Financial topics

[John]

-- Federal Regulator accused of suborning fraud

Here's a story from WSJ:

> U.S. Backdating Probe Roils OTS

> By DAMIAN PALETTA and DAVID ENRICH

> WASHINGTON -- The Treasury Department's inspector general is
> investigating whether regulators allowed the backdating of a
> capital transfer by BankUnited Financial Corp. that made its
> banking unit appear healthier than it was, according to people
> familiar with the matter.

> The probe prompted the Treasury on Thursday to place the acting
> director of the Office of Thrift Supervision, Scott M. Polakoff,
> on leave, these people said. ...

> BankUnited, of Coral Gables, Fla., which has $13.9 billion of
> assets, ran into trouble by engaging in risky mortgage lending
> during the housing boom. At the end of last year, its ratio of
> capital to assets had shriveled to just 1.34%, far below the level
> regulators require.

> In August, BankUnited transferred $80 million from the parent
> company to its thrift subsidiary, which was running low on funds,
> according to people familiar with the matter. BankUnited officials
> said at the time that the transfer was effective as of June 30.
> The move had the effect of burnishing its capital levels for the
> quarter that ended June 30.

> At the end of that quarter, BankUnited's recorded Tier 1 capital
> -- the measure regulators use to judge a bank's health -- was at
> 7.6%. That fell to 1.34% by Dec. 31. Regulators typically want a
> bank to have at least 6% in Tier 1 capital.

> In December, the Treasury inspector general disclosed that OTS
> officials had improperly allowed IndyMac to book a capital
> infusion to a previous quarter. IndyMac, which failed in July, was
> temporarily run by federal regulators and was recently sold to a
> new ownership group. The OTS launched an internal investigation,
> and on Jan. 30 said it found four other instances when OTS
> officials approved capital backdating even though it was "not
> acceptable by current OTS standards."
> http://online.wsj.com/article/SB123819407230161181.html

I don't know what the big deal is. The Fed and the Treasury have
been encouraging banks to lie about their assets for a year now. New
York Insurance Superintendent Eric Dinallo organized an entire program
of lying to investors and the public.

So why is this any different?

Sincerely,

John

[John]

From a web site reader and old friend:

> I took advantage of the stimulus plan and bought a house.  The
> combination of 5% loans and $8000.00 free along with the fact that
> a very unique home was available forced me to buy.  I did some
> rough calculation and it seems like I paid about what people were
> paying during the 2000-2002 time frame.  San Antonio real-estate
> did not see a big bubble like some other cities but there was
> still a bubble.  This house was new but the builder had only 2
> left and was trying to close out the area.  There were some
> foreclosures but it seemed some banks would not sell for less than
> what they lent and others were in such bad condition that I did
> not want to deal with the fixing.

From the point of view of Generational Dynamics, there are two things
you ought to think about as you go forward:

First, real estate prices will probably end up falling to 1995-96
levels, or lower.

Second, violence has been increasing for several years south of the
border, and it's gotten so bad, especially around Juárez, that it's
actually been receiving a great deal of attention in US national news
reports. From the point of view of Generational Dynamics, it's
expected that this violence will increase, and will increasingly be
defined by ethnic fault lines, especially indigenous groups versus
those of European descent. This violence is certain to spill over
into the Southwestern United States, and may reach San Antonio.

These are two things that you should think about and prepare for.

> FYI,  the loan process was very interesting.  It appears the
> banks have learned a lesson and made getting a loan very
> difficult.  I had to provide very detailed documentation on
> everything and it took 30 days total.  I had 2 friends that also
> tried to get loans but gave up because of the amount of
> documentation needed.

Yes, the banks have learned a lesson, but it's a lot more than that.
Attitudes towards debt are coming full circle to where they were
following the Great Depression. As I've mentioned on my web site,
one thing that's really freaked me out is that the anti-banker
rhetoric that we're suddenly hearing these days is exactly the
rhetoric that I used to hear in the 1950s from my parents and
teachers when I was growing up. It's spooky to hear the same thing
after all these years.

** The 'culture of complicity' continues with Tim Geithner's new toxic asset plan
** http://www.generationaldynamics.com/cgi ... 26#e090326

> We also purchased 2 new cars because the deals were
> great.  We ended up getting 40% off MSRP on a chrysler and jeep. 
> The foreign dealers were not as liberal with discounts and we saw
> that their inventory was high on foreign vehicles made in the US
> or Canada.  One dealer told us that labor agreements forced the
> supply to stay high and demand was low.

