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Hank Paulson is shocked, shocked by Wall Street
September 22, 2008
I am glad that Hank Paulson, who wants to raise a $700bn US government fund to buy distressed mortgage securities in an effort to restore confidence to financial markets, is an old Wall Street hand.
In a world where Sarah Palin, the US Republican vice-presidential nominee, claims expertise about Russia because it can been seen from her home state of Alaska, it is reassuring to have a US Treasury secretary with actual experience.
It is definitely more comforting to have Mr Paulson in the hot-seat than John Snow or Paul O’Neill, his predecessors.
That said, Mr Paulson’s background as the former chairman and chief executive of Goldman Sachs, does raise questions.
Mr Paulson went on the Sunday talk shows in the US this weekend to tout his plan and promise to tighten up regulation of Wall Street. He denounced “irresponsible practices” under which mortgages were sold to unqualified buyers and “sliced and diced” all over the world.
He concluded:
“We very much need new regulations, new policies. What has gone on here is terrible, inexcusable and we need to deal with it. But that is going to take some time to figure that out and do it well.”
Well, fine but where was Mr Paulson when this “inexcusable” behaviour was going on? Until May 2006, when he was nominated by George W. Bush as the Treasury secretary, he was running an investment bank that was doing quite a bit of this slicing and dicing.
According to page 20 the Goldman Sachs 10-Q regulatory filing for the first quarter of 2006:
During the three months ended February 2006 and February 2005, the firm securitised $19.25bn and $15.24bn, respectively, of financial assets, including $18.15bn and $14.43bn, respectively, of residential mortgage loans and securities.
Meanwhile, on page 22, we find that Goldman had big exposures to Variable Interest Entities “which primarily issue mortgage-backed and other asset backed securites and collateralised debt obligations”. The exposures included $22bn of CDOs, $2.9bn of “asset repackagings and credit-linked notes” and $6.5bn of “mortgage-backed and other asset-backed” securities.
Mr Paulson now declares himself shocked, shocked that structured finance was going on on Wall Street but he was there at the time, and the $18.7m bonus he received for the first half of 2006 presumably reflected it.
I wonder if, as a public gesture, Mr Paulson might consider handing that bonus over to the Treasury’s fund and lowering the US taxpayer’s bill by $18.7m?
Absolutely he should. There are gains to someone, whether homeowners selling homes at the peak of home prices or all the income that flowed to the chain of entities involved in residential real estate from developers to construction workers to building material suppliers to mortgage originators to real estate agents to packagers of loans and so on that offset the loss of value in the paper assets generated by all this activity.
The gains are dispersed and not so easily identified as Mr. Paulson’s bonus, but the idea of pushing back the losses to those who gained rather than pushing them onto the USA tax-payer is appealing however that might be done.
Posted by: Wendell Murray | September 22nd, 2008 at 3:43 am | Report this commentHello Mr. Gapper,
I am not surprised.
It seems Mr. Paulsen is, during a crisis, doing every thing he can to enrich his former colleagues and associates.
He is on record as saying that, without his plan of handing out $100’s of billions to the ever growing list of recipients, the financial system will collapse. That is a very dangerous statement to make given what is at stake. Should the Congress insist on beneficial reforms or adjustments to Paulsen’s all or nothing gambit, the top finance official has rigidly asserted a consequence of full financial failure.
Clearly, Mr. Paulsen has learned nothing since his departure from Goldman Sachs and his time spent in public service. The US Treasury is not some financial services competitor and this is not some deal that can be shelved until one gets one’s way.
Careless statments issued by the US Treasury’s delegated leader have consequences that can instantly turn peaceful financial markets into maelstroms. He should reflect long and thoughtfully on these ponderous assertions because there is more at stake here than a simple resignation.
As the list of claimants grows, the amounts to be handed over will swell to at least 3 to 4 times the initial amount. At this moment with all this public money soon to be available, hundreds of investment firms are seeking favour with the Treasury to administer portions of the money for junk program for doubtless fat fees. Even Goldman Sachs and Morgan Stanley want a piece of the action.
Not surprisingly, many more assorted financial firms are clamouring for inclusion in the greatest public handout of modern times.
