4xmrczi2hq

Secretary Henry Paulson: Is this the person we want devising a program to save Wall Street?

“He also owns options to purchase 680,474 shares of [Goldman Sachs] common stock, all of which [were] exercisable.”
Monday, September 29, 2008

Before we go any further, I don’t have an answer to the question posed by the title.

On one hand, it’s certainly a good idea to have someone with Secretary Paulson’s understanding of finance and our financial institutions handling the current crisis. On the other hand, do we really want someone this close to Wall Street in charge? The same Secretary of the Treasury who, for more than two years, has watched us inch closer and closer to the emergency he now tells us the worst peril for our economy since The Great Depression? Close advisor, maybe, but in charge? The primary source of information about the crisis on the basis of which our Congress is ready to spend $700 billion?

The first of the two enclosed PDFs is the Treasury Department biography for Mr. Paulson.* (I’m giving you the link to the PDF I made, but also to the website which contains the original material.) It confirms that, prior to assuming his current position at Treasury, he “was Chairman and Chief Executive Officer of Goldman Sachs since the firm’s initial public offering in 1999,” and where he had been employed since 1974.

What’s interesting is what the Treasury biography omits, that being any reference to the $492 million of Goldman Sachs stock Secretary Paulson sold when he was confirmed by the Senate, and his other Goldman Sachs-related holdings and options. See the Wall Street Journal “Market Watch” report I’ve included below.** Interesting reading, to say the least. Among other notable details, “He also owns options to purchase 680,474 shares of common stock, all of which [were] exercisable” as of the publication date, June 30, 2006.

Goldman Sachs Group (NYSE: GS) closed on Friday at $137.99. Over the past 52 weeks, Goldman Sachs has traded between $86.31 and $250.70.

So what do you think?

*Link to PDF… PDF Version of Treasury Biography
Link to original source… Original Treasury Biography

**Link to PDF… PDF Version of WSJ Market Watch Report
Link to original source… Original WSJ Market Watch Report

Our Government’s Bailout Plan: The Assumption of Armageddon

“What if we just left well enough alone and let the economy do its thing?”
Saturday, September 20, 2008

Our government, which does not have a particularly good record for handling the economy, and whose policies almost certainly facilitated, in not outright contributed to the current housing and financial sector crises, is suddenly operating at warp speed on the assumption that we are teetering on the verge of the second Great Depression. I’m not exaggerating or jumping to conclusions. That’s what they’re telling us, but where are the signs of this pending financial Armageddon?

Keep in mind, our government’s bailout plan is coming from the same officials who didn’t see this crisis coming, but who are now in a panic to stop it. This isn’t studied management. It’s a knee-jerk, “Yikes!” reaction. If they were oblivious enough to have missed it or even contributed to it, why should we have any confidence in their ability to fix it? My overwhelming sense is that our government, at least in so far as the economy is concerned, is being run by people who have no idea what they’re doing.

Has it been too easy for too many people to buy homes? Sure. Have certain Wall Street firms gone nuts doing overly leveraged, high risk business that never should have been funded? Absolutely. Are there large numbers of innocent people who will suffer as a result of these Wall Street indiscretions who we need to help? Definitely. So, other than helping the innocents, what if we did nothing? On what basis are we getting ready to spend, by all accounts, between $500 billion and $1 trillion to save investment banking firms which clearly haven’t behaved in a way that justifies their continued existence? What if we just left well enough alone and let the economy do its thing?

At the risk of sounding like John McCain – not that there would be anything wrong with that – except for subprime mortgages, their implications for the housing sector and, most importantly, their relationship to our nation’s largest investment banking firms, the fundamentals of our economy are holding. The banking system, far from hanging on by a thread, continues to do business and is adjusting its behavior with remarkable speed. Two of our largest banks are swallowing up two of our largest investment banking firms – and doing it without government assistance. Bank of America has purchased Merrill Lynch. Wachovia is negotiating to acquire Morgan Stanley. Lehman Brothers has just been sold to Barclay’s Bank – again, without government assistance. If we can just get the government to procrastinate a few more months, the economy may resolve the current financial crisis on its own.