That's a pretty good deal, and if you need a car, it's worthwhile to
take advantage of these kinds of deals.

> 1)  Do you see the markets rebounding from here or will they make
> new lows?

Absolutely not. Corporate earnings are collapsing rapidly, and
worldwide trade and transportation are coming to a standstill. These
trends, which are almost totally unreported in the press, have become
dramatically worse in the last five months. I compare it to the
movie title, "The day the earth stood still," except that it's not a
movie and it's really happening. The markets have MUCH farther to
fall.

** Analysts and journalists freak out as Q4 earnings turn negative.
** http://www.generationaldynamics.com/cgi ... 15#e090315

** Enquiring minds want to know: How long will the rally last?
** http://www.generationaldynamics.com/cgi ... 20#e090320

** World wide transportation and trade sink farther into deep freeze
** http://www.generationaldynamics.com/cgi ... 15#e081215

> 2)  Do you see the US dollar going higher against the Euro?

This is a very complicated question because it depends on too many
chaotic events. With the dollar as the world's reserve currency, and
with the dollar in a deflationary spiral, the long-term trend is
towards deflation. Thus, the trend is for the dollar to appreciate
against all currencies. The only exception is the yen, since they
already went through their own deflationary spiral from 1990-2005.

Thus, I would expect the dollar to go higher against the euro in the
medium to long term, and it's even quite possible that the euro will
collapse completely. But in the short term, it's really
unpredictable, and things could go either way for a while.

I strongly urge you and MaryBeth not to spend another penny on
anything you don't absolutely need. As I tell people frequently, the
dollar that you save today may save your life a year from now.

Sincerely,

John

[John]

-- New Richard Koo presentation

Richard Koo gave a new presentation on Thursday, March 26, to the same
audience as the one he gave last year. His presentation slides aren't
yet available, but the 1 1/2 hour video is available.
http://www.csis.org/component/option,co ... w/id,1989/

Here are some of the points that he covered in this
presentation:

• We are rapidly entering an era of a "balance sheet recession,"
  which is quite different from other recessions. In a balance sheet
  recession, businesses change their objectives from maximizing profits
  to paying down debt. This has a drastic effect on the economy when
  everyone does it at once. It happens to a country only after many
  decades after the last one, and it happens after a huge bubble starts
  bursting.
• Koo is particularly qualified to recognize and diagnose balance
  sheet recessions, because he's been a central banker and financier in
  the United States and Japan for several decades, and because he was
  personally actively involved in dealing with the Latin American
  balance sheet recessions in the 1980s, and the Japanese balance sheet
  recession from 1990 to 2005.
• What's very depressing today is that it's not happening in one
  country -- it's happening in countries everywhere around the world,
  including the US, Spain, Ireland, China, France and Australia. The
  one ray of hope is that the world can learn from Japan's experience.
• In Japan, commercial real estate led the bubble in the 1980s.
  By 2005, commercial real estate prices fell 87% from their peak --
  down to 1973 price levels.
• In Japan, the GDP never fell below what it was at the peak of the
  bubble. And overall unemployment rate never went above 5.5%, and wen
  below afterwards. The Japanese kept paying down debt, even though
  the Bank of Japan (BOJ) lowered interest rates from 8% to 0% by 1995.
  In real estate and shares, Japan lost 1500 trillion yen in wealth,
  the wealth equivalent of 3 years of GDP. The budget deficit from
  1990 to 2005 was 300 trillion yen, 60% of Japan's GDP.
  
  "We came out of the mess in 2005. All the debris that had
  accumulated during the bubble was finally gone. Balance sheets were
  finally fully repaired in this 15 year period."
  
  In Japan, the credit crunch began in 1997. Japan never had a credit
  crunch, except for 18 months -- Oct 1997 to May 1999. Outside of
  that, banks were eager to lend.
• American economists bashed Japan because the deficit grew and GDP
  didn't increase. What they overlook is that without the stimulus,
  Japan's GDP would have fallen deeply, instead of staying level. The
  fact that the GDP never fell below its peak value makes this the most
  successful fiscal spending policy in the history of mankind.
• The reason that President Obama is having so much political
  trouble is because he isn't being forceful enough in saying that this
  is a war, and has to be fought as such. Or, "It's not just a cold.
  It's pneumonia."
  