Regards,
Posted by: Gary Marshall | September 22nd, 2008 at 6:07 am | Report this commentGary Marshall
Clearly what Mr Paulson is dealing with here is a black swan. I am a huge fan of Nasseem Nicholas Taleb. Though I find his mockery of people who wear Salvatore Ferragamo ties appalling, I think he is on to something when he basically writes that no one in the financial sector knows what the hell they are doing. It’s certainly true of my bosses, they have no understanding of what I do.
It was obviously impossible to predict that there was something wrong with a financial instrument with the prefix sub-. You couldn’t have expected old Hank to know that pushing mortgages made out to married cousins in Arkansas was going to come back and bite him in the ass. And in taking the 18 million he was just doing the rational thing. We want a rational guy taking charge of this situation, not some really silly do-gooder with a guilty conscience. It would also be totally irrational of him to give it back now. He has probably been saving it for a rainy day, and it’s monsoon season right now. I know my confidence would be even more shaken if he started risking his own money.
But, that brings me to the most important point. We need a strong leader to get us through this crisis, my portfolio depends on it. So now is not the time to question the Treasury Secretary’s competence. The only way to get us through this is for the markets to be sure that Hank is a genius who know’s exactly what he’s doing. So please stop with the besserwisser stoff Gapper! For all our sakes
Posted by: Stellan Sjögreen, Banker 39 | September 22nd, 2008 at 9:46 am | Report this commentI even ask myself whether not Mr Paulson is too biased towards Wall Street. So maybe he ignores better solutions like sending many financial firms directly into bankruptcy for good, rather than preserving a perverse and flawed, welfare draining, system like the current.
Posted by: Franz Mellau, Austria | September 22nd, 2008 at 11:18 am | Report this commentDear John,
We regret to inform that your request will be impossible to fulfill.
You say: “I wonder if, as a public gesture, Mr Paulson might consider handing that bonus over to the Treasury’s fund and lowering the US taxpayer’s bill by $18.7m?”
Alas, kind sir, the ’stuff’ is getting very close to hitting the fan in Washington, D.C. and in case of the need for a fast getaway, the Secretary will need his own personal Gulfstream G550, fully outfitted and staffed at $60 Million. The getaway will have to be arranged to a more secure country than Paraguay, George W. Bush’s escape venue of choice which has unfortunately fallen into the hands of a leftist regime. So Mr. Paulson will be looking for accomodations perhaps in Saudi Arabia or the UAE where the privacy he’ll obviously demand and require for his estate and security force will run about $20 Million initially and about $3 Million in annual maintenance cost. Furthermore, in order to live in the style to which the Secretary has become accustomed, there will necessarily be cost of no less than $3 Million per annum. So if we tote all this up on a ten year basis (a mere half the time that Idi Amin has spent in Saudi Arabia) we find that Mr. Paulson is facing, at a bare minimum, expenses of $140 Million in 2008 dollars. Now you know how terribly inflation is raging, so let’s just round that up to $187 Million over the next ten years.
Now that you realize the tremedous costs to maintain a man on the run in the style to which he’s wishes to be accomodated, I’m sure that you now realize your folly in demanding restitution of even a mere one-tenth of what this man is worth!
Posted by: Ray Duray | September 22nd, 2008 at 11:18 am | Report this commentMr. Gapper
A lot of the current problem has to do with banks continuing to create mortgage securities when they could no longer offload them, which is responsible for (i) the damage caused to their balance sheets and (ii) encouraging further creation of mortgages on loose terms. Goldman Sachs did not do that during Mr. Paulson’s chairmanship.
Posted by: A Wong | September 22nd, 2008 at 11:58 am | Report this commentWhy can’t Paulson’s $700 billion bail-out be structured with a put option back to the sellers? So the government buys the assets at a discount but also with the option to sell them back to the banks at a pre-agreed price, say 5 years after the date of the sale. The strike price could be set so that the sellers share the risk of any losses at sale with taxpayers.
