Masters of the Universe category archive

Potentially big news in the “what you don’t know won’t hurt us” circles of high finance:

The U.S. Justice Department is investigating the market for credit-default swaps, according to Markit Group Ltd., the data provider majority-owned by Wall Street’s largest banks.

(snip)

The antitrust division sent civil investigative notices this month to banks that own London-based Markit to determine if they have unfair access to price information, according to three people familiar with the matter. U.S. lawmakers plan to regulate the $592 trillion over-the-counter derivatives market, which includes credit-default swaps blamed for helping worsen the biggest financial calamity since the Great Depression.

What Susie said.

The point of health care should be caring for health, not lining the pockets of CEOs.

keep turning up.

Or take flesh-and-bone characters. A lot of the people who just sank us are still running things, shaping the future for all of us. A lot of losers remain in positions of financial influence. How many Subprime CDO traders, structures, and salesmen who caused trillions of dollars in losses are still holding highly-paid jobs on Wall Street or the City? How many theoreticians who failed to predict and who sponsored destructive math are still being employed by universities and banks? How many regulators who failed to police and who allowed (in fact, enforced) the toxic leverage are still dictating policy? Far too many. Finance may be the only place on Earth where so many people who failed so much are not castigated, reprimanded, or forever banned from the premises. Losers are allowed to stay. Be not surprised then if a future similar destruction is duly unleashed.

But they must know what they are doing. After all, they wear nice suits, look good in meetings, and write elegant emails.

It’s like the captain of the Exxon Valdez giving himself a raise because, well, he could have hit a bigger rock.

American International Group is preparing to pay millions of dollars more in bonuses to several dozen top corporate executives after an earlier round of payments four months ago set off a national furor.

The troubled insurance giant has been pressing the federal government to bless the payments in hopes of shielding itself from renewed public outrage.

Addendum, Later that Same Morning:

In related news, Citigroup, which knows something about worthlessness, says

“Our valuation includes a 70 percent chance that the equity at AIG is zero,” said Joshua Shanker, an analyst at Citigroup, in a note to investors late yesterday cutting his price target on the New York-based insurer by more than half.

“Zero equity” = Worthless. That’s truly bonus-worthy.

Because foxes have only the well-being of the hens in mind.

Oh, yeah. And pigs have wings. After all, swine flu.

There is a growth sector of the economy:

Today, an alternate universe — the repo business — dominates. And business is very good.

As the U.S. foreclosure crisis grinds on, the detailed work of processing, repairing and selling thousands of homes repossessed by banks is real estate’s new gold. In the past year, repo-related business has rapidly grown to national scale, fueling job growth in Colorado, Texas, Ohio and elsewhere to service the meltdown in markets like Sacramento and the Central Valley along with Phoenix, Las Vegas and Florida.

I’m waiting for a new Court TruTV show: Operation Repo: McMansion.

George Washington Plunkitt, a political seer for our times.. Frank Rich in the Toimes:

In the context of our own Great Recession, Madoff’s old-fashioned Ponzi scheme was merely a one-off next to the esoteric and (often legal) heists by banks and bankers. They gamed the entire system, then took the money and ran before the bubble burst, sticking the rest of us with that fear, panic and loss.

Where did all those banks go? They went to oblivion, every one, while I was dodging traffic.

Founders Bank, Worth, Ill.
Millennium State Bank of Texas, Dallas, Texas
The First National Bank of Danville, Danville, Ill.
The Elizabeth State Bank, Elizabeth, Ill.
Rock River Bank, Oregon, Ill.
The First State Bank of Winchester, Winchester, Ill.
The John Warner Bank, Clinton, Ill.

I know it’s Independence Day weekend, but this kind of parade we could do without.

Paul Collier in the Guardian:

The inherent problem facing shareholders is that incentive payments cannot go negative. However much damage a manager inflicts, wiping out both shareholders and depositors, the consequences cannot be remotely commensurate.

(snip)

Faced with a corpse and a killer, police do not need to prove ill intent: manslaughter sets the hurdle lower than murder. It is enough to show the killer was irresponsible. That is the standard we need; we need a crime of managing a bank irresponsibly: in other words, bankslaughter.

MarketWatch:

In a fresh stab at curbing executive-severance benefits, some companies have been under fire for “golden coffins” that pay the heirs of executives who die on the job unearned salary, bonuses and other compensation.

(snp)

But, over the past two decades, actual payments made by public companies have been scant, helping to support the argument by corporate boards that golden coffin payments are rare and a cheap way to retain and lure CEOs.

There are two fallacies here in this golden coffin thingee.

One is the myth of the CEO, the notion that somehow choosing a CEO is the make or break decision for a company. Sure, there have been a few cases where one person at the top has managed to lead a company out of danger to new fortunes–Jack Welch at GE comes to mind–or the wrong person at the top has led a company to destruction, but the unusual experiences of one or two companies is really not a good basis for management policy across the economy.

The other is that money is not just an important, but the only means for motivating performance. That just ain’t how people work. It is certainly important, but, after you’ve accummulated several gazillion bucks, what’s a few million more? except perhaps as a way of keeping score versus other CEOs (and that’s motivation by competitiveness, not by money). Frankly, persons who are motivated solely by money tend to be fairly untrustworthy. because the desire for money overrides other values.

Not credit default swaps that AIG any Citigroup business Ameriquest would Bear Sterns do Lehman anything Standard and Poors dicey Moody’s just Zero-Option ARMs for money. Certainly not.

