Randy Miller

Congress' Handling of AIG Bonuses Is Shameful

500 people wrote comments in the Times concerning the Desantis letter, and the overwhelming majority were very critical of Desantis, his sense of entitlement, his sense that only the fools who created the AIG mess could straighten it out. Read the comments. A couple of them may be over the line, but most were pretty well thought out. Desantis threw gas on the fire, despite what the New York related media thinks.

Instead of trashing the hard working Americans who are upset about Wall Street culture, do what the President said the other day, get out to North Dakota, Iowa, Arkansas, spend some time with real people, who are worried about financing their kids' state school tuition, worried about speculators driving the price of oil above $100 again, worried that they will now delay retirement until they are past 70. Sit with them in a small town cafe or at their supper table, and maybe you will get a glimmer of understanding.

We are not a bunch of rubes who can be stirred up by any demagogue. Congress did not stir up this rage. That small town banker Jim Bunning talks about whose entire years profits were wiped out by the new FDIC assessment, an assessment caused by your friends on Wall Street, that banker was mad a long time before Jim Bunning talked to him. Congress is funneling that rage, and you had better listen. Right now there are a lot of people in this country who would vote for Global warming to flood Manhattan, and for all the apologists in the media to be working at a small city TV station covering the latest car wreck.

Todd Sullivan, you guys in the media are a big part of the problem, but you are never going to see that because you have totally lost your objectivity. You are not the laughingstock that CNBC has become, but you need to step back and look at your career. Every financial reporter should have to divulge who they socialize with, because you cannot be objective about people who are your friends.

AIG: Fear and Loathing on Wall Street

Too many people listened to the Liddy testimony instead of the morning panel, which consisted of regulators, representatives of the credit unions, etc. One congressman asked several members (to paraphrase):
Congressman X: " Do you have good people who understand these derivatives?"
Regulator: "Yes"
Cong: "Did you have to give them a $2 million bonus to keep them?"
Regulator: (Laughing) " No, they get around $100,000 per year in salary"

The guys in AIG FP who insist they need to be kept are guilty of extortion. Get real.

Maybe the system is working. 15 out of the top 20 have given the bonuses back. Some of them are doing that because it is the right thing. Some fear exposure. Let's see, fear of being exposed doing wrong..... I think they call that accountability. And as far as the death threats, that's a red herring. Nobody takes them seriously, Liddy read them for the shock value. Most of the bonus money will come back, the foreigners who keep it should be fired, and then we can get onto the real issue, which is the payments to the banks and Goldman Sachs.

Why Did Geithner Duck the Question?

I like Lindsay Graham because he will put aside ideology and work on pragmatic solutions. Obama is in the same mode. I was watching the hearings and thought it was a gotcha question, a trap. What could he say?
He could have said that "we are rolling the dice that the economy will start turning around in time, and budget deficits will start heading down in time to re instill confidence in the American dollar and treasuries. " Would that have re-assured the bond traders?

Or he could have said, "We probably will not be able to cover all our expenditures with borrowing, in which case we will have to increase the money supply. M1 plus M2 last April was around 7.7 Trillion. We might have to add a trillion" How would the bond traders respond to that?

Or he could say the truth which is "WE DON"T KNOW, but we know the cost of doing nothing, as demonstrated by Bush and Paulsen and Kashkari kicking the can down the road."

The congressman asking the question knew the answer, it is an unspoken truth, but Geithner ducked the question because speaking it would really disrupt the market.

We are all looking into a crystal ball, but that crystal ball has been clouded far more by Wall Street Opacity than Geithner.

I will ask you a question Bruce K. How much taxpayer money went to AIG, and then on to speculators who bought NAKED CDS from AIG? John Paulson turned a $22 million dollar bet into $1 billion when Lehman failed. Who besides AIG had deep enough pockets to cover that bet, with US taxpayer assistance?

You are asking Geithner to predict the future, when most of the financial pundits cannot answer the question on something that has already happened, "Where did the AIG money go, and how much of it was naked CDS?"

And then you can answer the question, "How many Wall Street bankers and hedge fund operators are SPECULATORS, and how many are really investors, trying to build long term strength in our companies and economy."

I agree with the posters who say Geithner is a weak communicator. As was Henry Paulsen. He needs to speak more persuasively, or take more of a behind the scenes role.

The AIG Scandal

Nobody is answering the most important question. How much of AIG's $60 billion loss went to pay naked CDS? John Paulson put $22 million into a CDS betting that Lehman would fail, and received $1 billion in return. Somebody with pretty deep pockets paid that off, and we need to know if it was AIG.

Why is Cassano, the head of AIG financial products not in jail. He made CDS so complicated that nobody could comprehend it, and the big wheels at AIG like Sullivan and Greenberg were not humble enough to admit that. And then Cassano said a little more than a year ago that he could not see any way that AIG would lose one dollar on CDS.

Go after Cassano. Hold all payments to counterparties who bought naked CDS from AIG FP until they can prove they had nothing to do with driving down the value of the underlying asset.

If something seems to good to be true, it probably is, so stay away from it.

