Republican Dick Shelby Still Trying to Kill/Obstruct Banking Reform

Catherine Dodge of Bloomberg has an informative story on what is currently going on with the draft legislation and negotiations on Bank reform and stricter regulatory oversight.  This is basically comprised of Senator Dodd and his staff writing legislation to "compromise" and Senator Dick Shelby of Alabama saying "No!" to everything they write.  Pretty simple.

Also Senator Barbara Boxer and Jim Webb of Virginia came up with a very insincere piece of legislation which would tax 50% on bank executives' (of banks that had received bailout money from the taxpayer) bonuses which went over $400,000.  I say insincere because both Barbara Boxer and Jim Webb are fully aware this legislation will never be passed into law, and are using it as a cheap way to score points with their constituents.  Also pretty simple.  You know anyone past the age of 15 with half a brain and literate can write these headlines at least 3 weeks before they come out.

John C. Dugan and Office of the Comptroller of the Currency (O.C.C.) Are a Pathetic Joke

Another excellent article written by Gretchen Morgenson of The New York Times.  She has a regular column there named "Fair Game" which has a motherload of great information and sage wisdom on financial matters.  The title of her article is very appropriate:  "Credit Cards and Reluctant Regulators".

Yes Gretchen, you got that right, just put RELUCTANT in extra huge text and bold print.  Or maybe you could put a neon blinking arrow next to it that points to the name John C. Dugan.  But that's just for the slow-witted, because we might guess John C. Dugan has been a big bank lackey for years now, and he hammered that point down at the last FDIC board meeting.  Maybe next time Congress passes lame watered down financial reforms, we can call it "'Duganized' finance reform".

When you read about John C. Dugan, you might wonder if he is a regulator or a big bank lobbyist, as he spends most his time arguing against reforms, and seems to not notice anything bad that happens at Citigroup.  Based on Dugan's actions it can be confusing what exactly does John C. Dugan do???  I know what Dugan's job title is, but how that relates to his actions and words, that one is a mystery to me.
Maybe he thinks his job is to muffle whatever ideas Sheila Bair has to stop banks from screwing consumers and depositors???  I personally think John C. Dugan got confused what his job is.....he's in a state of job duty limbo. Or maybe it's permanent job duty limbo.........as long as Dugan stays confused what his job is then he gets to keep his job????

Since the Federal Reserve Board started to issue stricter rules on credit card issuers (coincidentally  around the same time Congress was talking about auditing the Fed), the banks are coming up with new fees to sidestep the new regulations.  For instance Gretchen Morgenson informs us, Alliance Data Systems is now charging its customers $1 surcharge for getting their statement in regular post mail.  Most likely there will be many more creative fees coming from credit card companies (banks) in the very near future (the very nearby weeks and months).  The question is, what is Congress, the Federal Reserve (Bernanke), and Jerkin Dugan going to do about it???  Gretchen Morgenson gives more details and writes much better than me.  Please read her wonderful article.

Professor Jayanth Varma On Derivatives Regulation

If you have not visited or know of Jayanth Varma and his terrific blog, you need to go and visit NOW.  He has one of the most underrated finance blogs on the internet.  Very informative and well written.

Professor Varma's most recent post deals with the topic of Clearinghouses vs. Registered Exchanges.  It also has some outstanding links inside his post.  Darrel Duffie and two co-authors have a terrific paper written on the topic.  I could put the links here now, but I want you to GO VISIT HIS SITE!!!!!

I strongly believe that registered exchanges are NECESSARY for derivatives trading.  Letting Clearinghouses do it is letting the dealers/traders to regulate themselves.  As Alan Greenspan so painfully taught us with the systemically threatening banks, SELF-REGULATION DOES NOT WORK.

So even if you feel you know this topic well, I 'm sure you can learn more with Professor Varma and his links.

Update: We also know self-regulation doesn't work by looking at Larry Summers' double chin.

What To Make of Senator Dodd's Retirement??? If Blumenthal Wins, It's Good News!!

Many followers of the political scene have made much ado about the recent announcement of Chris Dodd's retirement from the Senate.  Some think it may mean Dodd is a "lame duck" and it's bad news for those who are pro-regulation on banks.  But looking deeper that may not be the case.  His possible replacement Richard Blumenthal may be less benevolent to banks than Dodd was in his career.

