Posts filed under “Really, really bad calls”

You may have missed this hard hitting McClatchy article over the weekend. It essentially accuses then Treasury Secretary (and former Goldman Sachs CEO) Hank Paulson of “willful inaction in late 2006 and 2007 during a period when lending criteria were disintegrating in favor of so-called “liars’ loans,” for which applicants weren’t required to document their income.”

The reason? To give Goldman Sachs a chance to exit their soon to be crumbling sub-prime loan portfolio. (See video) They also got short subprime derivatives. GS became the only major Wall Street firm to safely exit the housing market before it crashed. McClatchy had previously reported that Goldman Sachs failed to report dumping their subprime positions to the SEC for 9 months, while making public statements to the inapposite to that.

These accusations come from William Black, the former senior thrift regulator, now law professor. Black states that Paulson “knew that if he acted the way he should, that would have burst the bubble. Then Goldman Sachs would have been left with a very substantial loss, and that would have been the end of bonuses at Goldman Sachs.”

Personally, I lean towards the belief that Paulson was merely an incompetent Treasury Secretary, not maliciously reckless or willfully corrupt, as Black asserts (but what do I know?). That alternative is certainly worth exploring, as the timing sure worked out well for both Goldie and Hammering Hank:

“The most dangerous loans offered teaser interest rates that would shoot higher in two to five years and saddle borrowers with crushing monthly payments. From Jan. 1, 2006, through 2007, mortgage lenders issued more than $1.6 trillion worth of these types of loans, according to data from the industry newsletter Inside Mortgage Finance.

Black and other former regulators said that Paulson could have reined in this flood of loans by:

Directing the Office of Thrift Supervision to beef up its dwindling number of thrift examination teams and to prohibit subprime lending by federally insured firms such as Countrywide Savings and Loan, the IndyMac Bank and WaMu, which together issued more than $360 billion in dicey mortgages in 2006, according to International Monetary Fund data and company disclosures.

• Pressing Comptroller of the Currency John Dugan to rescind his agency’s 2004 rules barring state enforcement agencies from cracking down on abusive lending tactics.

•Using his influence in the Bush administration to stop Fannie Mae and Freddie Mac from buying subprime securities and allowing the industry to grow even bigger.

• Weighing in against proposed international banking standards, which subsequently went into effect, that would allow foreign banks to hold low reserves when they bought Triple A-grade securities, such as subprime bonds whose ratings were grossly inflated.

A second Paulson critic, retired senior thrift examiner Richard Newsom, wrote to Congress about the regulatory lapses that he said contributed to the crisis. In a phone interview, he said that it was “simply implausible that Paulson couldn’t see the relation between delaying strong action by Treasury and the benefit to letting places like Goldman” reduce their risks.”

Here’s the greatest irony of all: While ignoring the burgeoning subprime crisis, Paulson focus was on Deregulation: He “repeatedly voiced opposition to what he considered over-regulation of banks and investment banks. He particularly complained about a provision in the 2002 Sarbanes-Oxley securities restructuring law that requires corporate officers to submit sworn statements to the SEC vouching that their firms’ internal financial controls were adequate.”

Incompetent, or criminally corrupt? You decide.

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Source:
How Hank Paulson’s inaction helped Goldman Sachs
Greg Gordon
McClatchy, October 10, 2010
http://www.mcclatchydc.com/2010/10/10/101753/inaction-by-treasurys-paulson.html

Goldman didn’t tell SEC about mortgage moves for months
Greg Gordon and Chris Adams
McClatchy, April 30, 2010
http://www.mcclatchydc.com/2010/04/30/93252/goldman-sought-to-shed-risky-mortgage.html

Category: Derivatives, Real Estate, Really, really bad calls

Transparent Government: NY

SeeThroughNY is a site run by right wing think tank Manhattan institute. It scrapes publicly available data to show the salaries and pensions of just about everyone in NYS who is on the public payroll, from the Governor to cops & firemen to your local teachers: SeeThroughNY: A place for taxpayers to download, share, analyze…Read More

Category: Legal, Politics, Really, really bad calls

Why Foreclosure Fraud Is So Dangerous to Property Rights

There seems to be a misunderstanding as to why the rampant and systemic foreclosure fraud is so dangerous to American system of property rights and contract law. Some of this is being done by people who are naked corporatists (i.e., the WSJ Editorial Board) excusing horrific conduct by the banks. Others are excusing endemic property…Read More

Category: Credit, Foreclosures, Legal, Real Estate, Really, really bad calls, Regulation, Taxes and Policy

Elections: Money Talks Louder Than Ever

From today’s NYT:

The dominant story line of this year’s midterm elections is increasingly becoming the torrents of money, much of it anonymous, gushing into House and Senate races across the country.

Your Supreme Court, hard at work taking Democracy apart in America:

click for larger graphic

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See video here: Money Talks Louder Than Ever in Midterms

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Category: Digital Media, Politics, Really, really bad calls

The Blundering Herd

> How’s that for an awesome article title? Its from a Vanity Fair article excerpting Bethany McLean and Joe Nocera’s new book, All the Devils Are Here: The Hidden History of the Financial Crisis.  The book is being touted as “The inside story of the collapse of Merrill Lynch — How a “Fantastic Lie” and…Read More

Category: Bailouts, Corporate Management, Really, really bad calls

Do You Wanna Be Right, or Do You Wanna Make Money?

My inbox is deluged with rants and demands from people who are insisting that This. Rally. Must. End. NOW! A composite of their emails would read something like this: “How can you sit there so blithely while the Fed debases the world’s reserve currency? Why haven’t you commented on POMO?!? The entire game is rigged,…Read More

Category: Apprenticed Investor, Investing, Markets, Psychology, Really, really bad calls, Trading

Fed: We Can Support Asset Prices for the Public Good

Consider the following statement: “Nevertheless, balance sheet policy can still lower longer-term borrowing costs for many households and businesses, and it adds to household wealth by keeping asset prices higher than they otherwise would be.” So said Brian Sack, the head of the New York Fed’s markets group. Marketbeat responded with a post titled: Dear…Read More

Category: Federal Reserve, Really, really bad calls

Aerial Footage: Portrait of a Housing Bust

Fantastic set of aerial photos from Google Images (by way of Boston.com’s Big Picture), showing Florida’s developmental disaster.

The images of half finished (and barely started) developments are strangely beautiful, with a geometric symmetry that belies the state of human misery these developments represent: Lost deposits, bankruptcy, misallocated capital.

That an entire nation can be so innumerate as to believe in a mathematical fallacy is weirdly fascinating . . .

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Florida Housing Bust

More images after the jump . . .

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Category: Credit, Real Estate, Really, really bad calls

Tea & Crackers with Matt Taibbi

I’ve been meaning to post something this week on Matt Taibbi’s fantastic new piece on the Tea Party (Tea & Crackers) but I just hadn’t gotten around to it. My pal Paul Kedrosky did such a nice job setting it up that I am just going to crib it from him: > Agree or disagree…Read More

Category: Politics, Really, really bad calls

AIG Repaying Uncle Sam? Not By a Long Shot

Today’s AIG announcement has generated some surprisingly naive headlines. The company may have announced U.S. bailout exit plan, but that does not make it so. (Citi’s numbers don’t look any better). Let’s take a closer look at the numbers and separate the facts from fiction: Total Bailout: $182.3 billion dollars Amount Still Owed:  $132.1 billion…Read More

Category: Bailouts, Really, really bad calls