It's hard to believe that all the furor about Aig handing out bonuses has commanded so much attention and rhetoric.
Regardless where a person stands on this subject, IMO the publicity has already done it's job, taking the spotlight off of the inept thieves otherwise known as Congress .
What we all should be thinking about is the irresponsibility of the blowhards in Congress who DO NOT REALLY GIVE A DAMN ABOUT WHAT'S BEST FOR AMERICA. They are so busy trying to barbecue AIG and those who contracted for bonuses long before the bailout of AIG started. Now they want names of addresses of all those who received a bonus. One good way to keep the spotlight on something beside themselves.
One of the talk show commentators mentioned how good these thieves are in switching the subject to get the heat off of themselves.
This really got me started thinking about the true motives of these crooks who really care about only three things.
1. Money ----- 2. Power ----- 3. Getting re-elected ( which perpetuates #1 and #2
As a forum, which should have as one its primary reasons for existing, is exposing the antics and the thievery which is so prominent today and printing the names of those who care nothing about throwing our country under the bus as long as they can lurk in the shadows and not be associated with their money grubbing little scams.
One of their many shadowy little thieving games is the one they call " Ear Marks ".
Personally, I am going to learn more about this and you can bet that when I do, I am going to associate the act with the NAME of the hypocrite behind it.
I believe it would be wonderful if our forum were to be read by people throughout the U.S. and the world, with the name
of a government employee, especially one who lurks in the chambers of of the institution which we call Congress, including the issue and the names of those who sponsored it and voted for it. This includes those in the house and those in the Senate and anyone else who is part of the scheme. How about if this were to occur, week after week, relentlessly?
A.B.
Full Version: AIG - The Great Diversion
Common Ground Common Sense > National & International News > Daily National and International News > National News Archive
QUOTE(Abu Beacon @ Mar 19 2009, 03:03 PM) 
It's hard to believe that all the furor about Aig handing out bonuses has commanded so much attention and rhetoric.
Regardless where a person stands on this subject, IMO the publicity has already done it's job, taking the spotlight off of the inept thieves otherwise known as Congress .
What we all should be thinking about is the irresponsibility of the blowhards in Congress who DO NOT REALLY GIVE A DAMN ABOUT WHAT'S BEST FOR AMERICA. They are so busy trying to barbecue AIG and those who contracted for bonuses long before the bailout of AIG started. Now they want names of addresses of all those who received a bonus. One good way to keep the spotlight on something beside themselves.
One of the talk show commentators mentioned how good these thieves are in switching the subject to get the heat off of themselves.
This really got me started thinking about the true motives of these crooks who really care about only three things.
1. Money ----- 2. Power ----- 3. Getting re-elected ( which perpetuates #1 and #2
As a forum, which should have as one its primary reasons for existing, is exposing the antics and the thievery which is so prominent today and printing the names of those who care nothing about throwing our country under the bus as long as they can lurk in the shadows and not be associated with their money grubbing little scams.
One of their many shadowy little thieving games is the one they call " Ear Marks ".
Personally, I am going to learn more about this and you can bet that when I do, I am going to associate the act with the NAME of the hypocrite behind it.
I believe it would be wonderful if our forum were to be read by people throughout the U.S. and the world, with the name
of a government employee, especially one who lurks in the chambers of of the institution which we call Congress, including the issue and the names of those who sponsored it and voted for it. This includes those in the house and those in the Senate and anyone else who is part of the scheme. How about if this were to occur, week after week, relentlessly?
A.B.
Regardless where a person stands on this subject, IMO the publicity has already done it's job, taking the spotlight off of the inept thieves otherwise known as Congress .
What we all should be thinking about is the irresponsibility of the blowhards in Congress who DO NOT REALLY GIVE A DAMN ABOUT WHAT'S BEST FOR AMERICA. They are so busy trying to barbecue AIG and those who contracted for bonuses long before the bailout of AIG started. Now they want names of addresses of all those who received a bonus. One good way to keep the spotlight on something beside themselves.
One of the talk show commentators mentioned how good these thieves are in switching the subject to get the heat off of themselves.
This really got me started thinking about the true motives of these crooks who really care about only three things.
1. Money ----- 2. Power ----- 3. Getting re-elected ( which perpetuates #1 and #2
As a forum, which should have as one its primary reasons for existing, is exposing the antics and the thievery which is so prominent today and printing the names of those who care nothing about throwing our country under the bus as long as they can lurk in the shadows and not be associated with their money grubbing little scams.
One of their many shadowy little thieving games is the one they call " Ear Marks ".
Personally, I am going to learn more about this and you can bet that when I do, I am going to associate the act with the NAME of the hypocrite behind it.
I believe it would be wonderful if our forum were to be read by people throughout the U.S. and the world, with the name
of a government employee, especially one who lurks in the chambers of of the institution which we call Congress, including the issue and the names of those who sponsored it and voted for it. This includes those in the house and those in the Senate and anyone else who is part of the scheme. How about if this were to occur, week after week, relentlessly?
A.B.
Let's start out by mentioning the Senator from Connecticut, and one of his lesser little ways of gaming the system.
( There more - many more )
The V.I.P. loans to public officials in a position to advance Countrywide’s interests raise legal and ethical questions. Countrywide’s ethics code bars directors, officers and employees from “improperly influencing the decisions of government employees or contractors by offering or promising to give money, gifts, loans, rewards, favors, or anything else of value.” Federal employees are prohibited from receiving gifts offered because of their official position, including loans on terms not generally available to the public. [color="#FF0000"]Senate rules prohibit members from knowingly receiving gifts worth $100 or more in a calendar year from private entities that, like Countrywide, employ a registered lobbyist.[/color]
Senator Dodd received two loans in 2003 through Countrywide’s V.I.P. program. He borrowed $506,000 to refinance his Washington townhouse, and $275,042 to refinance a home in East Haddam, Connecticut. Countrywide waived three-eighths of a point, or about $2,000, on the first loan, and one-fourth of a point, about $700, on the second, according to internal documents. Both loans were for 30 years, with the first five years at a fixed rate.
The interest rate on the loans, originally pegged at 4.875%, was reduced to 4.25% on the Washington home and 4.5% on the Connecticut property by the time the loans were funded. The lower rates save the senator about $58,000 on his Washington residence over the life of the loan, and $17,000 on the Connecticut home. The former employee says the float-downs were free. Senator Dodd’s wife, Jackie Clegg, said in a brief interview that two other lenders they checked with offered comparable interest rates. The senator’s office said Thursday afternoon that it is preparing a response.
Countrywide has also contributed a total of $21,000 to Dodd’s campaigns since 1997. While a presidential candidate last year, he filed a bill to ban lenders from charging prepayment penalties and steering home buyers to more costly loans—both practices in which Countrywide reportedly engaged. He also called for criminal charges for such predatory lending.
A spokeswoman for Countrywide, which is slated to be acquired by Bank of America, declined to comment. A Bank of America spokesman said that senior executives there “do not get involved in the origination of mortgages,” but will refer inquiring friends to the right loan programs.
Additional reporting by Julia Ramey; this story was adapted from a feature in an upcoming issue of Condé Nast Portfolio.
A.B.
I agree that the bonuses are a diversion, but I don't think members of congress had/have the necessary skill set to understand the complex nature of the financial products in question. I would submit that if Alan Greenspan didn't understand these instruments, it was unlikely that congress could. I think the people that were charged with oversight at the SEC, should have been trained to assess these instruments and their inpact, but since they were not trained this way, then the onus must be placed on the AIG executives. The board of directors were charged with understanding these assets, they should be held accountable for them.
QUOTE(heart @ Mar 19 2009, 04:34 PM)
I agree that the bonuses are a diversion, but I don't think members of congress had/have the necessary skill set to understand the complex nature of the financial products in question. I would submit that if Alan Greenspan didn't understand these instruments, it was unlikely that congress could. I think the people that were charged with oversight at the SEC, should have been trained to assess these instruments and their inpact, but since they were not trained this way, then the onus must be placed on the AIG executives. The board of directors were charged with understanding these assets, they should be held accountable for them.
Greenspan didn't understand?
they are BETS.
GAMBLING.
Insurance policies without the rock of gibraltar.
Let's be sure we get the whole picture and not just selective parts -- here is an excerpt from a trusted website:
Countrywide and its employees have contributed $1.3 million to political parties, candidates and committees since the 1990 election cycle, according to the CRP. Nearly 60 percent of that went to Republicans and 40 percent to Democrats.
http://www.citizensforethics.org/node/32068
This game results from the method for financing elections.....until an alternative is adopted we are stuck with both sides getting plastered with dough from sources seeking favored treatment at some point.
lenal
Countrywide and its employees have contributed $1.3 million to political parties, candidates and committees since the 1990 election cycle, according to the CRP. Nearly 60 percent of that went to Republicans and 40 percent to Democrats.
http://www.citizensforethics.org/node/32068
This game results from the method for financing elections.....until an alternative is adopted we are stuck with both sides getting plastered with dough from sources seeking favored treatment at some point.
lenal
It's good to see you posting in here, Mr. A.B. and telling it like it should be said ...
The loans don't look out of line, negotiations with that kind of results were pretty common for people with good credit and sufficient income.
Am I the only one amused by Dodd being stupid enough to take out 2 ARMs? Actually that's the odd part, his being steered to ARMs instead of fixed rate, he didn't get a bribe, he got taken.
Am I the only one amused by Dodd being stupid enough to take out 2 ARMs? Actually that's the odd part, his being steered to ARMs instead of fixed rate, he didn't get a bribe, he got taken.
QUOTE(heart @ Mar 19 2009, 05:34 PM)
I agree that the bonuses are a diversion, but I don't think members of congress had/have the necessary skill set to understand the complex nature of the financial products in question.
I would submit that if Alan Greenspan didn't understand these instruments, it was unlikely that congress could.
I would submit that if Alan Greenspan didn't understand these instruments, it was unlikely that congress could.
QUOTE(Livyjr @ Jan 19 2008, 03:02 PM)
FROM THE DEPARTMENT OF HAVEN'T WE BEEN HERE BEFORE?