In the meantime, the availability of subprime mortgages is evaporating from the housing market. Families who shouldn’t have been able to buy houses will have to rent. Others will have to buy more modest homes. People’s expectations will have to be downsized, but then they were obviously out of line with reality, so they need to adjust. So there will be less personal and business credit available, at rates which more accurately reflect the risks which lenders are taking. Who knows, American’s might actually start reducing the extent of their personal debt in favor of saving. You remember savings? Maybe you don’t, but it’s a good idea, sort of like having an extra bottle of water or frozen Lean Cuisine dinner in your freezer, just in case. The point is, making adjustments is what a fundamentally strong, mostly free market economy does periodically to fix itself.

I just don’t see it. The stock market isn’t real. It’s a speculative market. Real is the way our domestic car manufacturers have failed to innovate. Real is our over-dependence upon foreign oil. Real is a struggling education system that is having trouble producing the work force we need for this generation, let alone the next one. Real is a lack of competitiveness in international markets. Real is our government’s inability to live within a reasonable budget – and these are the people we’re trusting to cure excess on Wall Street?

Let’s help the innocent who will be hurt by the failure of the Wall Street giants, but we need to demand that Washington calm down and prove that we really are on the verge of the next Great Depression before their actions put us into one – only to have them look back, retrospectively, and argue, “See, I told you so.”

If we’re hell bent on spending $500 billion to $1 trillion, there’s got to be something better we can do with it.

Our Government’s Bailout Plan: Holding our economy hostage.

To paraphrase the late Senator Everett Dirksen, “A trillion here, a trillion there, pretty soon you’re talking real money.”

Friday, September 19, 2008

This situation is beyond ridiculous.

I don’t know about you, but lately, ever since our national financial crisis started coming to a head, I’m been feeling a lot like a sap. I can’t get over the impression that the obviously overpaid managers of our most prominent financial institutions are holding our economy hostage to save their collective asses at our expense, that is, at the expense of ordinary Americans and our progeny for perhaps generations to come.

My gut tells me we should dismiss these troubled institutions with the old phase, “Never write a check with your face that your ass can’t cash.” (Don’t you just love that expression?) Unfortunately, we’re apparently now to the point that, if we don’t do something, large numbers of regular people will suffer. Okay, I get it, but would like to make a seasoned suggestion to at least minimize the cost of a solution while imposing some real, albeit minimum consequences on the firms that let all this happen.

Do not buy the bad debt these institutions are holding, and do not loan them money. It’s way too expensive, much more than we need to spend to fix the problem, and it sets an horrific precedent.

Instead of buying the bad debt, all our Government needs to do is insure – under carefully controlled circumstances to avoid cheating – the potential losses which these institutions might incur pursuant to an orderly, properly paced liquidation of their troubled assets. Losses pursuant to liquidation, particularly given that this bad debt is largely collateralized by real estate, are likely to be far less than the balances of these bad debts.

We can still protect these companies, but there’s no reason to put the cost of a solution up front, or to save them the effort of getting themselves out of trouble. Let the companies manage the liquidation of these assets at their own expense. Our government doesn’t do stuff like this well.

In return for this insurance against losses, all the offending executives are out, without their whopping severance and retirement packages. These executives are being fired, and should not be allowed to benefit from the extraordinary costs their greed and poor judgment have imposed upon the public.

And finally, we should demand a premium for this insurance in the form of a special, priority class of stock in these companies which we can eventually sell and which will assure us a reasonable share of these companies’ corporate profits which they will enjoy precisely because the American people have stepped up to save them.

There. How ‘bout them apples?

“I had no idea the SEC was reading my stuff.”

“Maybe there really is a Tooth Fairy, after all.”
Friday, September 19, 2008

Yesterday evening, I posted a short piece with the long title, “Crisis on Wall Street: Feeding the frenzy to make money at everyone else’s expense.,” which asked if someone, anyone, would please look into who is making money on the wild stock market swings which have characterized and, to some extent, helped cause the current crisis among our financial institutions.

This morning, to my pleasant surprise, I awoke to the headline, “SEC imposes emergency ban on short-selling.” I haven’t felt like this since I left my last tooth under my pillow. Maybe there really is a Tooth Fairy, after all. And to think, all these years, I thought my mother was just patronizing me.

Short selling is the practice of selling stock you don’t own in anticipation of a decline in the value of that stock. If and when it does fall, you can buy it at that lower price to fulfill your sales order. The spread between the sell and the buy price is your profit. “Sell high, buy low.” The problem is, selling short can actually help force the price of the stock down, and declining stock prices are contributing to the severity of the problems many of our financial institutions are now having.

