NY AG Eric Schneiderman’s Subpoenas Aimed at Private Equity Firms, Bain Capital & Romney Donors Included

In a few weeks, this might be the Issue of the Election or the Story That Brought Romney Down. At this point, only time can tell.

Yesterday, the New York Times reported that New York Attorney General Eric Schneiderman has begun to send out subpoenas to investigate the tax situations in numerous private equity companies situated in the Big Apple, including Bain Capital, Republican hopeful Mitt Romney’s coup de grace and the subject of his Horatio Alger story.
According to the piece, the legal action is focused on the belief that these private equity companies “converted certain management fees collected from their investors into fund investments;” in a simpler diction, the companies are charged with writing off millions of dollars worth in taxes – Bain saving almost $200 million that could have gone to the state government’s tax base.
The investigation rides off the coattail of a trove of documents Gawker leaked last month that gave us all a glimpse into the dark, shady world that is Bain Capital and private equity. Downsizing, leveraged buyouts and dollar signs were in abundance as well as long lists of management fees skirted off into the capital gains domain. But although the documents provide the basis for the AG’s argument, the subpoenas came before the leak and have no connection to them.
Nonetheless, a look inside what made Mitt rich beyond belief with illegal implications could be destructive in the eyes of voters…. especially when all of his friends are involved, too.
Throughout the summer, the Voice provided you with the ‘Mitt Loves N.Y.’ series (written by yours truly) in which we profiled some of the richest Romney bankrollers in the Big Apple. One of the biggest discoveries that I found was this enormous web the Republican candidate had weaved across the private equity field; a circle of friends that reaped in treasure chests full of cash flow for the campaign. As I have mentioned before, fellow private equity profiteers seem to stick together.
So when I received word of Schneiderman’s investigation, I immediately recognized several of the names; I had written all about ’em just months before. With these connections established, this legal undertaking transforms into an enormously widespread indictment of the Romney SuperPAC known as Restore Our Future and the monies siphoned into Team Romney, all of which ties back to the Candidate himself. But all it takes is one crack, right?
Here are a two of the other donors now involved in Attorney General Eric Schneiderman’s ongoing investigation, with references to the names mentioned in the Times article. Check out the profiles for further insight into the Romney Web:
1. Kohlberg, Kravis, Roberts & Co. – Henry Kravis
2. Apollo Global Management – Marc Rowan
Now, Schneiderman’s motive for the investigation is still unknown; as an Obama supporter and an official leading the President’s mortgage crisis unit, he has been chastised for being too politically involved as a law enforcement agent. However, the Attorney General of a state cannot enforce federal tax law; therefore, the physical gains of the investigation would just be a shit ton of additional (and much needed) tax revenue for New York.
Be sure to keep this story in mind. It goes without saying that this will not be the first time you hear about Gotham’s reckoning before November.

Nissan crashes; hedge funds lick chops; incoming Israel govt. may take ‘harder line’


Plans are moving apace to purposely set up a “toxic bank” full of poisonous assets to further bail out those banks that had greedily and recklessly accumulated them.

Call it Shitibank. And give it the naming rights to the new baseball stadium for the New York Mets, taking the moniker away from toxic Citibank.

No joke. As Ground Zero reminds us of 9/11, ShitiField would serve as a monument to the global financial meltdown caused by New Yorkers. ShitiField would remind us to burst any future Wall Street bubbles before they blow up in our faces.

And, once the toxic bank is up and running, we proles can move our non-existent pension money to it. But don’t count on driving a new Nissan to the new bank: Even if you could afford to buy one, Nissan can’t afford to keep its factories open to manufacture one.

What’s really going to happen this week sounds just as far-fetched, but it’s not: Many investors on Wall Street don’t want the market to recover. They want it to hit bottom so they can start buying shares and companies again.

Bigwig Ray Dalio of the hedge fund Bridgewater Associates tells Barron’s:

“Buying equities and taking on those risks in late 2009, or more likely 2010, will be a great move because equities will be much cheaper than now. It is going to be a buying opportunity of the century.”

Meanwhile, corporate welfare is humming along, as government’s sudden socialists are coming to the rescue of capitalism. Heartwarming, especially for the likes of Nissan, which, as the Wall Street Journal reports, plans to “seek government assistance from Japan, the U.S. and elsewhere.”

And now the rescue plan for America calls for a combination of the toxic bank and encouragement by the government for hedge funds to profit from the grief by expanding their investments (instead of the government’s clawing back ill-gained profits from hedge funds). And don’t worry about Wall Street’s top execs: All the scoldings by President Barack Obama won’t stop them from making their big bucks. See? The free-market system does work.

At least we know that defense contractors will make it through the depression in good shape. Bibi Netanyahu is about to reclaim control of Israel, and that will signal that, as the BBC reports, “Israel is shifting to the right” and, as the Daily News says, “a harder line is coming with Israel’s Arab neighbors.”

Could the line get any harder, you ask?

While you’re investing in weapons makers or just waiting to pour your money back into the market or snap up some ailing companies, click on these…


Seeking Alpha: ‘U.S. Government vs. the Stock Market’

This week we’ll see a knock-down, drag-out battle between Obama, Geithner and the Senate who want to keep the market from falling, and the market itself which wants to drop precipitously.

Gawker: ‘Top Five Kellogg’s Recipes For Stoners’

As Seth Meyers pointed out on Saturday Night Live, Kellogg Company’s image is closer to that of bong-smoking Olympian Michael Phelps than the cereal maker likes to admit.

Kellogg’s Keebler Elves, after all, “live together in a treehouse and do nothing all day but think of new things to put cheese on.”

N.Y. Times: ‘U.S. Bank Bailout to Rely in Part on Private Money’

Wall Street helped produce the global financial and economic crisis. Now, as the Obama administration prepares to unveil a revised bailout plan for the banking system, policy makers hope Wall Street can be part of the solution.