Testimony of Chairman Alan Greenspan - Private-sector refinancing of the large hedge fund, Long-Term Capital Management Before the Committee on Banking and Financial Services, U.S. House of Representatives"
October 1, 1998
Mr. Chairman and other members of the Committee, I thank you for this opportunity to report on the Federal Reserve's role in facilitating the private-sector refinancing of the large hedge fund, Long-Term Capital Management (LTCM).
In my remarks this morning, I will attempt to put into some perspective the events of the past few weeks and discuss some questions of importance to public policy makers that they raise.
The Federal Reserve Bank of New York's efforts were designed solely to enhance the probability of an orderly private-sector adjustment, not to dictate the path that adjustment would take.
As President McDonough just related, no Federal Reserve funds were put at risk, no promises were made by the Federal Reserve, and no individual firms were pressured to participate.
Officials of the Federal Reserve Bank of New York facilitated discussions in which the private parties arrived at an agreement that both served their mutual self interest and avoided possible serious market dislocations.
Financial market participants were already unsettled by recent global events.
Had the failure of LTCM triggered the seizing up of markets, substantial damage could have been inflicted on many market participants, including some not directly involved with the firm, and could have potentially impaired the economies of many nations, including our own.
With credit spreads already elevated and the market prices of risky assets under considerable downward pressure, Federal Reserve officials moved more quickly to provide their good offices to help resolve the affairs of LTCM than would have been the case in more normal times.
In effect, the threshold of action was lowered by the knowledge that markets had recently become fragile.
Moreover, our sense was that the consequences of a fire sale triggered by cross-default clauses, should LTCM fail on some of its obligations, risked a severe drying up of market liquidity.
The plight of LTCM might scarcely have caused a ripple in financial markets or among federal regulators 18 months ago--but in current circumstances it was judged to warrant attention.
What is remarkable is not this episode, but the relative absence of such examples over the past five years.
Dynamic markets periodically engender large defaults.
Events of the Past Few Weeks
LTCM is a hedge fund, or a mutual fund that is structured to avoid regulation by limiting its clientele to a small number of highly sophisticated, very wealthy individuals and that seeks high rates of return by investing and trading in a variety of financial instruments.
Since its founding in 1994, LTCM has had a prominent position in the community of hedge funds, in part because of its assemblage of talent in pricing and trading financial instruments, as well as its large initial capital stake.
In its first few years of business, it earned an enviable reputation by racking up a string of above-normal returns for its investors.
LTCM appears principally to have garnered those returns by making judgments on interest rate spreads and the volatilities of market prices.
In its search for high return, LTCM levered its capital through securities repurchase contracts and derivatives transactions, relying on sophisticated mathematical models of behavior to guide those transactions.
As long as the configuration of returns generally mimicked their historical patterns, LTCM's mathematical models of asset pricing could be used to ferret out temporary market price anomalies.
Their trading both closed such price gaps and earned an extra bit of return on capital for them.
But it is the nature of the competitive process driving financial innovation that such techniques would be emulated, making it ever more difficult to find market anomalies that provided shareholders with a high return.
Indeed, the very efficiencies that LTCM and its competitors brought to the overall financial system gradually reduced the opportunities for above-normal profits.
Indeed, LTCM acknowledged this when returning $2-3/4 billion of capital to investors at the end of 1997.
To counter these diminishing opportunities, LTCM apparently reached further for return over time by employing more leverage and increasing its exposure to risk, a strategy that was destined to fail.
Unfortunately for its shareholders, LTCM chose this exposure just as financial market uncertainty and investor risk aversion began to rise rapidly around the world.
In that environment--so at variance with the experience built into its models--LTCM's embrace of risk on a large scale produced stunning losses.
As we now know, by the end of August the firm had lost half its capital base.
And as September unfolded, the bleeding continued.
The firm, however, apparently did not unwind its positions significantly.
In our dynamic market economy, investors and traders, at times, make misjudgments.
When market prices and interest rates adjust promptly to evidence of such mistakes, their consequences are generally felt mostly by the perpetrators and, thus, rarely cumulate to pose significant problems for the financial system as a whole.
Indeed, the operation of an effective market economy necessitates that investment funds committed to capital projects that do not accurately reflect consumer and business preferences should incur losses and ultimately be liquidated.
What value is left needs to be redirected to profitable uses--those that more accurately reflect market preferences.
By such winnowing of inefficiencies, productivity is enhanced and standards of livings expand over time.
Financial markets operate efficiently only when participants can commit to transactions with reasonable confidence that the risk of nonpayment can be rationally judged and compensated for.
Effective and seasoned markets pass this test almost all of the time.
On rare occasions, they do not.
Fear, whether irrational or otherwise, grips participants and they unthinkingly disengage from risky assets in favor of those providing safety and liquidity.
The subtle distinctions that investors make, so critical to the effective operation of financial markets, are abandoned.
Assets, good and bad, are dumped indiscriminately in circumstances of high uncertainty and fear that are not conducive to planning and investment.
Such circumstances, were they generalized and persistent, would be wholly inconsistent with the functioning of sophisticated economies supported by long-term capital investment.
Quickly unwinding a complicated portfolio that contains exposure to all manner of risks, such as that of LTCM, in such market conditions amounts to conducting a fire sale.
The prices received in a time of stress do not reflect longer-run potential, adding to the losses incurred.
Of course, a fire sale that transfers wealth from one set of sophisticated market players to another, without any impact on the financial system overall, should not be a concern for the central bank.
Moreover, creditors should reasonably be expected to put some weight on the possibility of a large market swing when making their risk assessments.
Indeed, when we examine banks we expect them to have systems in place that take account of outsized market moves.
[size=3]However, a fire sale may be sufficiently intense and widespread that it seriously distorts markets and elevates uncertainty enough to impair the overall functioning of the economy.
Sophisticated economic systems cannot thrive in such an atmosphere. 1
The scale and scope of LTCM's operations, which encompassed many markets, maturities, and currencies and often relied on instruments that were thinly traded and had prices that were not continuously quoted, made it exceptionally difficult to predict the broader ramifications of attempting to close out its positions precipitately.
That its mistakes should be unwound and losses incurred was never open to question.
How they should be unwound and when those losses incurred so as to foster the continued smooth operation of financial markets was much more difficult to assess.
The price gyrations that would have evolved from a fire sale would have reflected fear-driven judgments that could only impair effective market functioning and generate losses for innocent bystanders.
While the principle that fire sales undermine the effective functioning of markets may be clear, deciding when a potential market disruption rises to a level of seriousness warranting central bank involvement is among the most difficult judgments that ever confronts a central banker.
In situations like this, there is no reason for central bank involvement unless there is a substantial probability that a fire sale would result in severe, widespread, and prolonged disruptions to financial market activity.
It was the judgment of officials at the Federal Reserve Bank of New York, who were monitoring the situation on an ongoing basis, that the act of unwinding LTCM's portfolio in a forced liqudiation would not only have a significant distorting impact on market prices but also in the process could produce large losses, or worse, for a number of creditors and counterparties, and for other market participants who were not directly involved with LTCM.
In that environment, it was the FRBNY's judgment that it was to the advantage of all parties--including the creditors and other market participants--to engender if at all possible an orderly resolution rather than let the firm go into disorderly fire-sale liquidation following a set of cascading cross defaults.
As President McDonough has detailed, officers of the Federal Reserve Bank of New York contacted a number of creditors and asked if there were alternatives to forcing the firm into bankruptcy.
At the same time, FRBNY officers informed some of their colleagues at the Federal Reserve Board, the Treasury, and other financial regulators of their ongoing activities.
The troubles of LTCM were not a complete surprise to its counterparties.
After all, LTCM's earlier statements regarding its August losses were well known, and sophisticated counterparties understood the difficulties in closing out large losing positions.
In addition, the commercial banks among its creditors had already begun taking normal precautionary measures associated with exposure to counterparties whose condition is deteriorating.
Still, creditors as a whole most likely underestimated the size and scope of the market bets that LTCM was undertaking, an issue that is currently under review.
On September 23, the private sector parties arrived at an agreement providing a capital infusion of about $3-1/2 billion in return for substantially diluting existing shareholders' stake in LTCM.
Control of the firm passed from the current management to a committee determined from the outside by the new investors.
Those investors intend to shrink LTCM's portfolio so as to reduce risk of loss and return the remaining capital to the investors as soon as practicable.
I do not rule out the possibility that the new owners of what is left of LTCM may decide to keep part of it in business.
That is their judgment to make.
This agreement was not a government bailout, in that Federal Reserve funds were neither provided nor ever even suggested.
Agreements were not forced upon unwilling market participants.
Creditors and counterparties calculated that LTCM and, accordingly, their claims, would be worth more over time if the liquidation of LTCM's portfolio was orderly as opposed to being subject to a fire sale.
And with markets currently volatile and investors skittish, putting a special premium on the timely resolution of LTCM's problems seemed entirely appropriate as a matter of public policy.
Of course, any time that there is public involvement that softens the blow of private-sector losses--even as obliquely as in this episode--the issue of moral hazard arises.
Any action by the government that prevents some of the negative consequences to the private sector of the mistakes it makes raises the threshold of risks market participants will presumably subsequently choose to take.
Over time, economic efficiency will be impaired as some uneconomic investments are undertaken under the implicit assumption that possible losses may be borne by the government.
But is much moral hazard created by aborting fire sales?
To be sure, investors wiped out in a fire sale will clearly be less risk prone than if their mistakes were unwound in a more orderly fashion.
But is the broader market well served if the resulting fear and other irrational judgments govern the degree of risk participants are subsequently willing to incur?
Risk taking is a necessary condition for wealth creation.
The optimum degree of risk aversion should be governed by rational judgments about the market place, not the fear flowing from fire sales.
The Federal Reserve provided its good offices to LTCM's creditors, not to protect LTCM's investors, creditors, or managers from loss, but to avoid the distortions to market processes caused by a fire-sale liquidation and the consequent spreading of those distortions through contagion.