Anyway, I want to thank SEC senior management for visiting the WordFeeder and for taking such prompt action on my request for which I take full credit.  Wow.  I had no idea these pieces we publish on the WordPress, hunched over our desks at the end of a long day, lost in the glow of our screens, could have such a profound and immediate impact.  I’m thinking I’ll stop writing so much about politics and start working on world peace.

-wf

Crisis on Wall Street: Feeding the frenzy to make money at everyone else’s expense.

Thursday, September 18, 2008

Open the PDF in the link below to take a look at the behavior of the Dow Jones Industrial Average in the past couple of weeks – at the fourth and fifth columns from the left. Down 345 points in one day. Up 290 points two days later, only to fall 280 points the next day, and then back up 213 points in the next two days. Down 504 points on Monday, up 142 the next day, down 449 points, and then back up 410 points today. Wow. All that motion to have dropped only 524 points in three weeks.

Recent Movement in the Dow Jones Industrial Average

Will somebody please look into who’s making money on these wild swings in the stock market?

Could it be that some of this volatility is being driven, not by real market forces, but by the independent actions of buyers and “shorters” who know perfectly well how to play the rest of us, how to time their purchases and sales to leverage the news just right? Start a downward trend on one day when bad news breaks, and then start buying at the bottom, creating an upswing the next day, only to sell again at the top. What’s wrong with that? Isn’t that just the stock market doing its thing?

Certainly destabilization is a real and sometimes natural phenomenon in any speculative market, but there are lines that shouldn’t be crossed, limits, common sense and legal, on how far players should go.

Does anybody really think the professionals aren’t making a fortune on all this panic selling and buying, at the expense of the rest of us who are just doing our best to hang on for the ride? Making money off of the hysteria they help create? Actually contributing to the demise of the finance sector companies whose difficulties and failures feed the frenzy even more?

The Irony of the AIG Bailout

Wednesday, September 17, 2008

As we all know by now, a great deal of the current mess in our financial markets has been caused by the financing, insuring and sale of subprime “paper.” We’re talking about loans made to consumers whose credit histories and incomes did not, in and of themselves, justify the credit they received. Not surprisingly, these loans have failed at a high rate for which the banks which financed them, the companies which insured them – companies like Fannie Mae, Freddie Mac and AIG – and the Wall Street firms which purchased them – like Merrill Lynch and Lehman Brothers – were unprepared to handle.

Precisely because subprime loans are so risky, they would be made at unusually high rates of interest unless they’re insured or sold. Insured loans and loans which lenders sell are less risky, which encourages them to make loans they wouldn’t otherwise approve, bringing home ownership within the reach of Americans at the lower end of the credit spectrum. The risk of failure is still the same. It’s just that a portion of that risk has been passed through to the insurers like AIG and to Wall Street firms who purchase packages of these subprime loans through what are called “securitizations.” By securitizing the loans they originate, the lender (a bank or mortgage company) sells its loans, transferring the risk to the hedge fund or investment banker that bought them.

Yesterday evening, at 8 PM, AIG accepted a proposal – as if it had any choice — whereby the Federal Reserve agreed to lend AIG $85 billion, at a high rate of interest, collateralized by a zillion dollars of assets which AIG needs to sell over the next two years to pay the government back.

Here’s the irony… In order to bail out a giant insurance company which is in trouble for insuring subprime mortgages (and making other questionable investments), our government has made its own subprime loan to a debtor whose ability to repay those $85 billion is questionable. And who stands behind the Fed? Who is to the Fed what AIG was to the banks that originated all those subprime loans, and to the Wall Street firms that bought them? We are.

So who’s left to bail us out?

The Economics and Irresponsibility of Barack Obama’s Scare Tactics

Continuing to say whatever he thinks will get him elected.
Monday, September 15, 2008

This is very simple. To a great extent, the success of our economy depends upon the positive expectations of our entrepreneurs and consumers.

Senator McCain tells us that the fundamentals of our economy are strong. Senator Obama responds by telling us that McCain is lost in space, that the fundamentals of our economy are not strong, and that we’re in deep trouble.

Personally, I think Senator McCain is correct, that our fundamentals are strong, that these adjustments are what a troubled, but basically healthy economy does to fix itself. It’s part of a natural process in the context of which our government needs to help those who are adversely affected – short of saving the companies and the government policies which encouraged or allowed the current mess to happen in the first place.