Presumably these assets will recover some of their value once liquidity has been restored to the markets. I assume that’s the premise of the plan – that the government can sell the assets for a profit at some point in the future. If so, such a put option limits the downside to taxpayers (since the government can sell back the assets at a pre-set price) while keeping the full upside in the case of complete price recovery. Further, it may address the issue of moral hazard to some extent since it requires the banks to take a further haircut on the assets – but at some point in future when they may be better able to afford it.
It’d normally be difficult to sell a put to vendors, but it seems to me the government retains some negotiating power in this situation.
Posted by: M Ogunsulire | September 22nd, 2008 at 12:12 pm | Report this commentSir,
The requirement to regulate wall street is necessary without doubt. Perhaps a place to start would be an updating of the previously repealed Glass-Steagall Act(s) which did much to keep the idiocy and greed of the last few years out of the system for close to 70 years.
I also suggest that in the revamp we return to a very simple principle. there is equity, there is debt and the margin of safety. Everything else is fancy window dressing to make money for the investment banks.
On the issue of bonuses why stop at Mr Paulson. I am sure the NFV of the bonuses paid to all investment bankers over the last 10 years (using the IRR of the IBanks stock over the same period as the interest rate) would neatly equal the destruction of value we have seen here. In other words the bonuses were fraud because if they did not know it in the beginning they certainly knew half way through that this was a fantastically flawed perpetual motion machine.
Posted by: Michael Dowling | September 22nd, 2008 at 12:44 pm | Report this commentSadly, it often takes a thief to catch a thief.
Posted by: Billy Hitchcock | September 22nd, 2008 at 1:02 pm | Report this commentMaybe the $520mn he has already donated to charity will cover it?
Posted by: Sam | September 22nd, 2008 at 1:31 pm | Report this commentI find it perverse to let the taxpayers subsidize the fat bankers. I find it impossible to see a good ending to this scenario. As I get further back in the queue, there will eventually be no-one willing to buy my assets behind me. At that stage I only want to own gold.
Posted by: G. Kaiser | September 22nd, 2008 at 2:40 pm | Report this commentConflict of Interest - Paulson former CEO of Goldman & holder of Goldman shares in tune of $580 million SAVES Goldman by handing out $600 billion of tax payers money to Morgan & Goldman. This is biggest robbery ever seen in US. Thugs like Paulson should be prosecuted to fullest extend of law.
Posted by: John Ramsey | September 22nd, 2008 at 4:27 pm | Report this commentThe conflict of interest issue is a very pertinent one. I wish journalists would pursue this further. What indeed is the nature of Mr Paulson’s holdings in GS? Furthermore, how trusting can we be of the pundits (without naming names) who emphatically support the bailout, including some leading lights on this paper? Should they not disclose the nature of their financial investments, before making further comment? More generally, are they not possibly acting on behalf of the haves, at the expense of the have-nots — the millions who have no savings and investments (admittedly probably not reading this paper, but the views expressed here have a chance of influencing the policymakers).
Posted by: RCS | September 22nd, 2008 at 4:56 pm | Report this commentThe fat cats at Goldman Sachs get the last laugh. We taxpayers have all been taken. I can only imagine the phone calls that were flying around last Thursday between Hank and his cronies– “Hank, how many more hits do we have to take? Save us.”
Posted by: D. Wang | September 22nd, 2008 at 5:20 pm | Report this commentWhat has happened is a sham.
Well, the fox guarding the henhouse…give Hank the checkbook, no outside audits, please. My boys on the Street need to make their bonus milestones so I will help them sell some more toxic paper with the stupid US taxpayers’ money. And we may have to come back in 6 months for another trillion or so? Is that ok with you, Barack and/or McCain?
Posted by: Marky mark | September 22nd, 2008 at 7:21 pm | Report this commentMr. Paulsen is carrying on in the footsteps of Alexander Hamilton, and every other financier who goes through the revolving door of government “service”.
Where’s Aaron Burr when we need him?
-jcr
Posted by: John C. Randolph | September 23rd, 2008 at 1:59 am | Report this commentApparently it looks like Richard Shelby, Republican Senator from Alabama, may turn out to be the voice of reason and responsibility regarding the proposed trillion dollar slush fund.