Administration officials said the plan to be announced Tuesday was likely to depend in part on the willingness of private investors other than banks — like hedge funds, private equity funds and perhaps even insurance companies — to buy the contaminating assets that wiped out the capital of many banks.

N.Y. Times: ‘Applications Surge at Cooper Union’

For many high school seniors who are applying to college in the midst of an economic meltdown, Cooper Union’s commitment to full scholarships — regardless of need — has given the institution an almost mythic allure….

While many of the nation’s elite colleges underwrite the education of poor students, Cooper is among a handful of private colleges that are tuition-free for everyone (it does not, however, pay for room and board, though financial aid is available for living expenses).

Newsday: ‘Explore LI: Pamper your pooch’

Wall Street Journal: ‘Bailout Revamp Could Use Private Bank for Bad Assets’

Seeking Alpha: ‘Investors Staying Away from Banks; Gold Attempts to Break Downtrend’

Another Bank Bailout: On Monday, Treasury Secretary Geithner is due to announce the next phase in a long series of government bailouts for banks. The leaks about the plan thus far have indicated a hybrid approach using elements of a “bad bank” and more government guarantees on bank assets. The price action of Bank of America and Citigroup does not inspire confidence in the market’s reaction to previously announced government guarantees of toxic bank assets.

If the regulators hope to bring stability to the markets, they might want to consider leaving the rules unchanged for more than two weeks at a time.

N.Y. Times: ‘Leader of Afghanistan Finds Himself Hero No More’

Fox: ‘Australian PM: “It’s Mass Murder”‘

Officials believe arson may be behind nation’s worst-ever wildfires as entire towns burn.

Wall Street Journal: ‘Bank Bailout Plan Revamped’

Geithner is considering a plan to help purge banks of their bad bets by partnering with the private sector to buy troubled assets.


A 21-year-old autistic man perished and his grandmother was left fighting for her life as flames engulfed their 17th-floor East Harlem apartment yesterday morning, police said.

Forbes: ‘Nissan To Ax 20,000 After Loss Warning’

Wall Street Journal: ‘Saks Upended Luxury Market’

Saks’ decision to cut prices by 70% on designer clothes in mid-November set off a domino effect in the luxury goods business.

Fox: ‘Stimulus Plan Includes Billions for Colleges and Students’

The stimulus plan emerging in Washington could offer an unprecedented, multibillion-dollar boost in financial help for college students trying to pursue a degree while they ride out the recession.

N.Y. Times: ‘In Congress, Aides Start to Map Talks on Stimulus’

N.Y. Daily News: ‘One BIG question remains: Who ratted out Alex Rodriguez?’

N.Y. Daily News: ‘Netanyahu: the Golan Heights ‘will remain in our hands’

Former Prime Minister Benjamin (Bibi) Netanyahu, who is poised to be swept back into power Monday, declared Sunday he would not give up the strategic Golan Heights, signaling a harder line is coming with Israel’s Arab neighbors.

Fox: ‘Octuplets’ Grandmother Calls Daughter’s Actions ‘Unconscionable”‘


N.Y. Daily News: ‘GOP’s losses just might save party, says Lazio’

Bloomberg: ‘MGM Doubles Down on Lobbying as U.S. Senators Work on Stimulus Measure’

Casino operator MGM Mirage says a tax break for forgiven debt is a good way for Congress to stimulate the U.S. economy; Granite Construction Inc. favors more money for roads and bridges; General Motors Corp. wants incentives for car buyers.

Jewish Daily Forward: ‘Jewish Charities Look to Stimulus Bill To Stave Off Cuts’

Onion: ‘Per Tradition, Ex-Presidents Watch Obamas Christen White House Bed’

Crain’s New York Business: ‘Parents question mayor’s math’

Critics are skeptical of gains cited by school officials at an Assembly hearing Friday on whether mayoral control of the school system should continue.

Wall Street Journal: ‘U.S. Weighs Fed Program to Loosen Lending’

The Obama administration is considering turning to a new program run by the Fed that depends heavily on hedge funds to jump-start the financial system.

N.Y. Daily News: ‘Mike to GOP: Miss me, baby?’

Mayor Bloomberg came to a Queens banquet hall Sunday like a man looking to woo a lover he once spurned, sweet-talking a roomful of Republicans to take him back. It didn’t work.

N.Y. Times: ‘2008 Taxes: Big changes may come in expanded tax breaks to the less wealthy’

CNN: ‘Man, 47, marries girl, 8’

The debate over the controversial practice of child marriage in Saudi Arabia was pushed back into the spotlight this week, with the kingdom’s top cleric saying that it’s OK for girls as young as 10 to wed.

“It is incorrect to say that it’s not permitted to marry off girls who are 15 and younger,” Sheikh Abdul Aziz Al-Sheikh, the kingdom’s grand mufti, said in remarks quoted Wednesday in the regional Al-Hayat newspaper. “A girl aged 10 or 12 can be married. Those who think she’s too young are wrong and they are being unfair to her.”…

Late last month, a Saudi judge refused to annul the marriage of an 8-year-old girl to a 47-year-old man.

The judge, Sheikh Habib Abdallah al-Habib, rejected a petition from the girl’s mother, whose lawyer said the marriage was arranged by her father to settle a debt with “a close friend.” The judge required the girl’s husband to sign a pledge that he would not have sex with her until she reaches puberty.

Wall Street Journal: ‘Pay Collars Won’t Hold Back Wall Street’s Big Dogs’

While a pay cap for financial executives punishes yesterday’s fools, it may inadvertently create tomorrow’s culprits.


