Who Could Have Known

• Author unknown

  it's the way that you say it!

  http://atangledweb.squarespace.com/httpatangledwebsquarespac...
  7 days ago in Tangled Blog - A TANGLED WEB · Authority: 38

  As the New Year dawns, just thought I'd point readers towards a series of three essays which have appeared in the Washington Post which analyse the financial disaster which has wreaked havoc all around the world, and it's beginnings on Wall Street. Further reading links appear within the pages, but you may be asked to register to read further. As the reporting team take you deeper into the twisting paths which eventually led to near financial meltdown and which could still end up making the 1929-33 Depression looking like a Sunday picnic, I would just remind all that the same people who brought us to the brink are still largely either in charge, or are acting as senior advisers to the new bunch of so-called financial experts. A bunch of Bankers. That's really mis-spelt! They are a bunch of Wankers!

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    Shiller’s Question…

    http://1boringoldman.com/index.php/2008/12/30/shillers-quest...
    9 days ago in 1 Boring Old Man · Authority: 6

    Back when the financial crisis was first becoming apparent and I was poring over the Internet trying to understand what was happening, I ran across Dr. Robert Shiller - the expert on financial "bubbles." At the time, I didn’t really get the full concept. In several of his articles, he mused on the question, something like, "Why don’t people see that the escalating prices are ‘a bubble’ until it crashes?" Then he goes off on various psychological theories that might explain why. At the time, I didn’t understand "bubbles" very well, and I thought his formulations of the psychology were naive. I apologize for my own naivity. Shiller’s question is not only the best question around, his version of it isn’t big enough. The current series in the Washington Post on the financial crisis is chilling, but throughout it, Shiller’s question fills the spaces between the paragraphs, "Why didn’t these people see what they were doing?" They were building a house that could not stand. Here’s a guide to the first part of the Washington Post series: Explaining the Crisis Part I: Risk and Regulation How did the world’s markets come to the brink of collapse? Some say regulators failed. Others claim deregulation left them handcuffed. Who’s right? Both are. This is the story of how Washington never caught up to Wall Street. Key Players in Market Regulation Part II: Banking Regulator Played Advocate The Office of Thrift Supervision let lenders grow out of control, then fail, including IndyMac Bancorp, Washington Mutual, and Downey Savings and Loan. Regulator Let IndyMac Bank Falsify Report Part III: The Frenzy When the housing market began to tank in 2005, Wall Street ran through the yellow light of caution and created even riskier investments — and Washington had no mechanism for finding out what was going on. Graphic: How Mortgages Became Part of the Mess First, it’s Pulitzer Prize level Journalism [it's just a shame it wasn't investigated and published several years ago when it might have helped]. Anyone who reads this series and still doesn’t see this crisis as the result of regulatory failure should simply read it again. That is what it says. But the first series doesn’t hold a candle to current one on A.I.G. [two out of three published so far] - another Pulitzer in the making. But as good as the Journalism is, it’s very hard to read without screaming Shiller’s question out loud, "Why didn’t these people see what they were doing?": Investigating AIG The Beautiful Machine Part 1 of 3 | Greed on Wall Street and blindness in Washington certainly helped cause the financial system’s crash. But a deeper explanation begins 20 years ago with a bold experiment to master the variable that has defeated so many visionaries: Risk. A Crack in the System "…it was a logical extension of what the firm had been doing all along: discovering gaps in regulations and markets." Part 2 of 3 | By 1998, AIG Financial Products had made hundreds of millions of dollars and had captured Wall Street’s attention with its precise, finely balanced system for managing risk. Then it subtly turned in a dangerous direction. There’s no way to summarize this story. You might as well bite the bullet and read it all [several times]. Since we know how it all comes out, it’s hard to read the layers of decisions they made along the way because their folly is so clear in retrospect. Even after the fact, they justify their decisions along the way, knowing how things came out. It’s reminiscent of Bush saying, "How could anyone have predicted the Insurgency?" There are some heros along the way - Brooksley Born for one, Eliot Spitzer for another. Interestingly, so far, there aren’t many super-rogues - certainly no Bernard Madoff’s. It’s just a story of people taking on risk, getting used to it, and then taking on more - blinded apparently by the rewards and ignoring where they were heading. Where it has ended, all they ended up owning was risk [risky risk at that]. And what they were risking was not just their profits, it was their own company and our entire economy. We’ll eagerly await Part 3 of 3 |…