  However, Koo points out that it's not necessary from the
  Administration to move as quickly as he seems to want to. All that's
  necessary is that the banks have to be able to lend, and the GDP has
  to remain flat.
• Japan was a high savings rate country and America has been a
  debtor nation, but this makes no difference, because all the money
  needed for the stimulus is generated internally. "The money that the
  government borrows and spends is the money that is saved within the
  economy, but not borrowed within the private sector. but not borrowed,
  so it's sitting there."
• A big problem with the stimulus plan is ratings agencies (Moody's
  and S&P), because they downgrade countries with these problems and
  these deficits. "We wasted some time because ratings agencies lowered
  Japan's ratings. We were lower than Botswana in Africa. Rating
  agencies can really throw a monkey wrench into this corrective
  process. If ratings screw up the sentiment, we all suffer."
• Koo was personally involved in the Latin American banking crisis
  of 1982, and he told some anecdotes about Paul Volcker, who was Fed
  Chairman at the time. Volcker called central bankers around the
  world, asking them to lend money to Latin American banks, and not let
  them go into default.
• In response to a question about the TARP, Koo said he's very
  worried about what the Fed is doing, because putting the toxic assets
  on the balance sheet of the Fed is going to risk losing trust in the
  currence. The toxic assets should be on the balance sheet of the
  Treasury, not the Fed. "The way that Bernanke bashed Japan ten years
  ago makes a lot of people worry that he's going to go all out.
  People will get really scared about the dollar currency."
• Koo was asked whether other countries have to do the same thing
  for this to work. He said that there's a real danger here. Everyone
  should create enough fiscal stimulus to keep their GDP from falling,
  just as Japan did. It's very bad if some countries do nothing,
  expecting other countries to bail them out. He worries especially
  about Europe, because the Maastricht treaty is so binding. Fiscal
  stimulus in Europe is limited to 3% of GDP, which is nowhere near
  enough.
• Koo was asked how long this will take to work out, if it took 15
  years for Japan. He said it would take 3-5 years, "but I'm just
  guessing, because we haven't seen the bottom of the asset prices
  yet."
• Japanese had export markets to rely on. Even though people make
  a big deal about export markets, export markets did not add or
  subtract to Japanese economy throughout this period. [This appears
  to be a major hole in Koo's theory, as I'll discuss below.]
  
  Japan's trade surplus was remarkably stable throughout the period. So
  Japan handled its problems within its borders. All countries should
  handle their problems within their borders, so that the problems won't
  spill out to other countries. So countries have to do more than Japan
  did, and that's what they face at the moment.
• Question: Where would the stimulus money best be spent? Answer:
  Historically, the best way is military spending, because it creates
  demand, without creating supply. That's why economies recover
  quickly. But if you increase both demand and supply, then they start
  chasing each other. If you want the smallest budget deficit, and
  largest bang for money, that's the best way. Koo said he's not here
  to advocate military spending. "There are lots of roads and bridges
  here needing repair."
• Question: What is the impact on the global political situation?
  
  Answer: "We are going to see some democracies fail, some governments
  fail, because some countries are unprepared to deal with it.
  
  Nothing is worse than having dictatorships with the wrong agenda,
  using the right economic policy. That's what happened in the 1930s.
  Hitler got everything right, handling this type of recession. That's
  why German unemployment German unemployment was 30% in
  1933, and was brought down to 2% very shortly.
  
  In US, unemployment was at 25%, and it went down dramatically with
  FDR's policies, but went back up in 1937 when stimulus was cut. The
  policies were working, but were interrupted.
  
  So there are huge political implications to this crisis, and I'd like
  to see democratic governments follow this policy before the dictators
  do."

I've raised questions in the past about possible flaws in Koo's
theory. In this presentation, he addressed some of those issues, but
he did not give satisfactory answers to these questions about
flaws.

• His attitude towards tax cuts doesn't make sense. His point is
  that if you lose stimulus money for tax cuts, then the businesses
  simply use the money to pay down debt, so you only get 1 to 1
  leverage for that money. But if you use the money for government
  spending projects, then the money creates jobs, and in a domino
  effect, that money creates 8 to 1 leverage.
  