More than 70 percent of firefighters who retired in the past five years did so on disabilities – hiking the cost of taxpayer-funded FDNY pensions to nearly $1 billion a year, a Post analysis shows. At the same time, a rise in final-year overtime racked up by firefighters – even those retiring on disabilities – has boosted pension costs…

N.Y. Daily News: ‘Bloody mob chop shop could become school bus depot’


Wall Street Journal: ‘Soaring Job Losses Drive Stimulus Deal’

Bloomberg: ‘U.S. Said to Hire N.Y. Bankruptcy Lawyers to Advise on Automakers’ Bailout’

A law firm with bankruptcy expertise, three capital-markets lawyers and an investment bank are advising the U.S. government on how to restructure General Motors Corp. and Chrysler LLC, two people involved in the work said.

New Yorker: ‘Can We Transform the Auto-Industrial Society?’

The present and impending disorder of the automobile companies is a reminder, even more than the decline of the housing and banking industries, of the desolation of the Great Depression. It is a reminder, too, of economic history, or of the rise and decline of industrial destinies.

N.Y. Daily News: ‘Final nails in coffin for city welfare burial fund’

Wall Street Journal: ‘Railing Against the Rich: A Great American Tradition’

The Great Depression of the 1930s created hardship and suffering among millions of Americans. It also created populist resentment of elites. Among the many signs of this anger was the astonishing popularity of Huey P. Long, governor of Louisiana and then U.S. senator, a figure so dominant in his own state that his enemies called him a dictator. But to the ordinary people of Louisiana — and later to millions of ordinary people across the U.S. — Mr. Long was a heroic figure, fighting for the “common man” and challenging the right of elites to monopolize power and wealth….

Crain’s New York Business: ‘NYC, London vie for the bottom’

Bloomberg: ‘Fed Calls Emergency Consultants to Triage and Treat AIG, Stricken Markets’

Every Sunday night, New York bankruptcy lawyer Marshall Huebner spends a 13-hour shift on call as an emergency medical technician. His day job involves work on another sort of rescue: The government’s $152.5 billion bailout of American International Group Inc.

Wall Street Journal: ‘Summers Crafts Broad Role in Reshaping Economy’

Onion: ‘Liberals Horrified By Lack Of Inexperience Among Obama Appointees’

Bloomberg: ‘Notre Dame Cathedral, Louis XIV Chateau Reap Bonanza From France’s Crisis’

For Paris’s Notre Dame Cathedral, the economic crisis is turning into manna from heaven.

Bloomberg: ‘India Bucks Global Auto Trend After Rate Cuts Spur Record Sales at Suzuki’

After six months of deliberating whether to buy a car, Mumbai real-estate agent Abraham Mathew took out a 300,000 rupee ($6,200) loan to buy a Suzuki Motor Corp. sedan. The clincher: a 20 percent drop in interest rates.

IRIN: ‘Homeless Gazans struggle to find shelter’



Gary Ackerman’s blast at SEC? Just theatrics from AIPAC loyalist who once took cash from Bernie Madoff.

Yeah, yeah, blah, blah: Ackerman at last shows interest in the SEC’s operations.

Congressman Gary Ackerman‘s rip-snorting attack on the SEC for not catching Bernie Madoff‘s scam is good entertainment, but it’s only bluster to impress his constituents who got took.

Still, it’s not a bad dog-and-pony show from a congressman who used to take campaign contributions from Madoff, as federal records show.

Despite his spot as vice-chair of a subcommittee overseeing the SEC (which presupposes that he had an interest in Wall Street’s functioning before he assumed that post), Ackerman showed practically no interest in the SEC’s operations until the current Wall Street meltdown.

An examination of bills sponsored by the longtime but relatively low-ranking congressman reveals few measures relating to the SEC. Actually, I could find only one or two, and they were recent. (Please, Gary, correct me if I’m wrong.)

Who should really care what these House members say to the SEC? They’re just posturing. The real can of whup-ass was opened yesterday by whistleblower Harry Markopolos.

Ackerman’s own blistering attack on the sitting-duck SEC officials is easily explained: The congressman represents parts of Queens and Long Island, but he also represents conservative Jews across the country and in Israel as one of Jewish-hawk lobby AIPAC’s most ardent loyalists. Madoff’s scam deeply cut into that constituency of Ackerman’s. Shouting “Shonda!” at the SEC should keep him in good stead with those folks.

He may not have been too active on the SEC front until recently, but Ackerman has over the years introduced a slew of bills at the behest of AIPAC and even the Israeli government.

Not to mention the fact (which I’ll mention again) that, back in the ’90s, Madoff himself (also a Democrat and ardent supporter of Israel’s government) gave Ackerman $1,200 in campaign donations.

Known as a social-issues liberal but a firm friend of Israel’s hawks, Ackerman did Israel’s and AIPAC’s bidding last May, as Ira Glunts noted last summer:

Ordinarily, the American Israel Policy Action Committee (AIPAC) has an influence on U.S. foreign policy which goes unchallenged. In the case of the current House resolution, H. Con. Res. 362, despite the intense pressure exerted by AIPAC, some members of the United States House of Representatives who initially were about to rubber stamp this reckless non-binding resolution promoted by the powerful pro-Israel lobbying group, are having a change of heart. After receiving many thousands of messages which pointed out that the resolution could be interpreted as Congressional authorization for military action against Iran, some legislators began expressing their own reservations.

On May 19, 2008, a 12-member House delegation led by House Speaker Pelosi met with Israeli Prime Minister Ehud Olmert. At that lunch meeting, Olmert proposed that a naval blockade be imposed on Iran in order to stop its uranium enrichment program. Present at this meeting were: Majority Leader Steny Hoyer, House Foreign Affairs Committee Chairman Howard Berman, and AIPAC loyalists Reps. Nita Lowey and Gary Ackerman. Three days after this meeting, Mr. Ackerman introduced the resolution H. Con. Res. 362 in the House….