To be sure, this may well work to reduce the ultimate losses to the original owners of LTCM, but that was a byproduct, perhaps unfortunate, of the process.
I should add that, in order to keep incentives working in their favor, the creditors of LTCM apparently also understood the importance of some cushioning of the losses to the owners and managers of the firm.
The private creditors and counterparties in the rescue package chose to preserve a sliver of equity for the original owners--one tenth--so that some of the management would have an incentive to stay with the firm to assist in the liquidation of the portfolio.
Regrettably, the creditors felt that, given the complexity of market bets woven into a bewildering arrray of financial contracts, working with the existing management would be far easier than starting from scratch.
Some Questions for Policy Makers
Without doubt, extensive study will be required to put the events of the past few weeks into proper perspective.
As a member of the President's Working Group on Financial Markets, I support Secretary Rubin's call for a special study on the public policy implications of hedge funds.
While the affairs of LTCM are by no means settled, I would like to pose some tentative questions that may have to be addressed.
First, how much dependence should be placed on financial modeling, which, for all its sophistication, can get too far ahead of human judgment?
This decade is strewn with examples of bright people who thought they had built a better mousetrap that could consistently extract an abnormal return from financial markets.
Some succeed for a time.
But while there may occasionally be misconfigurations among market prices that allow abnormal returns, they do not persist.
Indeed, efforts to take advantage of such misalignments force prices into better alignment and are soon emulated by competitors, further narrowing, or eliminating, any gaps.
No matter how skillful the trading scheme, over the long haul, abnormal returns are sustained only through abnormal exposure to risk.
Second, what steps could counterparties have taken to ensure that they had properly estimated their exposure, particularly in markets that are volatile?
To an important degree, the creditors of LTCM were induced to infuse capital into the firm because they failed to stress test their counterparty exposures adequately and therefore underestimated the size of the uncollateralized exposure that they could face in volatile and illiquid markets.
In part, this also reflected an underappreciation of the volume and nature of the risks LTCM had undertaken and its relative size in the overall market.
By failing to make those determinations, its fellow market participants failed to put an adequate brake on LTCM's use of leverage.
To be sure, sometimes decisions are based on judgments about the soundness of borrowers that are accepted from third parties or, possibly in this case, that are founded on the impressive qualifications of LTCM's principals.
In some cases, such truncated risk appraisals may be accurate, but they are not a substitute for a rigorous analysis by the lender of the borrower's overall credit worthiness and risk profile.
Third, in this regard what lessons are there for bank regulators?
Domestic commercial bank exposure to LTCM included both direct lending and acting as counterparties to the firm in derivatives contracts.
A preliminary review of bank dealings with LTCM suggests that the banks have collateral adequate to cover most of their current mark-to-market exposures with LTCM.
The unexpected surge in risk aversion and the dramatic opening up of interest rate spreads in August obviously caught LTCM wrong footed.
Counterparties, including banks, continued to collect collateral for marks to market.
What they were not collateralized against was the losses that might have occurred when prices moved even further and market liquidity dried up in a fire sale.
Supervisors of banks and security firms must assess whether current procedures regarding stress testing and counterparty assessment could have been improved to enable counterparties to take steps to insulate themselves better from LTCM's debacle.
More important will be the assessment of whether those procedures are adequate for the future.
But this is an area in which much work has been ongoing.
During the fourth quarter of 1997 and the first quarter of 1998, supervision staff of the Federal Reserve Bank of New York and the Board met with managers at several major New York banking institutions to discuss their current relationships with hedge funds, updating a similar study conducted 3-1/2 years earlier.
Fourth, does the fact that investors have lost most of their capital and creditors may take some losses on their exposure to LTCM call for direct regulation of hedge funds?
It is questionable whether hedge funds can be effectively directly regulated in the United States alone.
While their financial clout may be large, hedge funds' physical presence is small.
Given the amazing communication capabilities available virtually around the globe, trades can be initiated from almost any location.
Indeed, most hedge funds are only a short step from cyberspace.
Any direct U.S. regulations restricting their flexibility will doubtless induce the more aggressive funds to emigrate from under our jurisdiction.
The best we can do in my judgment is what we do today: Regulate them indirectly through the regulation of the sources of their funds.
We are thus able to monitor far better hedge funds' activity, especially as they influence U.S financial markets.
If the funds move abroad, our oversight will diminish.
In the first line of risk defense, if I may put it that way, are hedge funds' lenders and counterparties.
Commercial and investment banks especially have the analytic skills to judge the degree of risk to which the funds are exposed.
Their self interest has, with few exceptions but including the one we are discussing today, controlled the risk posed by hedge funds.
Banking supervisors are the second line of risk defense in their examination of lending procedures for safety and soundness.
We neither try, nor should we endeavor, to micro-manage bank lending activity.
We have nonetheless built up significant capabilities in evaluating the complex lending practices in OTC derivatives markets and hedge funds.
If, somehow, hedge funds were barred worldwide, the American financial system would lose the benefits conveyed by their efforts, including arbitraging price differentials away.
The resulting loss in efficiency and contribution to financial value added and the nation's standard of living would be a high price to pay--to my mind, too high a price.
Fifth, how much weight should concerns about moral hazard be given when designing mechanisms for governmental regulation of markets?
By way of example, we should note that were banks required by the market, or their regulator, to hold 40 percent capital against assets as they did after the Civil War, there would, of course, be far less moral hazard and far fewer instances of fire-sale market disruptions.
At the same time, far fewer banks would be profitable, the degree of financial intermediation less, capital would be more costly, and the level of output and standards of living decidely lower.
Our current economy, with its wide financial safety net, fiat money, and highly leveraged financial institutions, has been a conscious choice of the American people since the 1930s.
We do not have the choice of accepting the benefits of the current system without its costs.
Conclusion
For so long as there have been financial markets, participants have had on occasion to weigh the costs and, especially, the externalities associated with fire-sale liquidations of troubled entities against short-term assistance to tide the firms over for a time.
It was such a balancing of near-term costs and longer-term benefits that presumably led J.P. Morgan to convene the leading bankers of his age--both commercial and investment--in his library in 1907 to address the severe panic of that year.
Such episodes were recognized as among those rare occasions when otherwise highly effective markets seize up and temporary ad hoc responses were required.
The convening of LTCM investors and lenders last week at the Federal Reserve Bank of New York could be viewed in that long tradition.
It should similarly be viewed as a rare occasion, warranted because of the potential for serious disruptions to markets.
We must also remain mindful where to draw the line at which public-sector involvement ends.
The efforts last week were limited to facilitating a private-sector agreement and had no implications for Federal Reserve resources or policies.
Footnotes
1 At the same time, not all fire sales are without merit.
The Resolution Trust Corporation earlier this decade chose to offer commercial real estate in what might be termed a fire sale because it was the only way an otherwise seized-up market could be galvanized.
Some level of market prices had to be established--even if below "intrinsic" or longer-run value in order to re-establish a two-way market.
This was a special case.
http://www.federalreserve.gov/boarddocs/te...ny/19981001.htm
Testimony of Chairman Alan Greenspan - Private-sector refinancing of the large hedge fund, Long-Term Capital Management Before the Committee on Banking and Financial Services, U.S. House of Representatives"
October 1, 1998
Mr. Chairman and other members of the Committee, I thank you for this opportunity to report on the Federal Reserve's role in facilitating the private-sector refinancing of the large hedge fund, Long-Term Capital Management (LTCM).
In my remarks this morning, I will attempt to put into some perspective the events of the past few weeks and discuss some questions of importance to public policy makers that they raise.
The Federal Reserve Bank of New York's efforts were designed solely to enhance the probability of an orderly private-sector adjustment, not to dictate the path that adjustment would take.
As President McDonough just related, no Federal Reserve funds were put at risk, no promises were made by the Federal Reserve, and no individual firms were pressured to participate.
Officials of the Federal Reserve Bank of New York facilitated discussions in which the private parties arrived at an agreement that both served their mutual self interest and avoided possible serious market dislocations.
Financial market participants were already unsettled by recent global events.
Had the failure of LTCM triggered the seizing up of markets, substantial damage could have been inflicted on many market participants, including some not directly involved with the firm, and could have potentially impaired the economies of many nations, including our own.
With credit spreads already elevated and the market prices of risky assets under considerable downward pressure, Federal Reserve officials moved more quickly to provide their good offices to help resolve the affairs of LTCM than would have been the case in more normal times.
In effect, the threshold of action was lowered by the knowledge that markets had recently become fragile.
Moreover, our sense was that the consequences of a fire sale triggered by cross-default clauses, should LTCM fail on some of its obligations, risked a severe drying up of market liquidity.
The plight of LTCM might scarcely have caused a ripple in financial markets or among federal regulators 18 months ago--but in current circumstances it was judged to warrant attention.
What is remarkable is not this episode, but the relative absence of such examples over the past five years.
Dynamic markets periodically engender large defaults.
Events of the Past Few Weeks
LTCM is a hedge fund, or a mutual fund that is structured to avoid regulation by limiting its clientele to a small number of highly sophisticated, very wealthy individuals and that seeks high rates of return by investing and trading in a variety of financial instruments.
Since its founding in 1994, LTCM has had a prominent position in the community of hedge funds, in part because of its assemblage of talent in pricing and trading financial instruments, as well as its large initial capital stake.
In its first few years of business, it earned an enviable reputation by racking up a string of above-normal returns for its investors.
LTCM appears principally to have garnered those returns by making judgments on interest rate spreads and the volatilities of market prices.
In its search for high return, LTCM levered its capital through securities repurchase contracts and derivatives transactions, relying on sophisticated mathematical models of behavior to guide those transactions.
As long as the configuration of returns generally mimicked their historical patterns, LTCM's mathematical models of asset pricing could be used to ferret out temporary market price anomalies.
Their trading both closed such price gaps and earned an extra bit of return on capital for them.
But it is the nature of the competitive process driving financial innovation that such techniques would be emulated, making it ever more difficult to find market anomalies that provided shareholders with a high return.
Indeed, the very efficiencies that LTCM and its competitors brought to the overall financial system gradually reduced the opportunities for above-normal profits.