Whether or not Senator McCain is right, the one thing I know for sure is that doomsday talk from Senator Obama has got to have a depressing effect on consumer and entrepreneur confidence. He’s creating a self-fulfilling prophecy for which voters should hold him responsible. Does he really think that telling us again and again that we’re in serious trouble won’t have a negative impact on the rate at which large and small businesses invest in growth and create new jobs? Does he think the American consumer will be encouraged by his negativism to buy homes and increase their expenditures for consumer products?

How irresponsible. And Senator Obama has the nerve to say that Senator McCain doesn’t get it.

Senator Obama’s a bright guy who, I think, understands the consequences of his rhetoric. It’s just that he cares more about getting elected, than about the jobs and incomes of the people he keeps promising he’ll protect. And if I’m wrong, and he doesn’t understand, well then he’s an amateur making a rookie mistake, and clearly not ready to manage our government. Either way, whether it’s the ethics of his politics or understanding of the economy that’s the problem, are you willing to elect him President of the United States?

Johnny Obama Come Lately

“Senator Obama keeps telling us he’s going to change everything. So what’s he waiting for?”
Monday, September 15, 2008

So when, exactly, did it occur to Senator Obama that he was going to change the way Washington does business? The simple answer is that it never has. It’s all talk calculated to win the Presidency. How can I be so sure? For those of us who still believe the old adage, that actions speak louder than words, consider the following:

1. What’s he been doing since he was elected to the US Senate to convince us his commitment to change is credible, and to prove that his ability to accomplish change is truly something in which we can believe?

According to Senate voting data published by the Washington Post(1), during the 110th Congress Barack Obama voted with his party 96.0% of the time. Make no mistake about it, Barack Obama is an establishment Democrat. “If it walks like a duck…”

His party, not incidentally, was in control of both houses. To what end? Which of the new “agent of change” programs on his website has he attempted to put in place during the time he’s been in office? What, precisely, has he done to change the way our government operates? How hard has he tried? In what specific ways has he succeeded? Where is all the innovative, bipartisan legislation he keeps promising? Was that what he was busy preparing during the 291 votes (45.5% of the total) he missed during the 110th Congress? Too busy running for office, too busy talking about change to make any happen?

2. Why select the consummate Washington insider as his running mate?

For Vice President he selects Joe Biden for his foreign policy experience, a card carrying member of the Washington establishment Senator Obama insists he’s going to turn inside out. If he wanted Senator Biden’s advice, he could have had it from Biden’s vantage point inside the Senate where his power and ability to help a President Obama pass all that new legislation would have worked to his – and our – advantage. He could have made Biden Secretary of State or a foreign affairs or national security advisor. The fact is, he mistakenly thought that adding Joe Biden to the ticket would counter concerns about his (Senator Obama’s) lack of relevant experience, Biden’s “old school,” establishment background and relationships notwithstanding. Change had nothing to do with it. Picking his Vice President was just one more missed chance for Senator Obama to prove the substance of his rhetoric.

3. Why stop asking for earmarks?

In fiscal 2008 alone, Senator Obama requested 112 “earmarks” totaling $330 million, but none for fiscal 2009.(2) Now that’s a change alright, but why wait until now, until the McCain campaign calls him to task, his lead in the polls evaporating? If earmarks were signs of the old Washington establishment he plans to change, why not start by setting an example the first day he arrived in the Senate? In his first three years in office, Senator Obama earmarked funding for 326 special projects costing a total of $860.6 million.(3) That must have been before he had the epiphany that he could change all this squandering.

Senator Obama keeps telling us he’s going to change everything. So what’s he waiting for? The simple and intentionally sarcastic conclusion is that he’s apparently saving that torrent of change he’s been holding back until he’s elected President. It’s the ultimate “trust me” candidacy, but why should we?

References:
(1) Senator Obama’s Voting History Published by the Washington Post
(2) CNN On-Line Article About Earmarks Requested by Senator Obama
(3) Taxpayers for Common Sense Study of Earmarks Requested by Senator Obama

On Behalf of John McCain: “Thank you, Tina Fey.”

Sunday, September 14, 2008

If ever there was a reason to vote for John McCain, it is the prospect of four or more years of watching the brilliant Tina Fey play Sarah Palin on Saturday Night Live.

Don’t believe me? Take a look for yourself…

Sarah Palin and Hillary Clinton Joint Appearance on SNL

-wf