Many people, already alarmed by U.S. and Israeli saber-rattling, were startled at the aggressive tone of the AIPAC resolution. They reacted especially adversely to the clause prohibiting imports of refined petroleum which appeared to demand a blockade. Even if a blockade did not materialize, passage of the resolution could be understood by the Bush administration as a Congressional authorization for the use of force against Iran.

At the very least, passage of H. Con. Res. 362 would indicate a lack of Congressional resolve to prevent the U.S. from expanding America’s Middle East war to Iran. This is especially worrisome in light of the fact that, as Seymour Hersh has written in The New Yorker, a Congressional delegation led by Nancy Pelosi has already authorized 400 million dollars for covert operations in Iran aimed at arming dissident groups and subverting Iranian nuclear sites.

Ackerman’s middling career in Congress has been dominated by his continual introduction of measures aggressively favorable to Israel. See the Jewish Daily Forward for a 2006 account of Ackerman’s power as an extension of AIPAC in Congress. Too bad he wasn’t focused more on the SEC back then.



Daily Flog: California, here we go; crisis also sweeps through Asia

Like a game of Risk played on speed, big investors are scurrying around the world looking for hiding places from which to make their last stand. Asian markets are now feeling the impact of the Fall Street fallout.

Things are so strange that the Bush Administration is even on the verge of nationalizing banks, as I noted last night. Republicans veering toward socialism. OK, even in the good times we already had a deeply entrenched corporate-welfare system, and maybe this is just nationalized health-care for banks, but still . . .

Hunkered down in the States, I’m one Okie who’s glad he already fled East. This morning’s Wall Street Journal story “First Into Recession, California Shows Possible Future for U.S.” explains why it might be safer to keep living in the Dust Bowl or anyplace other than the formerly Golden State:

Here’s the latest trend that started in California and is spreading to the rest of the country: recession.

It’s all but certain the U.S. economy is in a recession, as falling home prices and Wall Street turmoil have put the brakes on consumer spending and stoked unemployment. But California got there first. Now, the state provides a template of how a broad U.S. downturn could look.

With its export businesses, manufacturing sector, professional services and big retail employers, California looks like many other U.S. states, only more so. California’s $1.8 trillion economy — twice the size of India’s and accounting for about 15 percent of the U.S. gross domestic product — is powerful enough to have ripple effects nationally. It is home to Hollywood, five of 30 Major League Baseball franchises and the largest farming sector in the nation.

California was also at the leading edge of the nation’s recent housing bubble, which is where its current problems started. Home prices in California rose higher and faster than in most of the U.S., and started weakening earlier, in 2005. Some mortgage-holders defaulted. Others struggle along under a mountain of debt.

The problems spread to the state’s financial sector, which was heavily exposed to local real estate. As Californians cut their spending, job losses spread from the housing sector to retail stores and auto dealers. Now the state’s unemployment rate is 7.7 percent, among the highest in the nation.

A lot of Californians are probably kicking themselves for having listened to Governor Arnold Schwarzenegger when he said, “Come with me if you want to live!”

Run in the opposite direction. And don’t worry: You can still race for cover in some pimp kicks. The bad news from California and the Asian markets doesn’t mean that you have to rush to FootLocker — the Asian sweatshops that manufacture your sneakers are still functioning abnormally.

As for the good things? Forget it. Like book-review sections in newspapers, good things are already getting sliced by the bad times. For instance, this sad news for huggers of trees and the solar-energy industry: Surviving investment bank Goldman Sachs “slapped sell ratings on the two largest publicly traded U.S. solar power firms, with the broker flagging the possibility of oversupply as overseas subsidies dry up in the face of the global economic meltdown,” MarketWatch has reported.

While the investment bank’s former CEO, Treasury Secretary Henry Paulson, is bailing out banks, Goldman analyst Michael Molnar is single-handedly dooming prospects for the alternative-energy industry around the world:

“The risk of oversupply in the solar market will soon become a reality as considerably less generous demand subsidies take hold just as a wave of supply and tight financing hit the market,” Molnar said in a note to clients. “We believe that liberal subsidies of the past in markets like Germany and Spain are unlikely to be replicated in the future given fears of their ultimate cost in a bad world economy.”

Great news for Big Oil, which, as I previously pointed out, is already sitting on big piles of cash.

It figures that oil would remain more liquid than other industries, but in this case the liquid is green and it hasn’t peaked.

While everyone’s frantically looking for cash, Big Oil and the private-equity dweebs are sitting on billions, just waiting for things to bottom out before they swoop in and snatch up companies for pennies on the dollar.

For the rest of us? If you think things are bad now, just wait. That’s the word from China, which is about to replace the U.S. as the 21st century superpower. In an interview with the China rag 21st Century Business Herald (reprinted in Beijing Review), big-cigar banker Wang Zili says:

It’s widely believed that the U.S. financial crisis has reached a peak. I personally estimate that another one or two financial giants will fall victim to the debacle, accompanied by the collapse of an array of medium-sized investment banks. With gloomy sentiment taking hold over the markets, there is no end to the crisis yet in sight. Since signs of credit stress are proliferating in the markets, the engines of the U.S. economy, which relies on credit to fuel growth, have essentially been stuck.

But what’s worse is that U.S. financial credit may even dry up if massive global capital flees the U.S. capital markets to stave off further losses. If that occurs, the hopes of containing the damage to the financial system will evaporate. In other words, the real economy will also be woefully pinched. That would be the greatest depression in the country since its founding, substantially denting its overall strength.

The world financial crisis wasn’t exactly helped by an exceedingly gloomy forecast by the International Monetary Fund. As the Financial Times reported on market action early yesterday:

A grim warning from the International Monetary Fund sent shudders through Asian equity markets on Wednesday.