  But he overlooks the fact that lowering business taxes will allow
  businesses to save jobs, and will allow some businesses to survive,
  where they might go out of business without the tax cut. If a
  business lays people off or closes completely, then there's a reverse
  leverage effect, possibly 8 to 1. So carefully targeted tax cuts are
  just as important as carefully targeted spending programs.
  
  If a tax cut can save 5 million jobs, that's better than spending
  stimulus money on 3 million make-work jobs.
• His 3-5 year estimate for the US is simply wishful thinking. It
  took Japan 15 years, and there's no reason why it should take the US
  any less time, especially since it took almost 15 years for the
  dot-com, real estate, credit and stock market bubbles to expand.
• The big flaw is his theory is his response to the issue of export
  markets. During Japan's balance sheet recession, the rest of the
  world was in a credit bubble, and Japan could export trillions of
  dollars worth of goods to other countries, in exchange for currency.
  Koo claims that exports had no effect, since Japan's trade surplus
  was "remarkably stable" throughout the entire period, 1990-2005.
  
  But that's not the point. Suppose those export markets hadn't
  existed? Then Japan's trade surplus would have gone sharply negative,
  and Japan's GDP would have fallen sharply, instead of staying flat.
• The issue is what I call "leakage," and I can't figure out
  whether Koo doesn't understand this (unlikely) or is lying about this
  issue.
  
  In order for the stimulus money to come back to the Treasury, it has
  to be used internally within the country. If the money is used for
  foreign goods and services, then it "leaks" out of the system. The
  only way to compensate is to get the money back through exports, and
  Japan had plenty of export opportunities available.
  
  This intersects with the issue of protectionism, a subject that Koo
  never mentioned. In order to prevent leakage, a country can insist
  that all stimulus funds be spent internally -- which the US has done
  with its "Buy American" clause in the stimulus plan. Protectionism
  invites retaliation, and ALL countries' GDPs go down, as happened in
  the 1930s.

Koo's most dramatic remarks came at the very end. He put into words
something that I've always suspected -- that the 1930s Depression was
not ended by FDR's stimulus or spending plans, but by World War II.
Spending on the military, according to Koo, gives the highest "bang
for the buck."

Koo said Hitler did everything right -- spending massively on the
military. (He would be forgiven for not mentioning that probably the
Japanese did everything right as well.) He expressed the hope that
this worldwide financial crisis would not allow dictatorships to get
ahead of democracies.

What dictatorships is he talking about? Well, maybe Russia, but you
can be sure that he's thinking of China.

China is now embarking on a very aggressive fiscal stimulus plan.
China doesn't say how much of the stimulus is going into the
military. But China has already been increasing the military by 10-20%
a year for years, as they prepare for war with the United States. I
think it's quite certain that China will take advantage of this fiscal
stimulus program to further increase military spending.

In the US, by contrast, President Obama is planning to cut weapons
systems. As the world becomes increasingly dangerous, the US is
becoming weaker.

Sincerely,

John

[John]

-- Notes from Richard Koo's presentation

I discussed Richard Koo's presentation in the previous posting.
Below I've pasted my own rough notes that I typed as I was listening
to the presentation. The main use of these notes is that they
include time stamps, so you can use them to find a particular quote
or discussion within the presentation.

11:00: Japan lowered interest rates from 8% to zero 15 years
ago, but it did no good. Same thing happening here now. Businesses
paying down debt instead of maximizing profits.

16:30: The news headlines are that banks aren't lending money, but
that's not the important story. Banks would love to lend money,
people don't want to borrow money, and that story isn't reported.

19:00 - house prices in the US will fall back to where they were in
1997. [need to see chart.]

spain, ireland, china, france, australia -- this is happening all
around the world. 21:00 This is very depressing.

There is one ray of hope -- Japan has gone through this -- 22:18 -
commercial real estate led the bubble in the 1980s. Collapse --
commercial real estate prices fell to 1973 levels -- fell 87% from
the peak. 22:51.