Indeed, LTCM acknowledged this when returning $2-3/4 billion of capital to investors at the end of 1997.
To counter these diminishing opportunities, LTCM apparently reached further for return over time by employing more leverage and increasing its exposure to risk, a strategy that was destined to fail.
Unfortunately for its shareholders, LTCM chose this exposure just as financial market uncertainty and investor risk aversion began to rise rapidly around the world.
In that environment--so at variance with the experience built into its models--LTCM's embrace of risk on a large scale produced stunning losses.
As we now know, by the end of August the firm had lost half its capital base.
And as September unfolded, the bleeding continued.
The firm, however, apparently did not unwind its positions significantly.
In our dynamic market economy, investors and traders, at times, make misjudgments.
When market prices and interest rates adjust promptly to evidence of such mistakes, their consequences are generally felt mostly by the perpetrators and, thus, rarely cumulate to pose significant problems for the financial system as a whole.
Indeed, the operation of an effective market economy necessitates that investment funds committed to capital projects that do not accurately reflect consumer and business preferences should incur losses and ultimately be liquidated.
What value is left needs to be redirected to profitable uses--those that more accurately reflect market preferences.
By such winnowing of inefficiencies, productivity is enhanced and standards of livings expand over time.
Financial markets operate efficiently only when participants can commit to transactions with reasonable confidence that the risk of nonpayment can be rationally judged and compensated for.
Effective and seasoned markets pass this test almost all of the time.
On rare occasions, they do not.
Fear, whether irrational or otherwise, grips participants and they unthinkingly disengage from risky assets in favor of those providing safety and liquidity.
The subtle distinctions that investors make, so critical to the effective operation of financial markets, are abandoned.
Assets, good and bad, are dumped indiscriminately in circumstances of high uncertainty and fear that are not conducive to planning and investment.
Such circumstances, were they generalized and persistent, would be wholly inconsistent with the functioning of sophisticated economies supported by long-term capital investment.
Quickly unwinding a complicated portfolio that contains exposure to all manner of risks, such as that of LTCM, in such market conditions amounts to conducting a fire sale.
The prices received in a time of stress do not reflect longer-run potential, adding to the losses incurred.
Of course, a fire sale that transfers wealth from one set of sophisticated market players to another, without any impact on the financial system overall, should not be a concern for the central bank.
Moreover, creditors should reasonably be expected to put some weight on the possibility of a large market swing when making their risk assessments.
Indeed, when we examine banks we expect them to have systems in place that take account of outsized market moves.
[size=3]However, a fire sale may be sufficiently intense and widespread that it seriously distorts markets and elevates uncertainty enough to impair the overall functioning of the economy.
Sophisticated economic systems cannot thrive in such an atmosphere. 1
The scale and scope of LTCM's operations, which encompassed many markets, maturities, and currencies and often relied on instruments that were thinly traded and had prices that were not continuously quoted, made it exceptionally difficult to predict the broader ramifications of attempting to close out its positions precipitately.
That its mistakes should be unwound and losses incurred was never open to question.
How they should be unwound and when those losses incurred so as to foster the continued smooth operation of financial markets was much more difficult to assess.
The price gyrations that would have evolved from a fire sale would have reflected fear-driven judgments that could only impair effective market functioning and generate losses for innocent bystanders.
While the principle that fire sales undermine the effective functioning of markets may be clear, deciding when a potential market disruption rises to a level of seriousness warranting central bank involvement is among the most difficult judgments that ever confronts a central banker.
In situations like this, there is no reason for central bank involvement unless there is a substantial probability that a fire sale would result in severe, widespread, and prolonged disruptions to financial market activity.
It was the judgment of officials at the Federal Reserve Bank of New York, who were monitoring the situation on an ongoing basis, that the act of unwinding LTCM's portfolio in a forced liqudiation would not only have a significant distorting impact on market prices but also in the process could produce large losses, or worse, for a number of creditors and counterparties, and for other market participants who were not directly involved with LTCM.
In that environment, it was the FRBNY's judgment that it was to the advantage of all parties--including the creditors and other market participants--to engender if at all possible an orderly resolution rather than let the firm go into disorderly fire-sale liquidation following a set of cascading cross defaults.
As President McDonough has detailed, officers of the Federal Reserve Bank of New York contacted a number of creditors and asked if there were alternatives to forcing the firm into bankruptcy.
At the same time, FRBNY officers informed some of their colleagues at the Federal Reserve Board, the Treasury, and other financial regulators of their ongoing activities.
The troubles of LTCM were not a complete surprise to its counterparties.
After all, LTCM's earlier statements regarding its August losses were well known, and sophisticated counterparties understood the difficulties in closing out large losing positions.
In addition, the commercial banks among its creditors had already begun taking normal precautionary measures associated with exposure to counterparties whose condition is deteriorating.
Still, creditors as a whole most likely underestimated the size and scope of the market bets that LTCM was undertaking, an issue that is currently under review.
On September 23, the private sector parties arrived at an agreement providing a capital infusion of about $3-1/2 billion in return for substantially diluting existing shareholders' stake in LTCM.
Control of the firm passed from the current management to a committee determined from the outside by the new investors.
Those investors intend to shrink LTCM's portfolio so as to reduce risk of loss and return the remaining capital to the investors as soon as practicable.
I do not rule out the possibility that the new owners of what is left of LTCM may decide to keep part of it in business.
That is their judgment to make.
This agreement was not a government bailout, in that Federal Reserve funds were neither provided nor ever even suggested.
Agreements were not forced upon unwilling market participants.
Creditors and counterparties calculated that LTCM and, accordingly, their claims, would be worth more over time if the liquidation of LTCM's portfolio was orderly as opposed to being subject to a fire sale.
And with markets currently volatile and investors skittish, putting a special premium on the timely resolution of LTCM's problems seemed entirely appropriate as a matter of public policy.
Of course, any time that there is public involvement that softens the blow of private-sector losses--even as obliquely as in this episode--the issue of moral hazard arises.
Any action by the government that prevents some of the negative consequences to the private sector of the mistakes it makes raises the threshold of risks market participants will presumably subsequently choose to take.
Over time, economic efficiency will be impaired as some uneconomic investments are undertaken under the implicit assumption that possible losses may be borne by the government.
But is much moral hazard created by aborting fire sales?
To be sure, investors wiped out in a fire sale will clearly be less risk prone than if their mistakes were unwound in a more orderly fashion.
But is the broader market well served if the resulting fear and other irrational judgments govern the degree of risk participants are subsequently willing to incur?
Risk taking is a necessary condition for wealth creation.
The optimum degree of risk aversion should be governed by rational judgments about the market place, not the fear flowing from fire sales.
The Federal Reserve provided its good offices to LTCM's creditors, not to protect LTCM's investors, creditors, or managers from loss, but to avoid the distortions to market processes caused by a fire-sale liquidation and the consequent spreading of those distortions through contagion.
To be sure, this may well work to reduce the ultimate losses to the original owners of LTCM, but that was a byproduct, perhaps unfortunate, of the process.
I should add that, in order to keep incentives working in their favor, the creditors of LTCM apparently also understood the importance of some cushioning of the losses to the owners and managers of the firm.
The private creditors and counterparties in the rescue package chose to preserve a sliver of equity for the original owners--one tenth--so that some of the management would have an incentive to stay with the firm to assist in the liquidation of the portfolio.
Regrettably, the creditors felt that, given the complexity of market bets woven into a bewildering arrray of financial contracts, working with the existing management would be far easier than starting from scratch.
Some Questions for Policy Makers
Without doubt, extensive study will be required to put the events of the past few weeks into proper perspective.
As a member of the President's Working Group on Financial Markets, I support Secretary Rubin's call for a special study on the public policy implications of hedge funds.
While the affairs of LTCM are by no means settled, I would like to pose some tentative questions that may have to be addressed.
First, how much dependence should be placed on financial modeling, which, for all its sophistication, can get too far ahead of human judgment?
This decade is strewn with examples of bright people who thought they had built a better mousetrap that could consistently extract an abnormal return from financial markets.
Some succeed for a time.
But while there may occasionally be misconfigurations among market prices that allow abnormal returns, they do not persist.
Indeed, efforts to take advantage of such misalignments force prices into better alignment and are soon emulated by competitors, further narrowing, or eliminating, any gaps.
No matter how skillful the trading scheme, over the long haul, abnormal returns are sustained only through abnormal exposure to risk.
Second, what steps could counterparties have taken to ensure that they had properly estimated their exposure, particularly in markets that are volatile?
To an important degree, the creditors of LTCM were induced to infuse capital into the firm because they failed to stress test their counterparty exposures adequately and therefore underestimated the size of the uncollateralized exposure that they could face in volatile and illiquid markets.
In part, this also reflected an underappreciation of the volume and nature of the risks LTCM had undertaken and its relative size in the overall market.
By failing to make those determinations, its fellow market participants failed to put an adequate brake on LTCM's use of leverage.
To be sure, sometimes decisions are based on judgments about the soundness of borrowers that are accepted from third parties or, possibly in this case, that are founded on the impressive qualifications of LTCM's principals.
In some cases, such truncated risk appraisals may be accurate, but they are not a substitute for a rigorous analysis by the lender of the borrower's overall credit worthiness and risk profile.
Third, in this regard what lessons are there for bank regulators?
Domestic commercial bank exposure to LTCM included both direct lending and acting as counterparties to the firm in derivatives contracts.
A preliminary review of bank dealings with LTCM suggests that the banks have collateral adequate to cover most of their current mark-to-market exposures with LTCM.
The unexpected surge in risk aversion and the dramatic opening up of interest rate spreads in August obviously caught LTCM wrong footed.
Counterparties, including banks, continued to collect collateral for marks to market.
What they were not collateralized against was the losses that might have occurred when prices moved even further and market liquidity dried up in a fire sale.
Supervisors of banks and security firms must assess whether current procedures regarding stress testing and counterparty assessment could have been improved to enable counterparties to take steps to insulate themselves better from LTCM's debacle.