Japanese shares dropped 9.4 per cent — their biggest one-day fall since 1987 — in a grey day for Asian equities as fears deepened that more financial institutions would fail after the IMF said the global banking sector may need $675bn of fresh capital.

If you want to scare yourself, see the transcript of yesterday’s IMF “World Economic Outlook” press conference in D.C.

Does this make you want to lace up your Nikes and start running? Wait, here’s more stuff, old and new . . .


Al Jazeera: ‘Arab markets continue to dive’

The Oil Drum: ‘How Much Nationalization Is Appropriate?’

Terrorism Monitor: ‘Is the U.S.-Pakistan Alliance Against Terrorism Coming to an End?’

United for a Fair Economy: ‘Executive Excess 2008: How Average Taxpayers Subsidize Runaway Pay’

Institute for Policy Studies: ‘A Sensible Plan for Recovery’

Students for an Orwellian Society: ‘Big Brother Bush’s Eighth State of the Allied Bloc Nations Address’

Waxman Committee: ‘Hearing on the Causes and Effects of the AIG Bailout’ (video) ‘McCain: “Bomb Bomb Bomb, Bomb Bomb Iran” ‘ (video)

CounterPunch: ‘The Debate in Nashville: Imbecilic Tedium’ (Alexander Cockburn)


Daily Flog: Wall Street’s little piggies don’t want to go mark-to-market; meanwhile, more huffing and puffing

The Senate grabbed hold of the Cash for Crash bill and finally came up with a workable version — one that may work for the Wall Street crapshooters but likely not for the rest of us, who are simply loaded dice in the palms of their hands.

Part of the complex maneuverings supposedly aimed at keeping the country from sliding into Great Depression II revolves around “mark-to-market accounting” of the assets that Wall Streeters have played with to the point of, literally, no return.

Yeah, like you, I have only a hazy understanding of this. Those who are financially alliterate are welcome to read this morning’s New York Post story “PIGGY POLS IN HOG HEAVEN WITH PORK-PACKED PACT.” Daphne Retter’s funny, funky take brings a little light to an otherwise dark day of journalism:

Here, little piggies!

Congressional deal-brokers yesterday slopped a mess of pork into the $700 billion financial rescue bill passed by the Senate last night — including a tax break for makers of kids’ wooden arrows — in a bid to lure reluctant lawmakers into voting for the package

Stuffed into the 451-page bill are more than $1.7 billion worth of targeted tax breaks to be doled out for a sty full of eyebrow-raising purposes over the next decade.

More to the point of your financial future and such no-longer-arcane topics as mark-to-market accounting, lower your eyebrows, peer through this morning’s financial fog and try to grab for this guidepost: Bankers and conservative Republicans (including former anti-populace populist Newt Gingrich) favor the abandonment of mark-to-market accounting rules. To which auditors, big investors, and consumer groups reply, “Are you out of your friggin’ minds?”

Think of it like the nursery rhyme that goes, “This little piggy went to market . . .”, and add some huffing and puffing by wolves that may eventually knock down millions of American homes.

In the present case, these little piggies went to mark-to-market, and now they want to remove that accounting rule so they can instantly wipe out their losses on the books and resume playing their Neverland gambling games with our money.

In essence, the new Senate version of the bailout bill would let Wall Streeters lie even more about the value of the assets they’re trading and set us up for a rerun of the Enron scandal.

That should help things.

Or maybe the financial system is so fouled up and so wedded to its inherently corrupt trading instruments and practices that abandoning mark-to-market accounting really would help restart the credit markets and protect you from foreclosure.


And where has Wall Street’s mayor, Mike Bloomberg, been in all this? I pointed to Bloomberg’s culpability on September 23, and now the New York Times is dipping its toe into the topic. The Times, of course, is making excuses for him. See this morning’s “Mayor’s Stewardship Is Mixed, Fiscal Experts Say.”

Enough on Bloomberg and more on the important mark-to-market piece of the corporate-bailout bill below, but first . . .


Wall Street Journal: ‘Fed Considers Rate Cut as Recession Fears Mount’

Slate: ‘How to Debate a Girl, and Win’ (Dahlia Lithwick)

BBC: ‘Tanzania disco stampede kills 19’

N.Y. Times: ‘Stopping a Financial Crisis, the Swedish Way’

Jurist: ‘Ohio to proceed with absentee voting after courts rule on registration requirements’

N.Y. Times: ‘Surveillance of Skype Messages Found in China’


N.Y. Times: ‘Studios Sue to Bar a DVD Copying Program’

Wall Street Journal: ‘Bombs Hit Shiite Worshippers in Baghdad’


Wall Street Journal: ‘Analyzing the “Twelve Tribes of Politics” ‘

McClatchy: ‘What’s in that Senate bill? Something for everyone.’

Agence France Presse: ‘Enron-era accounting reforms blamed in financial crisis’

Far Eastern Economic Review: ‘The Great Crash of China’

Back to the dust-up over the new bailout bill’s endorsement, in effect, of abandoning mark-to-market accounting:

Over at, John R. Simpson issues a fire-and-brimstone warning: “New ‘bailout’ tactic would let fat cats cook books.”

Stirring the pot, today’s Wall Street Journal story “Momentum Gathers to Ease Mark-to-Market Accounting Rule” explains things pretty well. Elizabeth Williamson and Kara Scannell craft a succinct lede:

The banking industry and a band of lawmakers have used the scramble to salvage the financial-markets rescue plan to give new life to an industry push to avoid billions in further write-downs with the stroke of a regulatory pen.