Steve Bell illustrates modern compensation theory and practice.

CitiGroup discovers that it’s been buying mortgage loans that aren’t properly documented and decides that’s probably not a good idea:

According to the June 22 letter, the review identified “valuation concerns” where “appraisal documentation is missing or incomplete,” or where property-assessment methods were “insufficient/lacking.”

Other missing information included employment confirmations, phone numbers, credit reports and rent verification, the letter said. The review also found “income calculation errors.”

The suspension of correspondent lending is “a bold step” that may frustrate Citigroup’s mortgage-banking partners and put them on notice that the company will no longer tolerate incomplete loan submissions, said David Lykken, managing partner at consultant Mortgage Banking Solutions in Austin, Texas.

When bankers adopted The Donald as their role-model, deciding that it was all about The Deal and not about the investment, they don’t seem to have noticed that The Donald’s deals keep teetering on bankruptcy.

“We’ve been through SARS, bird flu, tsunami, you name it,” Fernandes, the founder and chief executive officer of Southeast Asia’s biggest discount carrier, said at the Paris Air Show this week. “The only swine now are bankers.”

Carriers from Air France-KLM Group to AirAsia, already coping with a slump in travel, also have to deal with banks that are unwilling to finance aircraft purchases. Airlines have to come up with money to pay for jets ordered years ago or face penalties for cancellations. In 2010, the funding shortfall may reach $36 billion, or as much as 60 percent of the spending on larger aircraft, said Nick Cunningham, an analyst at Evolution Securities in London.

That’s because they are too busy at the trough.

Via Oliver Willis.

Remember when Lehman Bros. bucket shop investment bank went to Barclay’s in a fire sale?

Well, Lehaman has struck a deal with their landlord on Sixth Avenue of the Americas to swap their furniture for a rent reduction.

It’s not their furniture. It’s Barclays’.

Lehman, once the fourth-largest investment bank, asked a bankruptcy judge in New York last week to let it pay Barclays $5.9 million to buy back desks, chairs, tables, cubicles, audio- video equipment and security paraphernalia it currently uses in a building at 1271 Avenue of the Americas in Manhattan.

Maybe Wall Street’s next round of pay for performance bonuses should include a matching set of end tables and a credenza.

Bank profits up. On paper.

This appears to have more to do with eliminating “mark to market” than with improved business practices.

From Bloomberg.

“With our capital and assets, stressed as they have been, we can go back to focusing all our attention on managing our business and restoring value,” Citigroup Inc. Chief Executive Officer Vikram Pandit said after Geithner’s examinations were completed.

The revival may be short-lived. Analysts who have examined the quarterly profits and government tests say that accounting rule changes and rosy assumptions are making the institutions look healthier than they are.

(snip)

Citigroup’s $1.6 billion in first-quarter profit would vanish if accounting were more stringent, says Martin Weiss of Weiss Research Inc. in Jupiter, Florida. “The big banks’ profits were totally bogus,” says Weiss, whose 38-year-old firm rates financial companies. “The new accounting rules, the stress tests: They’re all part of a major effort to put lipstick on a pig.”

But, hey, these guys are the geniuses who crashed the world economy.

They must know what they are doing.

And what’s Sarah Palin got to with it, anyway?

Sure, you could argue that snake oil probably doesn’t do any harm. Whoops.

But let’s keep selling it anyway.

The nine biggest participants in the derivatives market — including JPMorgan Chase, Goldman Sachs, Citigroup and Bank of America — created a lobbying organization, the CDS Dealers Consortium, on Nov. 13, a month after five of its members accepted federal bailout money.

(snip)

Today, just as the bankers anticipated, a battle over derivatives has been joined, in what promises to be a replay of a confrontation in Washington that Wall Street won a decade ago. Since then, derivatives trading has become one of the most profitable businesses for the nation’s big banks.

Get your credit default swaps and derivatives here:

I’ve tried to read this article three times now and each time I get lost in the mumbo-jumbo. Maybe Duncan understands it–after all, he used to teach this stuff–but I don’t.

One thing I have learned in years of working in large organizations is that, if something doesn’t make sense and can’t be expressed in plain language, the odds are that it just doesn’t make sense and someone is pulling a fast one.

The magician doesn’t really make the rabbit magically turn into a hankerchief and losers don’t magically become winners. It’s all just sleight of hand.

JPMorgan Chase & Co. stands to reap a $29 billion windfall thanks to an accounting rule that lets the second-biggest U.S. bank transform bad loans it purchased from Washington Mutual Inc. into income.

Wells Fargo & Co., Bank of America Corp. and PNC Financial Services Group Inc. are also poised to benefit from taking over home lenders Wachovia Corp., Countrywide Financial Corp. and National City Corp., regulatory filings show. The deals provide a combined $56 billion in so-called accretable yield, the difference between the value of the loans on the banks’ balance sheets and the cash flow they’re expected to produce.

Faced with the highest U.S. unemployment in 25 years and a surging foreclosure rate, the lenders are seizing on a four- year-old rule aimed at standardizing how they book acquired loans that have deteriorated in credit quality. By applying the measure to mortgages and commercial loans that lost value during the worst financial crisis since the Great Depression, the banks will wring revenue from the wreckage, said Robert Willens, a former Lehman Brothers Holdings Inc. executive who runs a tax and accounting consulting firm in New York.

Not that the Wall Street Wankers would ever try to pull a fast one. Oh! Certainly not!

We need new accounting rules.