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      Incompetent, Stupid, or Evil?

      http://www.akkamsrazor.com/2008/12/24/incompetent-stupid-or-...
      15 days ago in Akkam's Razor · Authority: 18

      As we await both Santa Claus and the pending Bush pardons (just like Poppy, on Christmas Eve?), it’s helpful to consider the following regarding the Federal Office of Thrift Supervision and its contribution to the current economic crisis from Barry Ritholtz: Recall that when James Gilleran took over the Office of Thrift Supervision, he took a chainsaw to a stack of regulations to symbolize how his agency was going to “cut red tape” for thrifts (a.k.a. S&Ls), which were heavily involved in mortgage lending. The ideologue in him declared: “Our goal is to allow thrifts to operate with a wide breadth of freedom from regulatory intrusion,” Gilleran said in a 2004 speech. Nice work. This wasn’t mere malfeasance by Gilleran — as we have been repeatedly noting, it was nonfeasance — the intentional failure to perform a required legal duty or obligation. As for the FBI, the division in charge of enforcement, after sounding the warning bell, subsequently made a “strategic alliance” in 2007 with the Mortgage Bankers Association (MBA) the trade association for (then) major industry players like IndyMac and Countrywide Financial. Imagine if the FBI division in charge of organized crime set up a joint venture with the Cosa Nostra. That’s what this was the equivalent of at the FBI. It all comes back to the radical deregulatory philosophy we discussed Sunday:  Appoint cabinet level people who share that same belief system, who think government can never work — and voila! –  this is what you get. There’s a somewhat annoying site based on the premise of ‘Forgiving Bush’.  I think it’s fair to forgive him, but we should learn from the error of his ways (although he will not).   When I look at all the missteps of the Bush years (9/11, ‘greeted as liberators’, Katrina, etc.), the problems weren’t due to malice, creative destruction, ratf*cking, an overestimation of their own abilities, or a preference for loyalty over competence.   They honestly expected the world to conform to their world views. I think it is also fair to recall this statement given by an anonymous Bush aide to author Ron Suskind about the Reality-Based Community: The aide said that guys like me were ”in what we call the reality-based community,” which he defined as people who ”believe that solutions emerge from your judicious study of discernible reality.” I nodded and murmured something about enlightenment principles and empiricism. He cut me off. ”That’s not the way the world really works anymore,” he continued. ”We’re an empire now, and when we act, we create our own reality. And while you’re studying that reality — judiciously, as you will — we’ll act again, creating other new realities, which you can study too, and that’s how things will sort out. We’re history’s actors . . . and you, all of you, will be left to just study what we do.” He, and the ideologues around him, have bad heads.  It’s not that their decisions or flawed or that they had bad intentions.  Their entire world view is based on a rejection of actual reality and a substitution of one viewed with their broken lenses, like looking at the world with someone else’s prescription rose colored glasses.

      • Author unknown

        Office of Thrift Supervision: Asshat Central

        http://www.ritholtz.com/blog/2008/12/ots-asshat-central/
        16 days ago in The Big Picture · Authority: 834