So far I have agreed with the assessments of several Republicans strongly opposing this plan. So far they have shown more responsibility than the Democrats in Congrss.
Senator McCain however continues to spout contradictory nonsense from one moment to the next. How could anyone with a sense of minimal responsibility vote for a duo such as Senator McCain and Governor Palin? Doddering nonsense hypocrisy and lies from one and aggressive ignorance, hypocrisy and lying from the other.
Secretary Paulson is looking more and more like Chicken Little in his irresponsible proposal and equally irresponsible attempt to “railroad” the proposal through Congress.
Prof. Luigi Zingales’ brief commentary on the issue that has received wide circulation is excellent, as is the historical perspective provided by John Steele Gordon on the earlier S&L bailout. His comments in the NYTimes appropriately excoriate the playground that Fannie Mae was for Democratic politicians/appointees. Also for as much as I respect Senator Dodd on many issues, I would prefer to see Senator Shelby forestalling this particular boondoggle.
Posted by: Wendell Murray | September 23rd, 2008 at 3:53 am | Report this commentSo what happens today if Hank the Bank hands in his notice saying all this suggested intrusion, oversight etc.,that Congress wants would ruin his plans ?
Posted by: Edward Teague | September 23rd, 2008 at 9:23 am | Report this commentI just read the section of the Berkshire 2002 annual report cited by Mr. Gapper that deals with derivatives. As is so typical of Mr. Buffett’s honesty, acuity and superb writing style, the section is short, clear and prescient (unauthorized reproduction, but assuming that is acceptable given that it has already been published). The well-known antecedents to the current “crisis” and the dangers of permitting the rampant use of derivatives and - even worse insurance written on them - are the Enron and Long-Term Capital Management debacles are cited by Mr. Buffett amid other jewels of observation and analyis.
Charlie and I are of one mind in how we feel about derivatives and the trading activities that go with them: We view them as time bombs, both for the parties that deal in them and the economic system.
Having delivered that thought, which I’ll get back to, let me retreat to explaining derivatives, though the explanation must be general because the word covers an extraordinarily wide range of financial contracts. Essentially, these instruments call for money to change hands at some future date, with the amount to be determined by one or more reference items, such as interest rates, stock prices or currency values. If, for example, you are either long or short an S&P 500 futures contract, you are a party to a very simple derivatives transaction – with your gain or loss derived from movements in the index. Derivatives contracts are of varying duration (running sometimes to 20 or more years) and their value is often tied to several variables. Unless derivatives contracts are collateralized or guaranteed, their ultimate value also depends on the creditworthiness of the counterparties to them. In the meantime, though, before a contract is settled, the counterparties record profits and losses – often huge in amount – in their current earnings statements without so much as a penny changing hands.
The range of derivatives contracts is limited only by the imagination of man (or sometimes, so it seems, madmen). At Enron, for example, newsprint and broadband derivatives, due to be settled many years in the future, were put on the books. Or say you want to write a contract speculating on the number of twins to be born in Nebraska in 2020. No problem – at a price, you will easily find an obliging counterparty. When we purchased Gen Re, it came with General Re Securities, a derivatives dealer that Charlie
and I didn’t want, judging it to be dangerous. We failed in our attempts to sell the operation, however, and are now terminating it. But closing down a derivatives business is easier said than done. It will be a great many years before
we are totally out of this operation (though we reduce our exposure daily). In fact, the reinsurance and derivatives businesses are similar: Like Hell, both are easy to enter and almost impossible to exit. In either industry, once you write a contract – which may require a large payment decades later – you are usually stuck with it. True, there are methods by which the risk can be laid off with others. But most strategies of that kind leave you with residual liability.
Another commonality of reinsurance and derivatives is that both generate reported earnings that are often wildly overstated. That’s true because today’s earnings are in a significant way based on estimates whose inaccuracy may not be exposed for many years.