Just imagine what it would be like if real estate in Washington DC was
down 87%, NY down 87%, San Francisco down 87%. What kind of economy
do you think you'd have in the US? Probably not much, right? 23:05

In Japan, the GDP never went below what it was at the peak of the
bubble, although growth was very slow. 23:21. We managed to keep our
GDP from falling, and overally unemployment rate never went above
5.5%, and went below afterwards.

In real estate and shares, Japan lost wealth equivalent to 3 years of
gdp. 23:51 1500 trillion yen lost.

In 1930s, America lost one year's worth of 1929 gdp.

1500 trillion yen in Japan would be $45 trillion los of wealth in the
US. 24:51

It's debt repayment that causes gdp to shrink. 25:00

Japanese were paying down debt as late as 1995, even though BOJ had
reduced interest rates from 8% to 0.

Government run by Liberal Democrats -- highly liberal with government
spending. 27:00.

Government spending increased, even though tax revenue fell. Budget
deficit -- 1990 to 2005 - $300 trillion yen deficit -- 60% of Japan's
gdp. 27:40

This was the most successful fiscal spending policy in the history of
mankind. 28:00

There is a way out - with proper government actions. 31:00.

Wants Pres Obama to say, "This isn't an ordinary recession. This is
a balance sheet recession, one that comes only every few decades, and
only after a huge bubble." 31:59

Japan had a huge GDP zigzag throughout this period, 1990-2005. 34:00
Because govt spending went up and down during the period.

Fails to see Pres Obama or Larry Summers from coming out and saying,
"This is a different kind of recession." They're still saying it's
an ordinary recession. 35:10.

It's pneumonia, it's not just a cold. 35:45

That's why Pres Obama is having so much trouble -- he won't say
what's really happening. 36:00

Tax cut doesn't work in this kind of environment at all. 36:45. It
has to be government spending.

Is the $787 billion package enough? 37:15. We're losing 535,000
workers per month.

It's not peace time -- we're in a war zone now. 38:15

40:00 Don't worry about debt. Talks about Japanese bond yield.

Japan is a high savings rate country. 39:50

Deficit grew very sharply, and outside agencies kept bashing japan.
40:10

Japanese govt bond yield went down and stayed down at lowest level in
human history. 40:25

The money that the government borrows and spends is the money that is
saved w/i the economy, but not borrowed w/i the private sector.
but not borrowed, so it's sitting there. 40:50

Problems with rating agencies. 42:35 They'll try to downgrade
countries with these problems.

We wasted some time because ratings agencies lowered Japan's ratings.
We were lower than Botswana in Africa. 43:00

Rating agencies can really throw a monkey wrench into this corrective
process. 43:55 If ratings screw up the sentiment, we all suffer.
44:40.

We came out of the mess in 2005. All the debris that had accumulated
during the bubble was finally gone. Balance sheets were finally
fully repaired in this 15 year period. 45:00

Banking crises - Latin America - 46:00

48:00 Paul Volcker kept all the banks lending to Latin America during
their balance sheet recession in the 1980s.

In August 1982, Paul Volcker called central banks all around the
world to lend to latin american banks. 48:00 Anecdotes about Paul
Volcker. 50:00-52:00

Fixing the banks and ending the credit crunch are contradictory
goals. 53:50

In japan, credit crunch began in 1997. 54:45. We never had a credit
crunch, except for 18 months -- Oct 1997 to ? 1999. Outside of that,
banks were eager to lend.

Washington does not have to move so quickly as is happening now, as
long as the banks can lend. 1:00:00

Begin questions. 1:3:00.

Q: Fed interventions into credit markets - capital injections.
1:04:00

Those activities should be on the Treasury balance sheet, not the Fed
balance sheet. Risking trust in the currency. 1:05:40

The way that Bernanke bashed Japan ten years ago make a lot of people
worry that he's going to go all out. People will get really scared
about the dollar currency. 1:06:30

Q: taking toxic assets on fed balance sheets. 1:07:30

Q: Can the US pull this off alone? Does rest of the world have to do
it also. 1:08:40. A: That's the real danger. Everyone should put
in enough fiscal stimulus to keep their gdp from falling. 1:09:00

Worries especially about Europe -- because the Maastricht treaty is
so binding. 1:10:00 Fiscal stimulus is limited by 3% of gdp, which
is nowhere near enough. 1:10:20

q: Where would stimulus money best be spent? 01:11:40

A: Historically, the best way is military spending, because it
creates demand, w/o creating supply. 01:12:15 That's why economies
recover quickly. But if you increase both demand and supply, then
they start chasing each other. 01:12:30