More important will be the assessment of whether those procedures are adequate for the future.
But this is an area in which much work has been ongoing.
During the fourth quarter of 1997 and the first quarter of 1998, supervision staff of the Federal Reserve Bank of New York and the Board met with managers at several major New York banking institutions to discuss their current relationships with hedge funds, updating a similar study conducted 3-1/2 years earlier.
Fourth, does the fact that investors have lost most of their capital and creditors may take some losses on their exposure to LTCM call for direct regulation of hedge funds?
It is questionable whether hedge funds can be effectively directly regulated in the United States alone.
While their financial clout may be large, hedge funds' physical presence is small.
Given the amazing communication capabilities available virtually around the globe, trades can be initiated from almost any location.
Indeed, most hedge funds are only a short step from cyberspace.
Any direct U.S. regulations restricting their flexibility will doubtless induce the more aggressive funds to emigrate from under our jurisdiction.
The best we can do in my judgment is what we do today: Regulate them indirectly through the regulation of the sources of their funds.
We are thus able to monitor far better hedge funds' activity, especially as they influence U.S financial markets.
If the funds move abroad, our oversight will diminish.
In the first line of risk defense, if I may put it that way, are hedge funds' lenders and counterparties.
Commercial and investment banks especially have the analytic skills to judge the degree of risk to which the funds are exposed.
Their self interest has, with few exceptions but including the one we are discussing today, controlled the risk posed by hedge funds.
Banking supervisors are the second line of risk defense in their examination of lending procedures for safety and soundness.
We neither try, nor should we endeavor, to micro-manage bank lending activity.
We have nonetheless built up significant capabilities in evaluating the complex lending practices in OTC derivatives markets and hedge funds.
If, somehow, hedge funds were barred worldwide, the American financial system would lose the benefits conveyed by their efforts, including arbitraging price differentials away.
The resulting loss in efficiency and contribution to financial value added and the nation's standard of living would be a high price to pay--to my mind, too high a price.
Fifth, how much weight should concerns about moral hazard be given when designing mechanisms for governmental regulation of markets?
By way of example, we should note that were banks required by the market, or their regulator, to hold 40 percent capital against assets as they did after the Civil War, there would, of course, be far less moral hazard and far fewer instances of fire-sale market disruptions.
At the same time, far fewer banks would be profitable, the degree of financial intermediation less, capital would be more costly, and the level of output and standards of living decidely lower.
Our current economy, with its wide financial safety net, fiat money, and highly leveraged financial institutions, has been a conscious choice of the American people since the 1930s.
We do not have the choice of accepting the benefits of the current system without its costs.
Conclusion
For so long as there have been financial markets, participants have had on occasion to weigh the costs and, especially, the externalities associated with fire-sale liquidations of troubled entities against short-term assistance to tide the firms over for a time.
It was such a balancing of near-term costs and longer-term benefits that presumably led J.P. Morgan to convene the leading bankers of his age--both commercial and investment--in his library in 1907 to address the severe panic of that year.
Such episodes were recognized as among those rare occasions when otherwise highly effective markets seize up and temporary ad hoc responses were required.
The convening of LTCM investors and lenders last week at the Federal Reserve Bank of New York could be viewed in that long tradition.
It should similarly be viewed as a rare occasion, warranted because of the potential for serious disruptions to markets.
We must also remain mindful where to draw the line at which public-sector involvement ends.
The efforts last week were limited to facilitating a private-sector agreement and had no implications for Federal Reserve resources or policies.
Footnotes
1 At the same time, not all fire sales are without merit.
The Resolution Trust Corporation earlier this decade chose to offer commercial real estate in what might be termed a fire sale because it was the only way an otherwise seized-up market could be galvanized.
Some level of market prices had to be established--even if below "intrinsic" or longer-run value in order to re-establish a two-way market.
This was a special case.
http://www.federalreserve.gov/boarddocs/te...ny/19981001.htm
QUOTE(jeffmoskin @ Mar 19 2009, 05:52 PM)
QUOTE(heart @ Mar 19 2009, 04:34 PM)
I agree that the bonuses are a diversion, but I don't think members of congress had/have the necessary skill set to understand the complex nature of the financial products in question.
I would submit that if Alan Greenspan didn't understand these instruments, it was unlikely that congress could.
Greenspan didn't understand?
they are BETS.
GAMBLING.
Insurance policies without the rock of gibraltar.
Here is a summary of what Alan Greenspan and the U.S. Congress knew about the complex nature of the financial products in question back on October 1, 1998:
* Of course, a fire sale that transfers wealth from one set of sophisticated market players to another, without any impact on the financial system overall, should not be a concern for the central bank.
* The troubles of LTCM were not a complete surprise to its counterparties.
After all, LTCM's earlier statements regarding its August losses were well known, and sophisticated counterparties understood the difficulties in closing out large losing positions.
In addition, the commercial banks among its creditors had already begun taking normal precautionary measures associated with exposure to counterparties whose condition is deteriorating.
* Of course, any time that there is public involvement that softens the blow of private-sector losses--even as obliquely as in this episode--the issue of moral hazard arises.
Any action by the government that prevents some of the negative consequences to the private sector of the mistakes it makes raises the threshold of risks market participants will presumably subsequently choose to take.
Over time, economic efficiency will be impaired as some uneconomic investments are undertaken under the implicit assumption that possible losses may be borne by the government.
* The private creditors and counterparties in the rescue package chose to preserve a sliver of equity for the original owners--one tenth--so that some of the management would have an incentive to stay with the firm to assist in the liquidation of the portfolio.
Regrettably, the creditors felt that, given the complexity of market bets woven into a bewildering arrray of financial contracts, working with the existing management would be far easier than starting from scratch.
* First, how much dependence should be placed on financial modeling, which, for all its sophistication, can get too far ahead of human judgment?
This decade is strewn with examples of bright people who thought they had built a better mousetrap that could consistently extract an abnormal return from financial markets.
Some succeed for a time.
But while there may occasionally be misconfigurations among market prices that allow abnormal returns, they do not persist.
Indeed, efforts to take advantage of such misalignments force prices into better alignment and are soon emulated by competitors, further narrowing, or eliminating, any gaps.
No matter how skillful the trading scheme, over the long haul, abnormal returns are sustained only through abnormal exposure to risk.
* Second, what steps could counterparties have taken to ensure that they had properly estimated their exposure, particularly in markets that are volatile?
To an important degree, the creditors of LTCM were induced to infuse capital into the firm because they failed to stress test their counterparty exposures adequately and therefore underestimated the size of the uncollateralized exposure that they could face in volatile and illiquid markets.
In part, this also reflected an underappreciation of the volume and nature of the risks LTCM had undertaken and its relative size in the overall market.
By failing to make those determinations, its fellow market participants failed to put an adequate brake on LTCM's use of leverage.
To be sure, sometimes decisions are based on judgments about the soundness of borrowers that are accepted from third parties or, possibly in this case, that are founded on the impressive qualifications of LTCM's principals.
In some cases, such truncated risk appraisals may be accurate, but they are not a substitute for a rigorous analysis by the lender of the borrower's overall credit worthiness and risk profile.
* Third, in this regard what lessons are there for bank regulators?
Domestic commercial bank exposure to LTCM included both direct lending and acting as counterparties to the firm in derivatives contracts.
A preliminary review of bank dealings with LTCM suggests that the banks have collateral adequate to cover most of their current mark-to-market exposures with LTCM.
The unexpected surge in risk aversion and the dramatic opening up of interest rate spreads in August obviously caught LTCM wrong footed.
Counterparties, including banks, continued to collect collateral for marks to market.
What they were not collateralized against was the losses that might have occurred when prices moved even further and market liquidity dried up in a fire sale.
Supervisors of banks and security firms must assess whether current procedures regarding stress testing and counterparty assessment could have been improved to enable counterparties to take steps to insulate themselves better from LTCM's debacle.
More important will be the assessment of whether those procedures are adequate for the future.
But this is an area in which much work has been ongoing.
During the fourth quarter of 1997 and the first quarter of 1998, supervision staff of the Federal Reserve Bank of New York and the Board met with managers at several major New York banking institutions to discuss their current relationships with hedge funds, updating a similar study conducted 3-1/2 years earlier.
* Fourth, does the fact that investors have lost most of their capital and creditors may take some losses on their exposure to LTCM call for direct regulation of hedge funds?
It is questionable whether hedge funds can be effectively directly regulated in the United States alone.
While their financial clout may be large, hedge funds' physical presence is small.
Given the amazing communication capabilities available virtually around the globe, trades can be initiated from almost any location.
Indeed, most hedge funds are only a short step from cyberspace.
Any direct U.S. regulations restricting their flexibility will doubtless induce the more aggressive funds to emigrate from under our jurisdiction.
The best we can do in my judgment is what we do today: Regulate them indirectly through the regulation of the sources of their funds.
We are thus able to monitor far better hedge funds' activity, especially as they influence U.S financial markets.
If the funds move abroad, our oversight will diminish.
In the first line of risk defense, if I may put it that way, are hedge funds' lenders and counterparties.
Commercial and investment banks especially have the analytic skills to judge the degree of risk to which the funds are exposed.
Their self interest has, with few exceptions but including the one we are discussing today, controlled the risk posed by hedge funds.
Banking supervisors are the second line of risk defense in their examination of lending procedures for safety and soundness.
We neither try, nor should we endeavor, to micro-manage bank lending activity.
We have nonetheless built up significant capabilities in evaluating the complex lending practices in OTC derivatives markets and hedge funds.
When and what laws changed to allow
1.) corruption on wall street
2.) invasion of the banks by sub prime companies giving high interest balloon loans
3.) Credit Card companies being allowed to charge high interest, late fees and interest on late fees.
4.) Predatory lending practices going a muck.
There has to be some place where the oversight laws and lending laws were changed.
Where do you look to identify. I am worried about corrective and quick action laws such as the one passed to day as the language very well may have errors that will 1.) effect Bonuses on main street 2.) using the language to punish the honest employee who has a contract with his employer to honestly protect him or herself.