Errors will usually be honest, reflecting only the human tendency to take an optimistic view of one’s commitments. But the parties to derivatives also have enormous incentives to cheat in accounting for them. Those who trade derivatives are usually paid (in whole or part) on “earnings” calculated by mark-to-market
accounting. But often there is no real market (think about our contract involving twins) and “mark-to-model” is utilized. This substitution can bring on large-scale mischief. As a general rule, contracts involving multiple reference items and distant settlement dates increase the opportunities for counterparties to use fanciful assumptions. In the twins scenario, for example, the two parties to the contract might well use
differing models allowing both to show substantial profits for many years. In extreme cases, mark-to-model degenerates into what I would call mark-to-myth.
Of course, both internal and outside auditors review the numbers, but that’s no easy job. For
example, General Re Securities at yearend (after ten months of winding down its operation) had 14,384 contracts outstanding, involving 672 counterparties around the world. Each contract had a plus or minus value derived from one or more reference items, including some of mind-boggling complexity. Valuing a portfolio like that, expert auditors could easily and honestly have widely varying opinions. The valuation problem is far from academic: In recent years, some huge-scale frauds and near-frauds have been facilitated by derivatives trades. In the energy and electric utility sectors, for example, companies used derivatives and trading activities to report great “earnings” – until the roof fell in when they actually tried to convert the derivatives-related receivables on their balance sheets into cash. “Mark-to-market” then turned out to be truly “mark-to-myth.”
I can assure you that the marking errors in the derivatives business have not been symmetrical.
Almost invariably, they have favored either the trader who was eyeing a multi-million dollar bonus or the CEO who wanted to report impressive “earnings” (or both). The bonuses were paid, and the CEO profited from his options. Only much later did shareholders learn that the reported earnings were a sham.
Another problem about derivatives is that they can exacerbate trouble that a corporation has run into for completely unrelated reasons. This pile-on effect occurs because many derivatives contracts require that a company suffering a credit downgrade immediately supply collateral to counterparties. Imagine, then, that a
company is downgraded because of general adversity and that its derivatives instantly kick in with their requirement, imposing an unexpected and enormous demand for cash collateral on the company. The need to
meet this demand can then throw the company into a liquidity crisis that may, in some cases, trigger still more downgrades. It all becomes a spiral that can lead to a corporate meltdown.
Derivatives also create a daisy-chain risk that is akin to the risk run by insurers or reinsurers that lay off much of their business with others. In both cases, huge receivables from many counterparties tend to build up over time. (At Gen Re Securities, we still have $6.5 billion of receivables, though we’ve been in a
liquidation mode for nearly a year.) A participant may see himself as prudent, believing his large credit exposures to be diversified and therefore not dangerous. Under certain circumstances, though, an exogenous
event that causes the receivable from Company A to go bad will also affect those from Companies B through Z. History teaches us that a crisis often causes problems to correlate in a manner undreamed of in more tranquil times.
In banking, the recognition of a “linkage” problem was one of the reasons for the formation of the Federal Reserve System. Before the Fed was established, the failure of weak banks would sometimes put sudden and unanticipated liquidity demands on previously-strong banks, causing them to fail in turn. The Fed now insulates the strong from the troubles of the weak. But there is no central bank assigned to the job of
preventing the dominoes toppling in insurance or derivatives. In these industries, firms that are
fundamentally solid can become troubled simply because of the travails of other firms further down the chain.
When a “chain reaction” threat exists within an industry, it pays to minimize links of any kind. That’s how we conduct our reinsurance business, and it’s one reason we are exiting derivatives.
Many people argue that derivatives reduce systemic problems, in that participants who can’t bear certain risks are able to transfer them to stronger hands. These people believe that derivatives act to stabilize the economy, facilitate trade, and eliminate bumps for individual participants. And, on a micro level, what they say is often true. Indeed, at Berkshire, I sometimes engage in large-scale derivatives transactions in order to facilitate certain investment strategies.
Charlie and I believe, however, that the macro picture is dangerous and getting more so. Large
amounts of risk, particularly credit risk, have become concentrated in the hands of relatively few derivatives dealers, who in addition trade extensively with one other. The troubles of one could quickly infect the others. On top of that, these dealers are owed huge amounts by non-dealer counterparties. Some of these
counterparties, as I’ve mentioned, are linked in ways that could cause them to contemporaneously run into a problem because of a single event (such as the implosion of the telecom industry or the precipitous decline in the value of merchant power projects). Linkage, when it suddenly surfaces, can trigger serious systemic
problems.