If you want the smallest budget deficit, and largest bang for money,
that's the best way. 01:12;50

There are lots of roads and bridges here needing repair. 01:13:10

Q: How long will it take to work out, if it was 15 years in Japan?
01:13:45

A: Still will take 3-5 years, but I'm just guessing, because we
haven't seen the bottom of the asset prices yet. 01:14:10

Japanese banks had lots of resources, because of their accounting
system. 01:14:30 Realizing capital gains on their books. 01:15:10.
So it might take a little longer.

Japanese had export markets to rely on. Even though people make a
big deal about export markets, export markets did not add or
subtract to Japanese economy throughout this period. 01:15:50.

Look at chart - Japan's trade surplus was remarkably stable
throughout the period. 01:16:15. So Japan handled its problems
within its borders. All countries should handle their problems w/i
their borders, so that the problems won't spill out to other
countries. So countries have to do more than Japan did, and that's
what they face at the moment. 01:16:41

q: (Can't hear question) 01:16:46

A; Key indicators. 01:17:00

Q: Impact on global, political situation? 01:19:10

A: We are going to see some democracies fail, some governments fail,
because some countries are unprepared to deal with it.

Nothing is worse than having dictatorships with the wrong agenda,
using the right economic policy. That's what happened in the 1930s.
Hitler got everything right, handling this type of recession. That's
why German unemployment 01:21:00 German unemployment was 30% in
1933, and was brought down to 2% very shortly.

In US, unemployment was at 25%, and it went down dramatically with
FDR's policies, 01;21:30 but went back up in 1937 when stimulus was
cut. The policies were working, but were interrupted.

So there are huge political implications to this crisis, and I'd like
to see democratic governments follow this policy before the dictators
do. 01:22:00


Sincerely,

John

[John]

Dear Mark,

> I read with interest your article about complicity of politicians
> et al in the financial system failure.

> What is your view of people who now hold common stock in banks?

> A) They get wiped out? B) They increase their net worth, because
> the government is now a major shareholder (AKA fascism) or C)
> Other

> My view is current holders of bank common stock get wiped out,
> then the banks issue new shares and start over....

I agree with you that "A" is the answer.

In fact, this isn't just a guess. This is the clearly stated
intention of policymakers -- that stock holders will suffer, while
bond holders will be protected.

Sincerely,

John

[StilesBC]

Dear Mark,

I agree with you that "A" is the answer.

In fact, this isn't just a guess. This is the clearly stated
intention of policymakers -- that stock holders will suffer, while
bond holders will be protected.

Sincerely,

John

Preferred share holders will likely share the same fate as common - and have thus far. If policy makers ever come to their senses, the bond holders will get goose eggs as well. I'm not so sure that can be prevented much longer. TARP has spent 83% of their $700B. Will congress authorize another round? Would Senate Republicans filibuster? Then we get the same uncertainty scenario we had in September.

Public opposition to these bailouts is growing enormously. Campaign season starts in 6 months for mid term elections

[agnostic]

A week or so ago, I remember a brief discussion: "how do you compute P/E ratio if the E is negative?" Our GOVERNMENT OF LIES is doing everything it can to make sure Standard & Poor's doesn't have to face this issue.

Apparently, one of the groups [the FASB] responsible for defining accounting standards has bowed to congressional pressure. The executive board of the FASB will sacrifice the mark-to-market principle on the altar of "confidence". Here's a link to the project announcement:

http://www.fasb.org/project/fas157_acti ... ssed.shtml

This project started just a couple of weeks ago, at the prompting of our "leaders" in congress. At its heart, it permits if not urges banks to use their "judgement" in putting values on transactions in "distressed markets". Here is a link to the actual proposal:

http://www.fasb.org/fasb_staff_position ... s157-e.pdf

The people running this project want it to conclude on 2 Apr, so that the rule change can be used for Q1 earnings reports. Normally, the FASB takes years to study and approve a rules change. The push to gut any "mark-to-market" notion is proceeding like greased lightning.