A loophole in a law can be as easily made by using too instead of to.
1.) corruption on wall street
2.) invasion of the banks by sub prime companies giving high interest balloon loans
3.) Credit Card companies being allowed to charge high interest, late fees and interest on late fees.
4.) Predatory lending practices going a muck.
There has to be some place where the oversight laws and lending laws were changed.
Where do you look to identify. I am worried about corrective and quick action laws such as the one passed to day as the language very well may have errors that will 1.) effect Bonuses on main street 2.) using the language to punish the honest employee who has a contract with his employer to honestly protect him or herself.
A loophole in a law can be as easily made by using too instead of to.
latimes.com
http://www.latimes.com/business/la-fi-coun...0,6229456.story
From the Los Angeles Times
Countrywide sues AIG unit over its failure to cover loan losses
The legal battle could provide a rare window into the collapse of the financial and real estate markets.
By Stuart Pfeifer and Jim Puzzanghera
March 20, 2009
Reporting from Washington and Los Angeles — A legal battle between units of Countrywide Financial Corp. and American International Group Inc. could provide a rare window into the collapse of the financial and real estate markets.
In a lawsuit filed this week, Countrywide Home Loans Inc. complained that the insurer didn't cover more than $43 million in losses from failed real estate loans, many of which were bundled and sold as securities -- even though Countrywide paid more than $342 million in premiums to insure the loans.
"This is a lawsuit between two of the most vilified companies in America," said Kurt Eggert, a Chapman Law School professor who has closely monitored the lending crisis. "There's been a lot of finger-pointing at Countrywide and certainly AIG for their roles in this."
Eggert added, "Here Countrywide displays a huge amount of chutzpah because it's suing because its loans went bad, and it claims United Guaranty should have done better underwriting, when it's the failing of underwriting by loan originators that got us into this stuff."
Executives at the AIG unit, North Carolina-based United Guaranty Mortgage Indemnity Co., and Countrywide, based in Calabasas, declined to comment. The lawsuit was filed Wednesday in Los Angeles County Superior Court.
Countrywide grew to become the largest residential lender in the country as it expanded into the kinds of mortgages now experiencing the highest rates of default. These included subprime loans made to borrowers with bad credit or heavy debt loads.
Critics complained that Countrywide systematically steered borrowers into loans they could not afford, then bundled the loans and sold them for profit as securities. By insuring the loans, Countrywide was able to improve the ratings it received from rating agencies, making the securities more attractive to mortgage bond investors.
Bank of America Corp., which acquired Countrywide last year, said in a regulatory filing that the Securities and Exchange Commission was conducting a formal inquiry into the lender and that it had responded to subpoenas from the federal agency.
In its lawsuit, Countrywide said it made significant disclosures to United Guaranty about borrowers' credit histories and property appraisals. "United Guaranty understood firsthand the risks associated with the mortgage lending business," the lawsuit said.
Countrywide was also a focus of attention Thursday in Washington, where Rep. Darrell Issa (R-Vista) released a 63-page report detailing the company's practice of giving discounted mortgages to influential people, particularly key lawmakers, staffers and other government officials.
Several prominent politicians participated in Countrywide's VIP program, including Sens. Christopher J. Dodd (D-Conn.) and Kent Conrad (D-N.D.).
The VIP program, which was extended to friends of former Countrywide Chief Executive Angelo R. Mozilo, their families and others, also included a wide range of people with connections or potential influence, including actors Ed McMahon, Roy Scheider and Uma Thurman; a Malibu sheriff's deputy; and two Los Angeles Times advertising executives, Andrew Bunnin and Jeffrey Young, the report said.
Bunnin, an advertising manager for The Times in 2004, said Thursday that he was referred to Countrywide's VIP unit by his cousin, who knew Mozillo. Bunnin, who left the newspaper later that year, said he was told that the VIP unit simply offered better service.
Bunnin said he was never asked for any favors from his job at The Times.
"The whole connection was through my cousin," he said. "It wasn't because of the L.A. Times."
Young, in the market for a mortgage at about the same time, said Bunnin referred him to Countrywide.
"I can't even recall the words 'VIP program' coming out," said Young, who was then The Times' director of national advertising. He now is a retail sales manager for The Times.
Bank of America spokesman Rick Simon said the company had eliminated Countrywide's VIP Lending Program.
http://www.latimes.com/business/la-fi-coun...0,6229456.story
From the Los Angeles Times
Countrywide sues AIG unit over its failure to cover loan losses
The legal battle could provide a rare window into the collapse of the financial and real estate markets.
By Stuart Pfeifer and Jim Puzzanghera
March 20, 2009
Reporting from Washington and Los Angeles — A legal battle between units of Countrywide Financial Corp. and American International Group Inc. could provide a rare window into the collapse of the financial and real estate markets.
In a lawsuit filed this week, Countrywide Home Loans Inc. complained that the insurer didn't cover more than $43 million in losses from failed real estate loans, many of which were bundled and sold as securities -- even though Countrywide paid more than $342 million in premiums to insure the loans.
"This is a lawsuit between two of the most vilified companies in America," said Kurt Eggert, a Chapman Law School professor who has closely monitored the lending crisis. "There's been a lot of finger-pointing at Countrywide and certainly AIG for their roles in this."
Eggert added, "Here Countrywide displays a huge amount of chutzpah because it's suing because its loans went bad, and it claims United Guaranty should have done better underwriting, when it's the failing of underwriting by loan originators that got us into this stuff."
Executives at the AIG unit, North Carolina-based United Guaranty Mortgage Indemnity Co., and Countrywide, based in Calabasas, declined to comment. The lawsuit was filed Wednesday in Los Angeles County Superior Court.
Countrywide grew to become the largest residential lender in the country as it expanded into the kinds of mortgages now experiencing the highest rates of default. These included subprime loans made to borrowers with bad credit or heavy debt loads.
Critics complained that Countrywide systematically steered borrowers into loans they could not afford, then bundled the loans and sold them for profit as securities. By insuring the loans, Countrywide was able to improve the ratings it received from rating agencies, making the securities more attractive to mortgage bond investors.
Bank of America Corp., which acquired Countrywide last year, said in a regulatory filing that the Securities and Exchange Commission was conducting a formal inquiry into the lender and that it had responded to subpoenas from the federal agency.
In its lawsuit, Countrywide said it made significant disclosures to United Guaranty about borrowers' credit histories and property appraisals. "United Guaranty understood firsthand the risks associated with the mortgage lending business," the lawsuit said.
Countrywide was also a focus of attention Thursday in Washington, where Rep. Darrell Issa (R-Vista) released a 63-page report detailing the company's practice of giving discounted mortgages to influential people, particularly key lawmakers, staffers and other government officials.
Several prominent politicians participated in Countrywide's VIP program, including Sens. Christopher J. Dodd (D-Conn.) and Kent Conrad (D-N.D.).
The VIP program, which was extended to friends of former Countrywide Chief Executive Angelo R. Mozilo, their families and others, also included a wide range of people with connections or potential influence, including actors Ed McMahon, Roy Scheider and Uma Thurman; a Malibu sheriff's deputy; and two Los Angeles Times advertising executives, Andrew Bunnin and Jeffrey Young, the report said.
Bunnin, an advertising manager for The Times in 2004, said Thursday that he was referred to Countrywide's VIP unit by his cousin, who knew Mozillo. Bunnin, who left the newspaper later that year, said he was told that the VIP unit simply offered better service.
Bunnin said he was never asked for any favors from his job at The Times.
"The whole connection was through my cousin," he said. "It wasn't because of the L.A. Times."
Young, in the market for a mortgage at about the same time, said Bunnin referred him to Countrywide.
"I can't even recall the words 'VIP program' coming out," said Young, who was then The Times' director of national advertising. He now is a retail sales manager for The Times.
Bank of America spokesman Rick Simon said the company had eliminated Countrywide's VIP Lending Program.
http://economix.blogs.nytimes.com/2009/03/...orfeit-bonuses/
Could A.I.G. Have Made Employees Forfeit Bonuses?
By Catherine Rampell
Edward Liddy, the chief executive of American International Group, has said he had no choice but to pay the now-notorious bonuses to A.I.G. employees, because previous management had agreed to pay them. But is that right?
What if, instead, A.I.G. executives — under order, perhaps, from the Treasury Department — had approached the employees and said: "Here's the deal. You sign this paper saying you forfeit your bonus or you're fired" ?
After all, A.I.G. did exactly that to one of its employees a few years ago — inside the Financial Products group, the very division in the news this week.
Earlier this decade, Robert Feilbogen, then an A.I.G. executive, was told that his division was being merged with another one, according to a lawsuit he later filed. He was asked to sign a letter that indicated the company's previous agreement to pay him a bonus of $1.3 million was no longer effective. The letter apparently said he would still be eligible for a bonus on top of his $250,000 salary, but nothing was guaranteed.
Mr. Feilbogen responded by writing a letter to Joseph Cassano, then the president of A.I.G.'s Financial Products group, that he would sign the letter only if the language about the bonus was removed. The company replied that Mr. Feilbogen could sign the letter as written, or resign. Mr. Feilbogen didn't sign the letter, his lawsuit said, and a company lawyer informed him that his employment with the firm had been terminated "as a result of his decision to resign." (See a 2003 story, from Power Finance & Risk, about the suit here.)
In 2003, Mr. Feilbogen sued the company for "breach of contract." A judge dismissed the case in September 2006, with each side paying its own legal costs. It isn't clear whether there was an amicable settlement in the case; the dismissal document doesn't mention one.
It's also hard to determine how Mr. Feilbogen's dismissal applies to current A.I.G. employees.
My colleague Jonathan Glater contacted a Boston University law professor, Michael C. Harper, to ask whether A.I.G. could threaten to fire employees for not giving up their bonuses. Professor Harper replied: "Could they say to them, 'Your continued employment here is conditioned on your willingness to pay us a certain amount of money based on the size of your bonus?' Well, yes, I think they could, unless they have some kind of a contract for a definite term, if they have a two-year or three-year contract, or something else that gives them job security," like a contract term that allows dismissal for cause.