Indeed, in 1998, the leveraged and derivatives-heavy activities of a single hedge fund, Long-Term Capital Management, caused the Federal Reserve anxieties so severe that it hastily orchestrated a rescue effort. In later Congressional testimony, Fed officials acknowledged that, had they not intervened, the
outstanding trades of LTCM – a firm unknown to the general public and employing only a few hundred people – could well have posed a serious threat to the stability of American markets. In other words, the Fed acted because its leaders were fearful of what might have happened to other financial institutions had the LTCM domino toppled. And this affair, though it paralyzed many parts of the fixed-income market for
weeks, was far from a worst-case scenario.
One of the derivatives instruments that LTCM used was total-return swaps, contracts that facilitate 100% leverage in various markets, including stocks. For example, Party A to a contract, usually a bank, puts up all of the money for the purchase of a stock while Party B, without putting up any capital, agrees that at a
future date it will receive any gain or pay any loss that the bank realizes.
Total-return swaps of this type make a joke of margin requirements. Beyond that, other types of
Posted by: Wendell Murray | September 23rd, 2008 at 10:57 am | Report this commentderivatives severely curtail the ability of regulators to curb leverage and generally get their arms around the risk profiles of banks, insurers and other financial institutions. Similarly, even experienced investors and
analysts encounter major problems in analyzing the financial condition of firms that are heavily involved with derivatives contracts. When Charlie and I finish reading the long footnotes detailing the derivatives activities
of major banks, the only thing we understand is that we don’t understand how much risk the institution is running. The derivatives genie is now well out of the bottle, and these instruments will almost certainly multiply in variety and number until some event makes their toxicity clear. Knowledge of how dangerous
they are has already permeated the electricity and gas businesses, in which the eruption of major troubles caused the use of derivatives to diminish dramatically. Elsewhere, however, the derivatives business continues to expand unchecked. Central banks and governments have so far found no effective way to control, or even monitor, the risks posed by these contracts.
Charlie and I believe Berkshire should be a fortress of financial strength – for the sake of our owners, creditors, policyholders and employees. We try to be alert to any sort of megacatastrophe risk, and that posture may make us unduly apprehensive about the burgeoning quantities of long-term derivatives contracts and the massive amount of uncollateralized receivables that are growing alongside. In our view, however, derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.
What I’d love to know is how many shares in Goldman does Hank still own. His prev bonuses must still be mainly in shares as these usually have a 3 year tie in. He was initially very reluctant to save Lehman with taxpayer’s dollars but when Goldman started to sink he acted fast. Looks like he acted for his own selfish reasons to me. Hardly an impartial treasury. I think the whole US banking system is a fiddle on the public. What a joke !!
Posted by: aj | September 23rd, 2008 at 1:21 pm | Report this commentThe public wailing and moaning about Mr Paulson and the so-called bailout is self-indulgent baloney that we cannot afford because it actively interferes with the essential task before us: preventing a complete lock-up of global credit markets. We should remember that the legislators (especially Republicans) venting their outrage were active participants in a long chain of stupid decision-makers that directly contributed to the current emergency. No one is blameless here — not even Joe Six-Pack, who lied about his income to buy a too-expensive house. We can all acknowledge our share of blame once credit markets have opened up again and there’s time to consider longer-term regulatory reforms.
There is only one proven way to deal with the immediate emergency, and that is a government purchase of currently illiquid assets at fire-sale prices. Most of those assets will eventually pay off at something close to their original values, and the profits from those that do will more than pay for the minority that don’t. The banks who will sell those assets to the government have already been massively punished by mark-to-market accounting, skyrocketing cost of debt and collapsing stock prices — public seizure of their stock is both unnecessary and counterproductive. Similarly, most of their stupidly culpable senior execs have already been fired or will be soon. We can’t let the desire for vengeance prevent us from putting a proven solution in place this week.
It’s fine to have oversight of Paulson’s big buyout — he’s seeking oversight. And if our legislators don’t do this right now, the resulting s**tstorm will look like nothing we’ve ever seen.