It would just further cloud matters for me to try to paraphrase this, so here’s how Williamson and Scannell lay it out:

A proposal contained in the revised financial-rescue bill the Senate considered Wednesday reaffirms the Securities and Exchange Commission’s existing authority to suspend “mark-to-market” accounting. The language was meant to send a message to the agency to re-evaluate the issue.

The practice, adopted in the aftermath of the savings-and-loan collapse in the 1980s, pegs the value of assets to their current market price, rather than the price paid for them. Banks have complained the strict application of mark-to-market rules has forced them to write down billions of dollars worth of mortgage-related securities, intensifying the squeeze in the credit markets.

Critics of the proposed changes to the “mark to market” rules say gains created by easing the rules would be illusory and would delay resolving genuine doubts about the value of mortgage assets that has caused the recent crisis in confidence.

As Bloomberg’s Jesse Westbrook reported Tuesday, conservative Republicans might very well have supported the House version of the bailout bill if the SEC had suspended mark-market accounting rules.

For background, see “Auditors Resist Effort To Change Mark-to-Market,” in Tuesday’s Wall Street Journal, in which Judith Burns wrote:

U.S. accounting firms, which had been silent on the $700 billion financial-rescue package rejected by the U.S. House of Representatives on Monday, are opposing congressional efforts to scrap mark-to-market accounting rules. . . .

Some House members advocate scrapping mark-to-market accounting altogether as a way to help lenders holding mortgage loans and securities whose value have fallen sharply. Consumer groups have balked at the idea, and accounting firms are about to jump in as well, fearing such a change could deceive investors about the value of troubled loans and mortgage-backed assets.

Let the staggeringly diverse gaggle of opponents of abandoning mark-to-market accounting speak for themselves. This is what they told the WSJ‘s Burns and Bloomberg’s Westbrook:

“It’s just bad for investors,” said Beth Brooke, global vice chair at Ernst & Young LLP, in Washington, D.C. “Suspending mark-to-market accounting, in essence, suspends reality.”

“It’s absolute idiocy,” said Barbara Roper, director of investor protection for the Consumer Federation of America. “Allowing companies to lie to investors and lie to themselves is not the solution to the problem, it is the problem.”

“Suspending the mark-to-market prices is the most irresponsible thing to do,” said Diane Garnick, who helps oversee more than $500 billion as an investment strategist at Invesco Ltd. in New York. “Accounting does not make corporate earnings or balance sheets more volatile. Accounting just increases the
transparency of volatility in earnings.”

Still unclear? In NPR’s “Senate OKs Bailout Package, House to Vote Friday,” Dina Temple-Raston tries to explain:

Although senators approved the bailout plan, lawmakers aren’t out of the woods yet. Conservative Republican members of the House are still calling for some sort of mandatory insurance program that financial firms would be required to buy, but it is unclear how the program would work.

They have also asked for the Securities and Exchange Commission to suspend mark-to-market accounting rules and instead require bank regulators to assess the real value of troubled assets.

Mark-to-market accounting essentially allows Wall Street firms to value (or “mark”) the assets in their portfolio based on current market prices. The problem, critics say, is that under that accounting rule, sliding home prices affect not just the value of mortgages that are defaulting but of all mortgages — and therefore, of all mortgage-backed securities.

That, in turn, affects how much capital firms are required to have on hand to cover their debt exposure. And to raise that capital, firms end up having to sell other assets — which drives the price of those assets down, too. In other words, they say, mark-to-market accounting can lead to a downward spiral.

House Democrats have been opposed to both a change in mark-to-market accounting rules and to the insurance provision. It is unclear how they will work out those differences or how much the House will tinker with the bill when they get it. That said, the sense on the Hill is that everyone wants to get the vote behind them, key lawmakers say.

That’s reassuring that our lawmakers — like pro athletes and philandering pols — want to pull out the hackneyed reasoning to say that all they want to do is get their past mistakes “behind them.” In real time, however, the train is still hurtling down the track toward us.


Daily Flog: The Wall Street bear, the Capitol Hill bull; Kucinich irrelevant but his bailout plan isn’t

Running down the press:

Face it: Capitol Hill’s bailout schemes are Marxist. The only question is which Marx: Groucho or Karl?

House Finance Committee Chairman Barney Frank opts for the former.

His tragicomic analysis last weekend came in a Wall Street Journal story that is one of the finest pieces of journalism yet on the bailout maneuverings. Read the September 29 story for free on The Australian site; here’s the key passage, which you may have seen but bears repeating:

Democrat Senator Max Baucus of Montana, chairman of the Finance Committee, became frustrated that Mr Paulson appeared to be arguing for softer language on the executive-pay rules, arguing that executives at these companies shouldn’t be handsomely paid.

“Let’s not get emotional,” Mr Paulson responded, according to someone in the room.

Mr Paulson also objected to language that would give a new oversight board power to control how the new program would be run. “All we’re talking about is having Groucho, Harpo, and Chico watching over Zeppo,” said Rep. Frank, before Democrats backed off.

By the time the meeting ended around 5.30pm in Washington, lawmakers were breaking up into smaller working groups. Sandwiches and pizza were delivered later in the evening. Many lawmakers continued grazing on a big bowl of pistachios in Speaker Pelosi’s office.

Nuts to them.

The best bailout plan so far may be the one pushed by Dennis Kucinich, whose House floor speech calling for a real bailout for the doomed majority of Americans was cut off by the Democratic leadership.

Kucinich’s clever plan is aimed at protecting millions of Americans after — no matter what manner of bailout Congress approves — the shit inevitably rolls downhill from Wall Street.

See “Kucinich: Bailout Must Protect Home Ownership” — on his own site because even the press belittles Kucinich and other little guys — for his letter to Nancy Pelosi and Barney Frank and backup material from an Emory University prof. And see his full September 30 statement, reproduced in the tiny Cleveland Leader.