If something is to complicated to understand, be humble enough to admit that.....and stay away from it.

Nationalization, By Any Other Name

It is not nationalization. An example of nationalization was Chile under Allende taking over the copper industry, including a lot of Anaconda Copper's assets, with the long term goal of running them as a government entity. Obama and Geithner need to make clear that their intention at most is to go in, clean up some of these bank holding companies, and get out. FDR closed all the banks, went in and examined all of them, and reopened the solvent banks fairly quickly.

We need to clean the speculators out of Wall Street, and let the good conservative bankers run the show. There are good people there, but if Wall Street cannot clean itself up, either the government needs to do it, or the financial center of America needs to be moved out of Wall Street. There is a trillion dollars in capital sitting on the sidelines, and that capital will not get loaned out or invested until the owners of that capital feel they are putting it in a safe place. It speaks volumes that they do not feel safe putting it on Wall Street.

Ignore the Pundits

I am getting more and more annoyed with CNBC. The only person I find reliable in their lineup is Erin Burnett. When we are looking for calm rational analysis, we get screaming entertainers like Cramer, or the fawning questions of the guys on Squawk box. When they interviewed Liddy from AIG, he kept saying the retention bonuses were necessary because they needed to bribe these guys to stay with AIG, and portrayed the retention bonuses as different than regular bonuses. Liddy must think we are idiots, because ALL bonuses are for the purpose of retaining talent. He is simply sliding the word retention in there to distract us from the fact that AIG is still giving people big bonuses while facing huge losses, losses financed by our tax dollars. DId the Squawk box interviewers bore in on that. No, they just let him repeat his rationale four times, and NEVER challenged him. I would think we could find some objective business reporters out there, but apparently the people running CNBC cannot do that.

Ignore the Pundits

I am getting more and more annoyed with CNBC. The only person I find reliable in their lineup is Erin Burnett. When we are looking for calm rational analysis, we get screaming entertainers like Cramer, or the fawning questions of the guys on Squawk box. When they interviewed Liddy from AIG, he kept saying the retention bonuses were necessary because they needed to bribe these guys to stay with AIG, and portrayed the retention bonuses as different than regular bonuses. Liddy must think we are idiots, because ALL bonuses are for the purpose of retaining talent. He is simply sliding the word retention in there to distract us from the fact that AIG is still giving people big bonuses while facing huge losses, losses financed by our tax dollars. DId the Squawk box interviewers bore in on that. No, they just let him repeat his rationale four times, and NEVER challenged him. I would think we could find some objective business reporters out there, but apparently the people running CNBC cannot do that.

Mark to Market Accounting: Used with Flexibility, It's a Good Thing

What if one of my assets was a million barrels of oil? In July of 2007, that oil was worth around $60 million, July of 2008, $140 million, and today it is worth $40 million. Was the $80 million increase a profit? Was the $100 million a loss, because I had to write down the value of that asset?

The value of mortgage backed securities was overstated two years ago, understated today, but the economic value of my house is the same as it was 15 years ago, 10 years ago, and five years ago.

Mark to market is one tool of many, with the objective of preventing fraudulent accounting. Perhaps the problem rests with the people looking at the numbers, people who thought housing in some markets could keep going up 10 percent every year, people who thought commodity prices could keep going up and up, and so on.

So much of valuation is blue sky, based on the psychology of the moment. Willing buyer, willing seller. Reluctant buyer, distressed seller is not a true market for valuation purposes, and I believe the FASB standards factor that in.

We do not need excessive regulation, people filling out an endless pile of forms. WE DO NEED RULES, to keep honest people honest, and to keep dishonest people reluctant to cheat.

How to Use Credit Default Swaps to Create 'Synthetic Debt'

"The other Paulsen" fund supposedly made $15 billion betting on the down side of the housing market.

Sunshine's article is pretty good. And the problem with the multiple nature of naked CDS is how those naked CDS holders could manipulate the psychology of the market to enrich themselves.

Stupid Is as Stupid Does: The SEC and CFTC Legalize Electronic 'Gambling'

I believe federal law enacted ca 1999 excludes CDS from enforcement of state gaming laws. The smart play here is to get all the CDS out in the open, change federal law so that naked CDS are subject to gaming laws, unwind the CDS we have now, and go on from there.

I am somewhat concerned that the insurance type of CDS is so inexpensive. If I own a building that is a firetrap, no sprinkler system, poor wiring etc, I should have to pay through the nose for insurance. But for companies in deep trouble, such as Lehman, you could buy CDS on Lehman bonds for a few cents on the dollar, and then gotten 91 cents on the dollar on settlement day in October.

If I bought insurance on a firetrap of a building for a small premium, there is no incentive on my part to make the building safer. So if I can get CDS on a CDO for pennies on the dollar, there is little incentive to assess risk correctly. In the case of AIG, I think the guys in Financial Products were fraudulent in assessing risk, merely getting as much money in premiums as possible to enrich themselves.

I hope these guys are all getting fitted for handcuffs, but if in fact they broke no laws, they should never be allowed to have a job in the financial sector again.