Time to stop moaning and start supporting the team that can get this done — led by Paulson. It surely ain’t Congress, so they better approve this thing and get out of the way fast.
Posted by: Craig Stephens | September 23rd, 2008 at 11:29 pm | Report this commentaj it seems you work for Goldman Sachs or Mr Paulson. I hate to see arrogant people like you who forecast with such confidence the US economic scenarios. What will or will not happen is any body’s guess but Mr. Paulson has decided that why not use “Bush’s Iraq like strategy to install fear” and help clean Wall street balance sheets. If you or anyone else is such a “Guru” on financial matters I suggest that instead of wasting time on this forum go out and make money on this thing. I claim no financial expertise but know that Mr. Paulson’s pitch about asking $700 billion on a dime sounds a lot like a used car salesman.
Posted by: John Ramsey | September 24th, 2008 at 9:51 am | Report this commentSorry last comment was a response to Craig Stephens not aj.
Posted by: John Ramsey | September 24th, 2008 at 9:54 am | Report this commentCan we take a step back, please.
1) Are we convinced of the presence and nature of the “crisis”?
1a) The Chicago Purchasing Managers (ISM-Chicago) conduct a monthly survey of business activity, purportedly started round about 1923, but data is available only since 1946. August report was pretty bullish (Sep is released Tues 30 Sep). The Business Survey Committee authorized a “special survey” with a single question asking if financial management changed since 14 Sep… results (published last Thursday) 100% No Change… maybe Chicago is late to feel a “crisis” or … (see www.kingbiz.com, “News”).
1b) I had lunch with a banker colleague who asserted his bank (independent but good sized) is still making loans with the same terms.
1c) JPMorganChase bought WaMu for $1.9billion… apparently Jamie got the $$$ from somewhere. Doesn’t that mean that credit markets are working (at least for him)?
2) Is this the first time this administration has used a “crisis” to launch some initiative? Is this initiative related to other programs that will have the effect of establishing a legacy for the current administration in dramatically strengthening the executive branch of a much larger and pervasive Federal
3) To what extent can “toxic” paper be traced to workers/salarymen/managers who were casualties in restructuring/downsizing/re-engineering/right-sizing programs over the past decade(s) and took employment in the service industries at lower pay? Does a different causal process suggest a different “solution”?
4) Since Treasury admitted to pulling the $700 billion out of thin air, what is the ultimate investment / expense?
5) What is the impact of raising $700 billion on credit markets? What do the proformas look like for the next decade?
Cheers!
Posted by: Jack L Bishop Jr, PhD | September 29th, 2008 at 2:28 am | Report this commentJack
[…] their bonuses? Let’s see, Paulson use to be the Goldman Sach’s CEO. According to the Financial Times: According to page 20 the Goldman Sachs 10-Q regulatory filing for the first quarter of […]
Posted by: Fraud Bailout: the biggest con | November 12th, 2008 at 2:07 am | Report this commentReturn bonuses and golden parachutes.
Peter Wuffli, former CEO of UBS, made frontpage headlines in Switzerland and Germany when he announced that he had given back to UBS his last
bonus (after tax) of CHF 12 million. The Sunday newspaper reports also said that Marcel Ospel (Wuffli’s former boss, who left USB in spring this year) was being “worked on” (bearbeitet), presumably to get him to return money too.
Have there been any such cases of bonuses being returned? Is this also on Obama’s “Action List”?
Posted by: J.J. | November 12th, 2008 at 7:40 am | Report this commentGiving back bonuses and golden parachutes.
Peter Wuffli, former CEO of UBS, made frontpage headlines in Switzerland and Germany last Sunday when he announced that he had given back to UBS his last bonus (after tax) of CHF 12 million. The Sunday newspaper reports also said that Marcel Ospel (Wuffli’s former boss, who left USB in spring this year) was being “worked on” (bearbeitet), presumably to get him to return money too.
Have there been any such cases of bonuses being returned? Is this also on Obama’s “Action List”?
Posted by: J.J. | November 12th, 2008 at 7:43 am | Report this comment