highest level of government be receptive to the bank-nationalization idea? “I think it will,” Mr. Roubini says, unhesitatingly. “People like Graham and Greenspan have already given their explicit blessing. This gives Obama cover.” And how long will it be before the administration goes in formally for nationalization? “I think that we’re going to see the policy adopted in the next few months . . . in six months or so.”
That long? I ask. “Six months from now,” he replies, “even firms that today look solvent are going to look insolvent. Most of the major banks — almost all of them — are going to look insolvent. In which case, if you take them all over all at once, you cause less damage than if you would if you took over a couple now, and created so much confusion and panic and nervousness.
“Between guarantees, liquidity support, and capitalization, the government has provided between $7 trillion to $9 trillion of help to the financial system. De facto, the government is already controlling a good chunk of the banking system. The question is: Do you want to move to the de jure step.”
Yet another reason why bank nationalization is a good idea, Mr. Roubini continues, is that “we started with banks that were too big to fail, but what has happened, in the process, is that these banks have become even-bigger-to-fail. J.P. Morgan took over Bear Stearns and WaMu. BofA took over Countrywide and then Merrill. Wells Fargo took over Wachovia. It doesn’t work! You can’t take two zombie banks, put them together, and make a strong bank. It’s like having two drunks trying to keep each other standing.
“So if you took over a big bank, and you split the assets in three or four pieces, maybe you create three or four regional or national banks, and they’re stronger! Nationalization — or ‘temporary receivership,’ if you like, if the N-word is a political liability — is an occasion to undo the sort of consolidation that has created an even bigger systemic problem. And the only way to do it is by essentially taking them over and breaking them up.”
Financial Crises And Public Finances: Where Is The Greatest Risk?
February 22nd, 2009Does the band play on for U.S. Treasuries?
This looks like a beauty pageant in a leper colony.
Via: BCA Research:
Our fixed income team has just published a Special Report comparing 22 developed government debt in the face of the current financial crisis.
The Special Report reviewed the vulnerability of these markets to rating downgrades as well as focused on the risks and potential costs associated with stabilizing their banking systems (after analyzing 150 banks around the world). A further loss of as little as 3% on total bank assets would wipe out most, if not all, of the remaining tangible bank capital in the countries we analyzed. U.K., Ireland, Denmark and Switzerland have the greatest risk of widespread nationalization (outside of Iceland). When the other main factors that determine overall sovereign credit risk are included (e.g. economic structure and prospects, monetary flexibility, fiscal flexibility, and external liquidity dependence) Iceland, Portugal, Ireland, Spain, Italy and the U.K. are at the top in terms of the risk of downgrades. The cost of cleaning up the U.S. banking system will also be painful, although the risk of a sovereign downgrade is less than in most of the other developed countries.
Research Credit: pookie
Warning Against Adverse Health Effects From the Operation of Digital Broadcast Television
February 22nd, 2009PDF download is available, but you need a free ScribD account.
Via: ScribD:
Warning Against Adverse Health Effects From the Operation of Digital Broadcast
Blank Spots on the Map Contest Results Posted
February 22nd, 2009Blank Spots on the Map: The Dark Geography of the Pentagon’s Secret World