So who is Richard Blumenthal??  I found much insight from this Christian Science Monitor article by Tracey Samuelson.  He currently holds the post of Attorney General for the state of Connecticut.  A job he has held for the last roughly 18 years.  He has fought for consumer rights, environmental responsibility, personal privacy, and labor rights.  He helped stop advertising of tobacco products aimed at children. He was a volunteer attorney for the NAACP legal defense fund.  In the late 1970's he prosecuted drug traffickers, organized crime, and polluters.  He was an aide to former U.S. Senator Daniel P. Moynihan.  He served in the U.S. Marine Corps Reserves. And last but not least he has a wife and four children in Greenwich.  If I left something out it's 'cause I'm getting an inferiority complex writing this man's dossier.

In March 2009 his approval ratings were at 81% in an AP poll, and he has told people that he has had an eye on the U.S. Senate for years.

So who is his competition on the Republican side??  Linda McMahon of World Wrestling Entertainment fame (Yes THAT McMahon) and Robert Simmons, who had been ahead of Dodd in the polls.

I think Mr. Blumenthal will vote quite well on the issue of bank regulation, so I hope he wins.  That is of course, unless wrestler Randy "Macho Man" Savage joins Ms. McMahon on the campaign trail, then I will waver a little (haha).

AIG More Upfront Than Geithner's NY Federal Reserve?? Subtitle: Time for Geithner to Go??

Hugh Son of Bloomberg has an excellent story which was revealed on the internet Thursday.  Around late 2008, when Timothy Geithner was the leader of the Federal Reserve Bank of New York (here on in this post referred to as NYFRB), the NYFRB told (subtly ordered??) American International Group Inc. (AIG) to withhold details about the insurer's payments to their counterparties from the public.  This little nugget of information was revealed in e-mails between AIG and it's regulator (NYFRB).  AIG payed its counterparties Goldman Sachs, Societe Generale SA, and others 100 cents on the dollar for credit default swaps they bought from AIG.  The NYFRB had that 100 cents on the dollar reference crossed out and the language excluded when it was made public Christmas Eve of 2008*.  This new info. came from e-mails obtained by Darrel Issa (pronounced Eye-suh), a U.S. Congressman from Southern California.

Credit default swaps work similar to insurance, so that is why AIG owed the counterparties a large amount of money after they purchased the credit default swaps (CDS) from AIG.

From Hugh Son's article:

"Secretary Geithner played no role in these decisions," Meg Reilly, a Treasury spokeswoman, said in an e-mail. "He was recused from working on issues involving specific companies, including AIG," after his nomination to Treasury Secretary on Nov. 24, 2008. "Geithner began to insulate himself weeks earlier in anticipation of his nomination," she said in a separate statement.

Uh-huh. Ya.

Before Issa requested the e-mails another story in Bloomberg had reported the NYFRB had ordered AIG not to negotiate for discounts to settle the swaps.  That decision to pay the banks (including coincidentally Goldman Sachs) cost AIG---and hence taxpayers---$13 billion, calculated from using the discount AIG was originally asking for.

E-mails seem to divulge the NYFRB pressed AIG to keep details out of the public's site and the public's conscious.

Well, why would the U.S. taxpayer want to know about that?? What's $13 Billion between old friends??

Hugh Son's article goes on to say (I'm paraphrasing) that the Dec 24, 2008 filing was privately challenged by the Securities and Exchange Commission (SEC), the agency which enforces laws that make sure public corporations are disclosing information as required (I guess the SEC didn't want to embarrass anybody too much, at that point AIG's reputation being so stellar).  The SEC sent a letter to AIG's then CEO Gordon Liddy telling him they needed to provide a Schedule A, listing collateral for the swaps and the counterparties.  The Schedule A was unveiled to the public 5 months later.


Hugh Son's article goes on to give many very cute and humorous quotes from NYFRB lawyers (if you need a laugh be sure to read).  Also according to e-mails written by AIG lawyer Kathleen Shannon, NYFRB suggested AIG avoid mentioning synthetic CDOs in one of the public filings.