And this is not enough for the crooks in congress. Even as they monitor the FASB to make sure it dances to their tune, members of congress are on a witchhunt for any regulatory body that might say the emperor has no clothes. See this article at Reuters:

http://www.reuters.com/article/GCA-Cred ... 26?sp=true

Here are some excerpts from the article:

Now business groups are turning up the heat on the Public Company Accounting Oversight Board, the Washington D.C.-based audit watchdog, to do its part to be more flexible in its application of the accounting rule.

"We don't want to get into a situation where one-half of financial reporting world is making a lot of changes and the other is not," said Thomas Quaadman, executive director of reporting policy at the U.S. Chamber of Commerce, the largest business lobbying group. "If (the PCAOB) is not on the same wavelength, it will all be for naught," he said.

If the PCAOB does not act expeditiously, Congress may get involved as it did with FASB.

...

Congress created the PCAOB in 2002 after the Enron accounting scandal to oversee corporate auditors.

The fools in congress have become very efficient at forgetting the past. It no longer takes 50 years to dismantle a regulatory operation triggered by a scandal such as Enron. If the PCAOB does not prove it is a team player, 7 years will suffice.

[Rammstein]

Being too new to the forum to have yet read all 1206 in this thread I wanted to ask if there has been an explanation/ discussion of what eactly the rest of these,aaaah, agencies do? Or does anyone care to offer a description..

I lifted this paragraph from the Rolling Stone article by Matt Taibbi....

http://www.rollingstone.com/politics/st ... g_takeover

"The reason the number has dropped to nothing is that the Fed had simply stopped using relatively transparent devices like repurchase agreements to pump its money into the hands of private companies. By early 2009, a whole series of new government operations had been invented to inject cash into the economy, most all of them completely secretive and with names you've never heard of. There is the Term Auction Facility, the Term Securities Lending Facility, the Primary Dealer Credit Facility, the Commercial Paper Funding Facility and a monster called the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (boasting the chat-room horror-show acronym ABCPMMMFLF). For good measure, there's also something called a Money Market Investor Funding Facility, plus three facilities called Maiden Lane I, II and III to aid bailout recipients like Bear Stearns and AIG."

[aedens]

You have argued for a very long time that this system, the world monetary system, was fatally flawed.
Gunnar Tómasson
Yes, absolutely.
But in this business there is something else that one discovers early on; namely, that if you are in a position of responsibility in the world monetary system and management, in the world's central banks, the International Monetary Fund etc., then you must always go with the stream if you plan on continuing in that position. This has completely destroyed all professionalism in central-bank management here in Iceland and elsewhere. You must go with the stream and never go against it. I had come across this so often that I decided at the end of 1996 to document that, at the highest levels, both in the United States and Britain, there was knowing malfeasance in the field of monetary management. In the first instance I sent a letter to Laurence Meyer who was a member of the US Federal Reserve Board. At the time, a certain problem had surfaced in Mexico, much like the domestic aspects of Iceland's current problems. I wrote to Mr. Meyer that it was fair to surmise that as long as the Fed continued to use the macroeconomic models of modern monetary economics to forecast the future, it would be setting itself up for what I termed "nasty surprises."
Is the system not salvageable?

Gunnar: It is not salvageable.

Egill: And must then a new world monetary system be created?

Gunnar: That's where the British party, Professor Patrick Minford, who was an economic advisor to Margaret Thatcher, comes into the picture. I wrote to him in January 1997 and that's where you have the answer to your question. The last sentence of my letter to him was as follows: "This [post-Bretton Woods] system is certain to come crashing down." You cannot put it any more clearly. I just wanted to have it documented.
And now we are facing this problem in the world, having to unwind this devilish mess … and people are completely at a loss about what to do.
Gunnar: The system has collapsed and it cannot be rebuilt on the foundations that were put in place with Paul Samuelson's ideology in 1942. It is very difficult to change something like this. I have collaborated for many years with colleagues in an economics group known as Gang8. Icelanders can look it up on the Internet. The group includes economists from Europe and the United States, a total of ten or so. I said to them,
There is no point debating these issues with those whose livelihood depends on them being sound. We must wait until everything goes to hell in a handbasket, if you excuse the language, and then we will give them our telephone number.