"If they're really totally employees at will, because they don't have any contractual commitment, then their only protection" against this payback demand, he said, "is against discrimination or whistle-blowing or some public policy, and none of that would apply."
In general, Professor Harper added, "Under American law, regardless of your level, rank and file, manager, supervisor, whatever, the assumption is in all jurisdictions other than Montana, you are an employee at will if you have a contract for indefinite duration."
From Section 3.04 of A.I.G.-F.P.'s Employee Retention Plan (taken from here), the circumstances under which an employee's bonus can be denied sound pretty stringent. But take a look at the language for yourself.
Could A.I.G. Have Made Employees Forfeit Bonuses?
By Catherine Rampell
Edward Liddy, the chief executive of American International Group, has said he had no choice but to pay the now-notorious bonuses to A.I.G. employees, because previous management had agreed to pay them. But is that right?
What if, instead, A.I.G. executives — under order, perhaps, from the Treasury Department — had approached the employees and said: "Here's the deal. You sign this paper saying you forfeit your bonus or you're fired" ?
After all, A.I.G. did exactly that to one of its employees a few years ago — inside the Financial Products group, the very division in the news this week.
Earlier this decade, Robert Feilbogen, then an A.I.G. executive, was told that his division was being merged with another one, according to a lawsuit he later filed. He was asked to sign a letter that indicated the company's previous agreement to pay him a bonus of $1.3 million was no longer effective. The letter apparently said he would still be eligible for a bonus on top of his $250,000 salary, but nothing was guaranteed.
Mr. Feilbogen responded by writing a letter to Joseph Cassano, then the president of A.I.G.'s Financial Products group, that he would sign the letter only if the language about the bonus was removed. The company replied that Mr. Feilbogen could sign the letter as written, or resign. Mr. Feilbogen didn't sign the letter, his lawsuit said, and a company lawyer informed him that his employment with the firm had been terminated "as a result of his decision to resign." (See a 2003 story, from Power Finance & Risk, about the suit here.)
In 2003, Mr. Feilbogen sued the company for "breach of contract." A judge dismissed the case in September 2006, with each side paying its own legal costs. It isn't clear whether there was an amicable settlement in the case; the dismissal document doesn't mention one.
It's also hard to determine how Mr. Feilbogen's dismissal applies to current A.I.G. employees.
My colleague Jonathan Glater contacted a Boston University law professor, Michael C. Harper, to ask whether A.I.G. could threaten to fire employees for not giving up their bonuses. Professor Harper replied: "Could they say to them, 'Your continued employment here is conditioned on your willingness to pay us a certain amount of money based on the size of your bonus?' Well, yes, I think they could, unless they have some kind of a contract for a definite term, if they have a two-year or three-year contract, or something else that gives them job security," like a contract term that allows dismissal for cause.
"If they're really totally employees at will, because they don't have any contractual commitment, then their only protection" against this payback demand, he said, "is against discrimination or whistle-blowing or some public policy, and none of that would apply."
In general, Professor Harper added, "Under American law, regardless of your level, rank and file, manager, supervisor, whatever, the assumption is in all jurisdictions other than Montana, you are an employee at will if you have a contract for indefinite duration."
From Section 3.04 of A.I.G.-F.P.'s Employee Retention Plan (taken from here), the circumstances under which an employee's bonus can be denied sound pretty stringent. But take a look at the language for yourself.
Who is suing who?
http://www.bloomberg.com/apps/news?pid=206...id=aLoqDOpnhD9A
AIG Sues Countrywide for Misrepresenting Mortgages
March 19 (Bloomberg) -- An American International Group Inc. unit sued Countrywide Financial Corp., accusing the mortgage lender of misrepresenting the underwriting standards of loans the AIG subsidiary insured.
“As a result of the unprecedented number of defaults in the mortgage loans, United Guaranty has already paid out insurance claims totaling over $30 million and is exposed to additional claims of several hundred million dollars more,” AIG’s United Guaranty Mortgage Indemnity Co. said today in a complaint filed in federal court in Los Angeles.
Countrywide, bought last year by Bank of America Corp., sought insurance for the subprime mortgage loans to increase the credit ratings of mortgage-backed securities in which the loans were bundled, according to the complaint. Countrywide falsely claimed the loans were originated in strict compliance with its underwriting standards, the AIG unit said.
United Guaranty said in the complaint that it had reviewed loan files that showed that most mortgages covered by 11 policies for asset-backed securities were either underwritten in violation of Countrywide’s own guidelines or contained defects, such as missing documents, misrepresented credit scores or false social security numbers.
Shirley Norton, a Bank of America spokeswoman, declined to comment on the complaint.
New York-based AIG has received $173 billion in taxpayer money since September and the U.S. government has taken a stake of almost 80 percent to prevent the insurer from collapsing. Some of the bailout funds went to banks that bought or traded credit-default swaps with AIG.
The case is United Guaranty Mortgage Indemnity Co. v. Countrywide Financial Corp., 09-01888, U.S. District Court, Central District of California (Los Angeles.)
To contact the reporter on this story: Edvard Pettersson in Los Angeles at epettersson@bloomberg.net.
Last Updated: March 19, 2009 22:25 EDT
http://www.bloomberg.com/apps/news?pid=206...id=aLoqDOpnhD9A
AIG Sues Countrywide for Misrepresenting Mortgages
March 19 (Bloomberg) -- An American International Group Inc. unit sued Countrywide Financial Corp., accusing the mortgage lender of misrepresenting the underwriting standards of loans the AIG subsidiary insured.
“As a result of the unprecedented number of defaults in the mortgage loans, United Guaranty has already paid out insurance claims totaling over $30 million and is exposed to additional claims of several hundred million dollars more,” AIG’s United Guaranty Mortgage Indemnity Co. said today in a complaint filed in federal court in Los Angeles.
Countrywide, bought last year by Bank of America Corp., sought insurance for the subprime mortgage loans to increase the credit ratings of mortgage-backed securities in which the loans were bundled, according to the complaint. Countrywide falsely claimed the loans were originated in strict compliance with its underwriting standards, the AIG unit said.
United Guaranty said in the complaint that it had reviewed loan files that showed that most mortgages covered by 11 policies for asset-backed securities were either underwritten in violation of Countrywide’s own guidelines or contained defects, such as missing documents, misrepresented credit scores or false social security numbers.
Shirley Norton, a Bank of America spokeswoman, declined to comment on the complaint.
New York-based AIG has received $173 billion in taxpayer money since September and the U.S. government has taken a stake of almost 80 percent to prevent the insurer from collapsing. Some of the bailout funds went to banks that bought or traded credit-default swaps with AIG.
The case is United Guaranty Mortgage Indemnity Co. v. Countrywide Financial Corp., 09-01888, U.S. District Court, Central District of California (Los Angeles.)
To contact the reporter on this story: Edvard Pettersson in Los Angeles at epettersson@bloomberg.net.
Last Updated: March 19, 2009 22:25 EDT
BBC NEWS
Nineteen US states go after AIG
Nineteen US states are demanding that insurance giant AIG reveal details of bonuses paid to executives, so they can take steps to recover the funds.
This comes after New York Attorney General Andrew Cuomo said AIG had given him such a list on Thursday.
The US House of Representatives has passed a bill to levy a tax of 90% on the big bonuses paid to people working at firms that have received state aid.
The $165m (£114m) of bonuses have caused outrage across the US.
US President Barack Obama has denounced such bonuses, while even AIG boss Edward Liddy has described them as "distasteful".
AIG has taken $170bn in aid from the US government.
'Padding' pockets
New Jersey Attorney General Anne Milgram said she had sent a letter to AIG boss Edward Liddy demanding a list of employees who received payments.
AIG: QUICK FACTS
# Founded in 1919
# 30 million US policy holders
# Operates in 130 countries
# Provides insurance to 100,000 companies and other entities
"We want to ensure the investing public that money received by the company is being utilised to improve the financial welfare of the company, not pad the pockets of the same individuals who led to the financial crisis in the first place," said Ms Milgram.
Connecticut has also subpoenaed AIG for the details. Governor Jodi Rell said the state would pursue "all legal means available to void the bonuses and recapture the taxpayer dollars."
The coalition of states is made up of Arizona, Delaware, Illinois, Kentucky, Louisiana, Maine, Michigan, Mississippi, Montana, Nebraska, New Mexico, Ohio, Oklahoma, Oregon, Pennsylvania, Texas, Washington and West Virginia.
Unimagined mistakes
On Thursday, US lawmakers in the House of Representatives voted 328-93 in favour of legislation to levy a 90% tax on large bonuses from firms bailed out by taxpayers.
On Wednesday, Mr Liddy said that "mistakes were made at AIG on a scale that few could have imagined possible."
AIG was saved from bankruptcy when it was granted an $85bn lifeline last September.
The government has since pumped billions more into the troubled insurer, which reported a loss of $61.7bn for the last three months of 2008, the biggest quarterly loss in corporate history.
Story from BBC NEWS:
http://news.bbc.co.uk/go/pr/fr/-/2/hi/business/7954942.stm
Published: 2009/03/20 12:41:25 GMT
© BBC MMIX
Print Sponsor
Nineteen US states go after AIG
Nineteen US states are demanding that insurance giant AIG reveal details of bonuses paid to executives, so they can take steps to recover the funds.
This comes after New York Attorney General Andrew Cuomo said AIG had given him such a list on Thursday.
The US House of Representatives has passed a bill to levy a tax of 90% on the big bonuses paid to people working at firms that have received state aid.
The $165m (£114m) of bonuses have caused outrage across the US.
US President Barack Obama has denounced such bonuses, while even AIG boss Edward Liddy has described them as "distasteful".
AIG has taken $170bn in aid from the US government.
'Padding' pockets
New Jersey Attorney General Anne Milgram said she had sent a letter to AIG boss Edward Liddy demanding a list of employees who received payments.
AIG: QUICK FACTS
# Founded in 1919
# 30 million US policy holders
# Operates in 130 countries
# Provides insurance to 100,000 companies and other entities
"We want to ensure the investing public that money received by the company is being utilised to improve the financial welfare of the company, not pad the pockets of the same individuals who led to the financial crisis in the first place," said Ms Milgram.