Kucinich is this century’s H. Ross Perot — but unlike Perot, Kucinich has a social conscience.

Speaking of those who don’t: What the “free-market” advocates won’t face is that their 21st century corporate-welfare plan is also straight from Karl Marx.

As Martin Masse of Toronto’s National Post business page noted on September 29 in ‘Bailout marks Karl Marx’s comeback: Marx’s Proposal Number Five seems to be the leading motivation for those backing the Wall Street bailout’:

In his Communist Manifesto, published in 1848, Karl Marx proposed 10 measures to be implemented after the proletariat takes power, with the aim of centralizing all instruments of production in the hands of the state. Proposal Number Five was to bring about the “centralization of credit in the banks of the state, by means of a national bank with state capital and an exclusive monopoly.”

If he were to rise from the dead today, Marx might be delighted to discover that most economists and financial commentators, including many who claim to favour the free market, agree with him.

Indeed, analysts at the Heritage and Cato Institute, and commentators in the Wall Street Journal . . . have made declarations in favour of the massive “injection of liquidities” engineered by central banks in recent months, the government takeover of giant financial institutions, as well as the still stalled US$700-billion bailout package. Some of the same voices were calling for similar interventions following the burst of the dot-com bubble in 2001.

Hail, Freedonia!

But that jingoistic pledge of allegiance to the “Land of the Spree, and the Home of the Knave” that Groucho ran into the ground in the Depression-era Duck Soup (1933) won’t help the average American hang onto the commune he or she bought with an adjustable-rate mortgage.

Angry voters deluged Congress earlier this week when details of the first corporate-welfare bailout were revealed — see this morning’s New York Times story “Labeled as a Bailout, Plan Was Hard to Sell to a Skeptical Public.”

Now the market has staged a revival and a revised bill faces a vote later today in the Senate, but the pols — only a few weeks from the election — wised up, refusing to reveal its details until shortly before the vote.

We no doubt will eventually be trampled by Wall Street’s raging bulls — once the bailout bill restores their dominion over the bears — but things could always be worse. As the Times reports this morning in “Stampede in India Kills at Least 147”:

A religious festival in northern India turned into a horrific deadly crush on Tuesday as thousands of Hindu pilgrims stampeded at a temple shrine, piling into one another on a treacherous walkway slick with spilled coconut milk. Officials said at least 147 people, mostly men, suffocated.

Television showed dead pilgrims strewn on the narrow walkway near the Chamunda Devi temple, at the southern edge of the 15th-century Mehrangarh fort in Jodhpur, in the western state of Rajasthan. It was the second deadly religious tragedy in the past few months in India, where pilgrim stampedes are not uncommon. The victims were suffocated as they rushed down a narrow path from the temple 150 yards above, officials said.

Tuesday was the first day of a nine-day festival called Navratra that celebrates nine incarnations of the Hindu mother goddess Durga. Between 2,000 and 3,000 pilgrims were present when the stampede began about 6 a.m.

Don’t cry over spilled coconut milk; today’s another day. While you try to steer clear of Wall Street’s latest incarnation of a corporate-welfare bill, have another triple-shot espresso and take a break for some browsing . . .


N.Y. Daily News: ‘Murders send city crime rate upwards’

Scotsman: ‘Teenager in £7 million lottery win toasts luck with beans’

AP: ‘Pentagon announces 2009 deployments to Iraq’

BBC: ‘Iraq remains “locked in conflict” ‘

Washington Post: ‘Bush’s Warnings of Danger Are No Longer as Powerful’


N.Y. Daily News: ‘Third term, Mayor Bloomberg? That’s rich!’

Slate: ‘The Black President: A 1926 Brazilian sci-fi novel predicts a U.S. election determined by race and gender’

Scotsman: ‘How predicted empty hives would mean end of the world’

N.Y. Times: ‘Bloomberg Said to Seek Third-Term Bid’

Register (U.K.): ‘Movie giants sue RealNetworks over DVD copying software’

BBC: ‘US drone “kills six” in Pakistan’

Jurist: ‘Ex-CIA official pleads guilty to wire fraud in defense contract corruption case’

Washington Post: ‘Those Up for Reelection Have Explaining to Do’

BBC: ‘Bail-out hope sends shares higher’

Register (U.K.): ‘Boffins dreaming of white Xmas at Martian North Pole’

Register (U.K.): ‘Elvis has left the border: ePassport faking guide unleashed’

Register (U.K.): ‘Secret Service camera bought on eBay’

Register (U.K.): ‘Nasty web bug descends on world’s most popular sites’

St. Petersburg Times (Fla.): ‘Outcry raised over voter ID law’

Jurist: ‘US Senate approves expiration of moratorium on offshore oil drilling’

BBC: ‘Canada PM faces plagiarism claim’

N.Y. Daily News: ‘911 call led to loopy Heather Locklear arrest’

nineMSN (Australia): ‘Wealthy investors hoard bullion’

Slate: ‘Your DVD Player Sleeps With the Fishes’



Daily Flog: White House on its knees, the rest of us on our backs, Wall Street zipping up

We feel the bankers’ pain.

Running down the press:

A surprisingly lively New York Times lede this morning:

[Yesterday] began with an agreement that Washington hoped would end the financial crisis that has gripped the nation. It dissolved into a verbal brawl in the Cabinet Room of the White House, urgent warnings from the president and pleas from a Treasury secretary who knelt before the House speaker and appealed for her support.

“If money isn’t loosened up, this sucker could go down,” President Bush declared Thursday as he watched the $700 billion bailout package fall apart before his eyes, according to one person in the room.

Not since the Clinton Administration has it been widely reported that people were on their knees in the White House and that a president talked about a sucker going down.

And this time it’s a Treasury secretary on his knees, not just an intern. This is some serious shit.