        I am trying to figure out who is the biggest jerk in this story. It is a challenge, given the collection of utter clowns and ne’er-do-wells that run that office. First, you have some moron who helped cost the taxpayers a hundred large ($100B) back in the 1980s. How this idiot ever ended up in a position of responsibility in any regulatory agency again is beyond my comprehension. There are some who would point to all government regulation as the root cause, but crony capitalism and the disbelief in and and all regulations is what leads to putting someone so unsuitable in this position of authority. Second, you have to wonder about just how frickin’ dumb the idiots who run the office of Thrift Supervision have been the past 8 years. These were the clowns that blamed Schumer for the collapse of Indy Mac, after backdating their capital levels.  As you will see below, if the OTS weren’t incompetant boobs, Indy Mac should have been shut down months before their run! That the OTS is run by such half-wits and morons, that they blamed a US Senator — for having the temerity to ask how much money the criminally incompetant managers running Indy Mac were going to cost the taxpayer — rather than their own inadequate supervision. (BTW, the answer to Schumer’s question was about $9 billion). Recall that when James Gilleran took over the Office of Thrift Supervision, he took a chainsaw to a stack of regulations to symbolize how his agency was going to “cut red tape” for thrifts (a.k.a. S&Ls), which were heavily involved in mortgage lending. The ideologue in him declared: “Our goal is to allow thrifts to operate with a wide breadth of freedom from regulatory intrusion,” Gilleran said in a 2004 speech. Nice work. This wasn’t mere malfeasance by Gilleran — as we have been repeatedly noting, it was nonfeasance — the intentional failure to perform a required legal duty or obligation. As for the FBI, the division in charge of enforcement, after sounding the warning bell, subsequently made a “strategic alliance” in 2007 with the Mortgage Bankers Association (MBA) the trade association for (then) major industry players like IndyMac and Countrywide Financial. Imagine if the FBI division in charge of organized crime set up a joint venture with the Cosa Nostra. That’s what this was the equivalent of at the FBI. It all comes back to the radical deregulatory philosophy we discussed Sunday:  Appoint cabinet level people who share that same belief system, who think government can never work — and voila! –  this is what you get. Anyone who thinks that really bad behavior in the corporate world needs no proscribing should not be put in charge of Regulatory agencies. Excerpts after the jump . . . WSJ: A senior bank regulator was removed from his job after being accused of helping mortgage lender IndyMac Bancorp alter its records so it appeared to be in better shape — weeks before it was seized by the government. The Office of Thrift Supervision has reassigned its top West Coast official, Darrel Dochow, who was also a controversial figure in the regulatory lapses surrounding the savings-and-loan crisis of the late 1980s. In a letter sent Monday to Sen. Charles Grassley, the senior Republican on the Senate Finance Committee, the Treasury Department’s inspector general wrote that the federal OTS allowed the bank to backdate records of capital infusions last spring. That leeway made IndyMac appear more solid than was actually the case, shortly before federal regulators seized the bank in July — at a cost of $8.9 billion to the government’s deposit-insurance fund. Bloomberg: IndyMac Bank’s regulator let the mortgage lender backdate a capital infusion to make it appear healthier than it was and escape regulatory restrictions two months before it failed, the Treasury Department’s watchdog said. The Office of Thrift Supervision allowed IndyMac Bank to record $18 million of a $50 million infusion from its holding company on May 9 as first-quarter capital, Eric M. Thorson, the Treasury Department’s inspector general, wrote yesterday in a letter to U.S. Senator Charles Grassley of Iowa, the top Republican on the Senate Finance Committee. Thorson said similar backdating was discovered at other OTS-regulated lenders. “It is unclear what information OTS had at the time and what its basis was for allowing the capital infusion to be recorded for the quarter ending March 31,” Thorson wrote. “A separate inquiry as to a motive for approving and recording this transaction in the manner it was recorded is still ongoing.” The move came to light as part of a routine federal review of the July 11 failure of IndyMac, one of five OTS-regulated lenders to be shuttered this year. The OTS, a Treasury Department agency, also oversaw Washington Mutual Inc., whose September collapse was the biggest bank failure in U.S. history. NYT: Two months before IndyMac Bancorp collapsed in July, at a cost of $8.9 billion to taxpayers, a top federal banking regulator allowed the bank to backdate a capital infusion and gloss over its deepening problems, the Treasury Department’s independent investigator said Monday. In what industry analysts said was an example of the excessively cozy relations between high-flying subprime lenders and federal bank regulators, the Office of Thrift Supervision’s West Coast director allowed IndyMac’s parent company to backdate an $18 million contribution to preserve its status as a “well-capitalized” institution. Investigators reported that similar officially approved backdating appears to have occurred at other financial institutions, though they did not name them. IndyMac, based in Pasadena, Calif., was one of the nation’s biggest subprime mortgage lenders at the time. But analysts said it was already in trouble when the maneuver occurred, because of rising default rates and a big stockpile of subprime loans on its books that investors abruptly refused to buy. The Office of Thrift Supervision’s western regional director, Darrel W. Dochow, allowed IndyMac Bank to receive $18 million from its parent company on May 9 but to book the money as having arrived on March 31, according to the Treasury Department’s inspector general, Eric M. Thorson. The backdated capital infusion allowed IndyMac to plug a hole that its auditors had belatedly found in the bank’s financial results for the first quarter. If IndyMac had not been able to plug that hole retroactively, its reserves would have slipped below the minimum level that regulators require for classifying banks as well capitalized. Though the $18 million transaction was minuscule in comparison to IndyMac’s $32 billion in assets, it had tremendous significance. If IndyMac had lost its well-capitalized status it would not have been allowed to accept “brokered deposits” from other financial institutions. Brokered deposits are typically high-yielding certificates of deposit arranged by brokers and sold to savings and loans. IndyMac relied heavily on brokered deposits, which amounted to $6.8 billion or 37 percent of its total deposits last spring. >> Sources: Irregularity Uncovered at IndyMac EDMUND L. ANDREWS NYT, December 22, 2008 http://www.nytimes.com/2008/12/23/business/23thrift.html Regulator Let IndyMac Backdate Infusion MICHAEL M. PHILLIPS and JESSICA HOLZER WSJ, DECEMBER 23, 2008 http://online.wsj.com/article/SB122998621544328009.html Regulator Let IndyMac Backdate Capital, Watchdog Says Alison Vekshin Bloomberg, Dec. 23 2008 http://www.bloomberg.com/apps/news?pid=20601087&sid=aF2cCzfmLwFA& Letters: Dec. 21 letter from Office of Thrift Supervision to Inspector General Eric Thorson Dec. 22 letter from Inspector General Eric Thorson to Sen. Grassley Banking Regulator Played Advocate Over Enforcer Binyamin Appelbaum and Ellen Nakashima Washington Post, November 23, 2008; http://www.washingtonpost.com/wp-dyn/content/article/2008/11/22/AR2008112202213.html FBI Press Release: FBI ISSUES MORTGAGE FRAUD NOTICE IN CONJUNCTION WITH MORTGAGE BANKERS ASSOCIATION, FBI, March 8, 2007 http://www.fbi.gov/pressrel/pressrel07/mortgagefraud030807.htm