Connecticut has also subpoenaed AIG for the details. Governor Jodi Rell said the state would pursue "all legal means available to void the bonuses and recapture the taxpayer dollars."
The coalition of states is made up of Arizona, Delaware, Illinois, Kentucky, Louisiana, Maine, Michigan, Mississippi, Montana, Nebraska, New Mexico, Ohio, Oklahoma, Oregon, Pennsylvania, Texas, Washington and West Virginia.
Unimagined mistakes
On Thursday, US lawmakers in the House of Representatives voted 328-93 in favour of legislation to levy a 90% tax on large bonuses from firms bailed out by taxpayers.
On Wednesday, Mr Liddy said that "mistakes were made at AIG on a scale that few could have imagined possible."
AIG was saved from bankruptcy when it was granted an $85bn lifeline last September.
The government has since pumped billions more into the troubled insurer, which reported a loss of $61.7bn for the last three months of 2008, the biggest quarterly loss in corporate history.
Story from BBC NEWS:
http://news.bbc.co.uk/go/pr/fr/-/2/hi/business/7954942.stm
Published: 2009/03/20 12:41:25 GMT
© BBC MMIX
Print Sponsor
QUOTE(lenal @ Mar 19 2009, 06:52 PM)
Countrywide and its employees have contributed $1.3 million to political parties, candidates and committees since the 1990 election cycle, according to the CRP. Nearly 60 percent of that went to Republicans and 40 percent to Democrats
And here is how it is done.
Mr Big comes into your office and says, "I want you to PERSONALLY give $2200 to Obama." The firm will make it up to you come bonus time. Oh, if you refuse, maybe your next employer will understand you better."
I am not kidding.
And Obama's first 100 million came from Wall $treet.
No, jeffmoskin ....
You are NOT kidding ....
To the contrary, you have nailed it ...
And yes, they will follow through ....
And the next thing that you will feel beneath your feet is called pavement ....
As you head for the unemployment line ...
And so ...
You are NOT kidding ....
To the contrary, you have nailed it ...
And yes, they will follow through ....
And the next thing that you will feel beneath your feet is called pavement ....
As you head for the unemployment line ...
And so ...
Barack Obama and the Altar of Greed
By David Michael Green
Barack Obama is dumber than a bag of hammers. Continue
By David Michael Green
Barack Obama is dumber than a bag of hammers. Continue
Obama’s Moment is Passing Quickly
By Dave Lindorff
He should promptly demand Geithner's and Summers' resignations, and should also fire the CEO of AIG, Edward Liddy (as 80% owner of AIG, the US has the power to do that anytime). It would also be a good idea at the same time to fire the CEOs of all the leading banks that are at this point surviving on government bailouts. Continue
By Dave Lindorff
He should promptly demand Geithner's and Summers' resignations, and should also fire the CEO of AIG, Edward Liddy (as 80% owner of AIG, the US has the power to do that anytime). It would also be a good idea at the same time to fire the CEOs of all the leading banks that are at this point surviving on government bailouts. Continue
We're on The Verge Of A Major Crisis : Ron Paul
Video
Ron Paul discusses the AIG bonus controversy. Continue
Video
Ron Paul discusses the AIG bonus controversy. Continue
QUOTE(Livyjr @ Mar 21 2009, 05:46 AM)
No, jeffmoskin ....
You are NOT kidding ....
To the contrary, you have nailed it ...
And yes, they will follow through ....
And the next thing that you will feel beneath your feet is called pavement ....
As you head for the unemployment line ...
And so ...
You are NOT kidding ....
To the contrary, you have nailed it ...
And yes, they will follow through ....
And the next thing that you will feel beneath your feet is called pavement ....
As you head for the unemployment line ...
And so ...
There is no unemployment line for the retired.
QUOTE(Abu Beacon @ Mar 19 2009, 04:19 PM)
hard to believe that all the furor about Aig handing out bonuses has commanded so much attention and rhetoric.
Senator Dodd received two loans in 2003 through Countrywide’s V.I.P. program. He borrowed $506,000 to refinance his Washington townhouse, and $275,042 to refinance a home in East Haddam, Connecticut. Countrywide waived three-eighths of a point, or about $2,000, on the first loan, and one-fourth of a point, about $700, on the second, according to internal documents. Both loans were for 30 years, with the first five years at a fixed rate.
The interest rate on the loans, originally pegged at 4.875%, was reduced to 4.25% on the Washington home and 4.5% on the Connecticut property by the time the loans were funded. The lower rates save the senator about $58,000 on his Washington residence over the life of the loan, and $17,000 on the Connecticut home. The former employee says the float-downs were free. Senator Dodd’s wife, Jackie Clegg, said in a brief interview that two other lenders they checked with offered comparable interest rates. The senator’s office said Thursday afternoon that it is preparing a response.
Countrywide has also contributed a total of $21,000 to Dodd’s campaigns since 1997. While a presidential candidate last year, he filed a bill to ban lenders from charging prepayment penalties and steering home buyers to more costly loans—both practices in which Countrywide reportedly engaged. He also called for criminal charges for such predatory lending.
Senator Dodd received two loans in 2003 through Countrywide’s V.I.P. program. He borrowed $506,000 to refinance his Washington townhouse, and $275,042 to refinance a home in East Haddam, Connecticut. Countrywide waived three-eighths of a point, or about $2,000, on the first loan, and one-fourth of a point, about $700, on the second, according to internal documents. Both loans were for 30 years, with the first five years at a fixed rate.
The interest rate on the loans, originally pegged at 4.875%, was reduced to 4.25% on the Washington home and 4.5% on the Connecticut property by the time the loans were funded. The lower rates save the senator about $58,000 on his Washington residence over the life of the loan, and $17,000 on the Connecticut home. The former employee says the float-downs were free. Senator Dodd’s wife, Jackie Clegg, said in a brief interview that two other lenders they checked with offered comparable interest rates. The senator’s office said Thursday afternoon that it is preparing a response.
Countrywide has also contributed a total of $21,000 to Dodd’s campaigns since 1997. While a presidential candidate last year, he filed a bill to ban lenders from charging prepayment penalties and steering home buyers to more costly loans—both practices in which Countrywide reportedly engaged. He also called for criminal charges for such predatory lending.
Speaking of Senator Dodd, ( not the only opportunist in Congress ), it's starting to look as though his sins are starting to catch up with him. For the first time in many elections, he is starting to face some reelection competition. Already in the hunt is GOP Rep. Bob Simmons a moderate Vietnam Vet.
It may well be that bad publicity is starting to weaken the hand of of many who would prefer to avoid being linked with
AIG.
He is now admitting that he caved in to treasury officials who wanted AIG to OK the bonuses, which turned out to be an excellent diversion from other problems.
This is exactly what is needed, repeated linking of the cozy relationships between the greed and corruption of the government along with the name of the person involved in it.
A.B.
QUOTE(Abu Beacon @ Mar 19 2009, 02:03 PM)
One of the talk show commentators mentioned how good these thieves are in switching the subject to get the heat off of themselves.
I posted this before, but it fits here:
There is something going on here we don’t know about. So far, while the media has been distracting us with the $165 MILLION bonus fiasco, they have glossed over the $170 BILLION payoffs at 100 cents on the dollar to international bankers.
This is either just plain stupid (and I believe bankers are greedy, but rarely stupid), or there is a quid-pro-quo involved.
I cannot prove this, buy it is my belief that we are witnessing a financial war between the US Dollar and the newly emerging Euro for supremacy as the official global reserve currency.
This is a banking war, fought between Anglo-Americans (Wall $treet and the City of London) and the ECB. The latter, however, lacks the ability to print money like the FED does. In fact, the EU really has no FED equivalent, which is why they are waffling on a stimulus package.
My theory is that, in exchange for bailing out the AIG counter-parties (who would otherwise be insolvent), those counter-parties have capitulated to US Dollar hegemony.
There you have it.
Wish I could prove it.
I can’t, but it sure explains a lot of what is going on and why.
QUOTE(Abu Beacon @ Mar 19 2009, 04:03 PM)
It's hard to believe that all the furor about Aig handing out bonuses has commanded so much attention and rhetoric.
A.B.
A.B.
This week I haven't read anything about anybody in D.C. getting nailed for doing bad things.
That doesn't mean nothing happened.
They're just getting better at hiding it.
A,B.
QUOTE(Abu Beacon @ Mar 28 2009, 03:38 PM)
QUOTE(Abu Beacon @ Mar 19 2009, 04:03 PM)
It's hard to believe that all the furor about Aig handing out bonuses has commanded so much attention and rhetoric.
A.B.
A.B.
This week I haven't read anything about anybody in D.C. getting nailed for doing bad things.
That doesn't mean nothing happened.
They're just getting better at hiding it.
A,B.
The Great Diversion continues, Mr. A.B. People are "mad as hell and not gonna take it anymore".
About the bonus money, that is.
Not a peep anywhere about the $175 BILLION given away to international banks.
Ohhhhh Nooooooo.
We don't want to talk about that do we?
Not on NBC (Owned by GE), ABC (Owned by Disney), CBS (Owned by Sumner Redstone's Viacom) or CNN (owned by TimeWarner).
Nope.
Sorry.
QUOTE(jeffmoskin @ Mar 22 2009, 06:38 PM)
QUOTE(Livyjr @ Mar 21 2009, 05:46 AM)
No, jeffmoskin ....
You are NOT kidding ....
To the contrary, you have nailed it ...
And yes, they will follow through ....
And the next thing that you will feel beneath your feet is called pavement ....
As you head for the unemployment line ...
And so ...
There is no unemployment line for the retired.
And given that reality, there also is no pressure on the retired person, or the person who could retire, to succumb to the EXTORTION DEMAND from one's boss or overseer to pony up money to some political candidate, OR ELSE ....
It is the person who can't yet retire who either succumbs or gets broken ....
Which is an object lesson for everybody else watching the show go down ....
And so ....
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