-- Federal Regulator accused of suborning fraud

Here's a story from WSJ:

> U.S. Backdating Probe Roils OTS

> By DAMIAN PALETTA and DAVID ENRICH

> WASHINGTON -- The Treasury Department's inspector general is
> investigating whether regulators allowed the backdating of a
> capital transfer by BankUnited Financial Corp. that made its
> banking unit appear healthier than it was, according to people
> familiar with the matter.

> The probe prompted the Treasury on Thursday to place the acting
> director of the Office of Thrift Supervision, Scott M. Polakoff,
> on leave, these people said. ...

> BankUnited, of Coral Gables, Fla., which has $13.9 billion of
> assets, ran into trouble by engaging in risky mortgage lending
> during the housing boom. At the end of last year, its ratio of
> capital to assets had shriveled to just 1.34%, far below the level
> regulators require.

> In August, BankUnited transferred $80 million from the parent
> company to its thrift subsidiary, which was running low on funds,
> according to people familiar with the matter. BankUnited officials
> said at the time that the transfer was effective as of June 30.
> The move had the effect of burnishing its capital levels for the
> quarter that ended June 30.

> At the end of that quarter, BankUnited's recorded Tier 1 capital
> -- the measure regulators use to judge a bank's health -- was at
> 7.6%. That fell to 1.34% by Dec. 31. Regulators typically want a
> bank to have at least 6% in Tier 1 capital.

> In December, the Treasury inspector general disclosed that OTS
> officials had improperly allowed IndyMac to book a capital
> infusion to a previous quarter. IndyMac, which failed in July, was
> temporarily run by federal regulators and was recently sold to a
> new ownership group. The OTS launched an internal investigation,
> and on Jan. 30 said it found four other instances when OTS
> officials approved capital backdating even though it was "not
> acceptable by current OTS standards."
> http://online.wsj.com/article/SB123819407230161181.html

I don't know what the big deal is. The Fed and the Treasury have
been encouraging banks to lie about their assets for a year now. New
York Insurance Superintendent Eric Dinallo organized an entire program
of lying to investors and the public.

So why is this any different?

Sincerely,

John

[freddyv]

Are Things About To Change?

I got to this page from a link on the Yahoo Financial web page:
http://blogs.barrons.com/stockstowatcht ... hoobarrons

That Barron's page references an article at SeekingAlpha by an unknown blogger:
http://seekingalpha.com/article/128390- ... o-aig-scam

Here's the key quote:

What this all means is that the statements by major banks, i.e. JP Morgan Chase (JPM), Citi (C), and BofA (BAC), regarding abnormal profitability in January and February were true, however these profits were a) one-time in nature due to wholesale unwinds of AIG portfolios, b) entirely at the expense of AIG, and thus taxpayers, c) executed with Tim Geithner's (and thus the administration's) full knowledge and intent, d) were basically a transfer of money from taxpayers to banks (in yet another form) using AIG as an intermediary

Now this could be big but it's just the biggining.

I have posted here and on SeekingAlpha how P/E ratios provided by major media outlets are wrong. Not just in my opinion but either by incompetence or intent. I believe that in some cases the there is an intent to mislead the public in order to profit. Of course I can't prove that but I can prove that the data provided to the Wall Street Journal by Birinyi Associates and posted on their page at
http://online.wsj.com/mdc/public/page/2 ... dc_h_usshl

Just check the data provided by Standard & Poors and explain to me (The WSJ and Birinyi Associates have so far chosen to ignore my requests for an explanation) how they come up with a 12.53 P/E ratio for the S&P 500?
http://www2.standardandpoors.com/spf/xl ... EPSEST.XLS

John believes it is incompetence but I do not. I believe that Birinyi Associates intentionally fed bad data to the Wall Street Journal so so that they could unwind a bullish position in the market. That they had a bullish stance is proven by an article at http://www.financialweek.com/apps/pbcs. ... 9971/1028/...

Birinyi Associates has a clear conflict of interest yet no one cares. But people are starting to care because they are suffering at the hands of all of these people who previously were "trickling down" the wealth. But that has stopped and now it's every man for himself; we'll see how that plays out.

I believe that we are about to see a huge meltdown having to do with a complete lack of confidence in our financial system that starts with government regulating bodies like the SEC and goes all the way down to the individual investor who happily looked the other way as long as they were making money.

Generational Dynamics may explain all of this but it doesn't make it any more paletable. It's about to get ugly.

--Fred