        • Author unknown

          Different Strokes

          http://tinman18.wordpress.com/2008/12/21/different-strokes/
          18 days ago in Worth Doing Badly · Authority: 2

          Last October, just one week after the banks had run crying to the Government like small boys running to their mammies because the big bad world wasn’t playing fair with them, Anglo-Irish Bank’s Seán FitzPatrick made his now legendary speech in Greystones. The Chairman and former Chief Executive of the bank most in trouble, whose imminent collapse had forced the other banks to contact the government, decided he would dispense some advice about the forthcoming budget. It’s time, he said, that the Goverment tackled the “sacred cows” of child benefit, state pensions and Medical Cards for the over-70s. His speech was loudly lambasted by columnists and letter-writers, but most of them felt that it was simply bad PR and a sign that he was out of touch with the realities facing ordinary people. We thought he was a pillock, and moved on. Turns out though, that he’s not just a pillock, he’s a corrupt, greedy, self-serving chav. Just before the end of Anglo-Irish Bank’s financial year each September he would borrow €87 million from Irish Nationwide, pay-off the loans he had in Anglo-Irish, and the re-borrow the money in October. In this way the bank didn’t have to report that it had lent €87m to its most powerful employee. And he’d been doing that each year for seven years. He has resigned, accepting that what he did was “inappropriate”, but stressing that it was not illegal. Is he sure? People have been buying shares in Anglo-Irish for years now, unaware that 35 per cent of its current capitalisation value was owed to it by one man, its chairman. I suspect that’s very close to being fraud. Two other members of the board have resigned too, but the bank has an Audit Committee, a Risk and Compliance Committee, and a Financial Director. All of these people either knew of the cover-up, or are useless. Either way they should go too. And as for our gobshite of a Financial Regulator…. he’s apparently known about this since January, but only told the Government this week. In other words, on the night the Government negotiated the bail-out of the banks, the Financial Regulator knew that the bank with the biggest bad-debt exposure had hidden loans of €87 million outstanding from its Chairman, and he decided to say nothing. The Financial Regulator Over the last few years the banks have been found to have cheated customers on exchange rates, facilitated and indeed encouraged tax evasion, and helped banjax the economy with ill-judged and reckless lending.No-one’s been fired. No-one’s gone to jail. The Government  says it has to cut costs as much as possible. According to the Financial Regulator’s own 2008 Income and Expenditure Budget (Google is just brilliant) it’s going to cost €29.719 million this year. If the Government closed the office down completely tomorrow, it could save this money, and spend it say on cancer vaccines for 12-year old girls. Would anyone notice any difference in the way the banks would be run? Doubt it. Possibly related posts: (automatically generated)One Tough CookieFederal regulators close Arkansas bank ANB FinancialThe Estonian government’s fiscal policy is slackeningFinancial Meltdown: The Greatest Transfer of Wealth in History

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