From Hugh Son's story (A letter from an AIG lawyer to an NYFRB lawyer):

The filing "reflects your client's desire that there be no mention of synthetics in connection with this transaction,"  Shannon wrote to Davis Poke on Dec. 2, 2008.  "They will not be mentioned at all."

For those who can't understand lawyer speak "Your client's"=NYFRB's.  There are also many quotes in the lawyers' e-mails which seem to strongly suggest the NYFRB wanted to keep details about Maiden Lane a secret as long as possible.  Again, from Hugh Son's story:

"Do you think it might be feasible to hold off on the Maiden Lane III 8K and press release until next week?" Brett Philips a New York Fed lawyer wrote in an e-mail that day.  "The thinking is that the Maiden Lane III closing will be a less transparent event, and it might be better to narrow the gap between AIG's announcement and the New York Fed's publication of term sheet summaries."

AIG's lawyer Kathleen Shannon responds in e-mail:

"Given the significance of the transaction, AIG would be best served by filing tomorrow," Shannon wrote.  "We will of course be guided by your counsel." The Maiden Lane agreement/document was posted Dec. 2, 2008.

More quotes from the lawyers..... on and on.....  Did you feel confused which lawyer represented the regulator and which one represented the company??---or was it just me??  Isn't it the regulator that usually wants information out in the public ASAP?????  Here it is the AIG lawyer who seems to be pushing for public disclosure.

It seems New York Federal Reserve Bank's new policy is all corrupt activities are only on a need to know basis now.

Let's see here: Geithner lied about his taxes, there were rumors Geithner wanted Sheila Bair (a heroine in this mess) fired, now we have this.  3 strikes and.....    

*It's interesting to note the same stunt was pulled on 2009 Christmas Eve, when the U.S. Treasury (Geithner's new home) announced they were paying unlimited amounts on Fannie Mae and Freddie Mac losses and paying their CEOs $6 million apiece.   I guess Geithner has his own special ways to mark the traditional day of celebrating Jesus Christ's Birthday.

Has the Securities and Exchange Commission (SEC) Changed??

Jesse Westbrook of Bloomberg has a very informative report on the "new" SEC and it's leader Mary Schapiro. The SEC has lost major face after the Madoff scandal, and even an audio tape of Madoff basically saying what oafs the agency's regulators were.

One festering issue in Westbrook's story is surprise inspections by the SEC of money managers. Initially, back in May, Schapiro put forward a plan to surprise inspect 10,000 money managers to insure they weren't swindling the customers who entrusted them with their money. From May to December 16 that original idea of 10,000 surprise inspections had slowly and magically dwindled down to a rule by the SEC that only 1,600 U.S. money managers would submit to mandatory, unannounced audits---as Westbrook's article says:

"83% fewer than 7 months ago. The revision came after lobbying by fund companies, including executives from T. Rowe Price Group Inc., who met with Schapiro, and Legg Mason Inc., who met with another commissioner, SEC records show."

"The revision" is such a nice way to phrase that, eh?? If I had my money entrusted with T. Rowe Price Group Inc. or Legg Mason Inc. I would be curious why they felt the "revision" was so important?? That rule, is one of at least 4 that Schapiro has announced and then backed down from. Last October Schapiro postponed plans to give more power to investors to decide who gets membership on corporate boards after being rebuffed by the U.S. Chamber of Commerce (An organization Professor Simon Johnson of MIT has been known to mention from time to time, namely here and here).

Schapiro is quoted in Westbrook's report from a Dec. 22 interview, "We just don't have the capacity to move any faster. We're still at it, I think, a very good pace."

The SEC was publicly shamed last September, when after proposing a $33 million dollar settlement with Bank of America in an enforcement case, the federal judge tagged it a "contrivance", a breach of "justice and morality", and ordered the case to trial.

There is much other heavy lifting the SEC has to do with credit rating agencies, derivatives, limiting short-selling, and new rules for money market funds (as discussed in further detail in the Bloomberg piece by Jesse Westbrook ). You can place your wagers now on the odds of that getting accomplished without more resources and manpower being given to the SEC by systemically threatening banks' friends in Congress.