Or not. McClatchy’s Kevin G. Hall, who constantly snoops for fresh angles and comes up with solid material, writes in “Is the bailout needed? Many economists say ‘no’ “:

“It’s more hype than real risk,” said James K. Galbraith, a University of Texas economist and son of the late economic historian John Kenneth Galbraith. “A nasty recession is possible, but the bailout will not cure that. So it’s mainly relevant to the financial industry.”

The Paulson plan will get some bad assets off the balance sheets of troubled Wall Street institutions and commercial banks. That may help thaw the lending freeze.

But it wouldn’t reduce the crush of homes in or near foreclosure, said Simon Johnson, a professor at the Massachusetts Institute of Technology. That’s a problem that will surely grow worse if the U.S. economy enters recession, leading to greater job losses, which feed a vicious downward spiral of even more foreclosures and defaults on car loans and credit-card debt.

What? A story in the national press about the plight of the rest of us? How dare he!

John McCain‘s own September surprise isn’t working out too well, as another McClatchy story points out. In “McCain gets blamed for angry end to Bush’s bailout meeting,” David Lightman and Margaret Talev write:

“What this looked like to me was a rescue plan for John McCain,” said Senate Banking Committee Chairman Christopher Dodd of the Republican objections.

His reference was to McCain’s eleventh-hour intervention in the negotiations, when he declared he was suspending his campaign and postponing Friday night’s debate with Democrat Barack Obama to help negotiate a bailout plan.

Democrats think that Republicans were backing away from a compromise many of them agreed to earlier Thursday — without McCain’s involvement — in order to give McCain time to play a role and perhaps appear as a rescuer.

Senate Majority Leader Harry Reid, D-Nev., said he believed the breakdown was simply an effort to allow McCain to miss Friday night’s scheduled debate with Obama. . . .

Republicans, in contrast, said their reservations on the bailout plan were principled. The plan, they said, had too much government involvement in private industry and too high potential liabilities for taxpayers.

Yes, “principled.” Buy or sell? Sell.

No question that the month has been tough on McCain, but just think about those poor mid-level banker types on Wall Street, which is just a little more than a stone’s throw from my office. (If I had an arm like Rocky Colavito‘s and a bag of stones, I’d take the subway down there and start hurling, instead of just hurling over my latest bank statement.)

Anyway, in “Big banks delay decisions on bonuses,” the Financial Times (U.K.) reports on the plight of British bankers’ bonuses, which depend on how U.S. firms decide their own bonuses:

Morgan Stanley and Goldman Sachs are delaying their decisions about year-end bonuses as they struggle with the financial crisis.

The US investment banks have traditionally set the bar for European and American competitors because their fiscal years end earlier. But the two, which have been forced to seek regulated retail bank status, are putting off their October meetings on bonuses until they have greater clarity about the fourth quarter.

[B]anks have warned that bonus pools will be cut sharply and that top performers will get the bulk of the money. “A falling tide lowers all boats but some people will end up above the river on stilts,” said one bank executive.

Well, we appreciate that news from the other side of the pond that at least we won’t all drown. I’m certainly looking forward to my own bonus. I hope those bananas at the Astor Place kiosk are still only 35 cents apiece.

And here’s a September surprise, again courtesy of the FT, whose Cash for Crash coverage rocks and is free for the viewing. In “Hedge fund chief warns on wrongdoing,” Gillian Tett and James Mackintosh report a frank admission from a financial-world insider:

Investigators and regulators are likely to uncover significant evidence of wrongdoing when they examine the records of some of the financial companies that have failed, a leading short-selling hedge fund manager claimed.

Jim Chanos, head of Kynikos Associates, believes that some of the public statements that emerged from some of the best-known financial groups could have been seriously misleading.

“I do think that what we are going to find out, when regulators and law enforcement people get into some of these firms which have failed, was that . . . the statements which people were making were materially misleading, if not criminal,” he said in a video interview on “It is going to shock people…the extent of the deception to the market.”

Chanos is of course saying this as a defense of short-selling, setting up the argument you’ll hear in the coming years that there’s a big difference between conniving and illegal conniving.

And here’s something else in this FT story that comes as absolutely no surprise:

Lawyers in both the US and London are considering lawsuits, many of which are likely to revolve around the extent to which bank executives knew about risks in their businesses.

Weary of skipping around the web? Do some one-site shopping this morning. Here’s a clump of readable FT stories that you could skim through and try to choke down over your third cup of coffee — remember to take small bites and chew thoroughly unless you want to spit up hairballs later in the day:

‘US “will lose financial superpower status” ‘

‘Church accused over short selling’

‘WaMu seized and sold to JP Morgan’

‘Flight from Morgan Stanley brokerage’

‘Nomura offers bonuses to Lehman staff’

‘CVS is added to ban list on short selling’

At least one of my Voice colleagues is staying focused on the presidential race: See Lynn Yaeger‘s “How I’m Contributing to McCain’s Campaign Suspension.”

And now . . .


N.Y. Times: ‘In Storm’s Aftermath, Cow Roundups in Southeast Texas’

N.Y. Daily News: ‘Shoplifter turns in Brooklyn rapist’

Washington Post: ‘Health Insurance Costs to Spike an Average 8 Percent’

Slate: ‘Things Fall Apart’

BBC: ‘Arming the Taleban’

Washington Post: ‘U.S. Has Achieved “Victory” in Iraq, Palin Tells Couric’

Haaretz: ‘Jewish terrorists tried to murder left-wing professor’

Washington Post: ‘Away from Wall Street, Economists Question Basis of Paulson’s Plan’

IRIN: ‘Charity coffers face credit crunch’

Washington Post: ‘Carbon Is Building Up in Atmosphere Faster Than Predicted’

Haaretz: ‘Peres: U.S. has no choice but to save world from Ahmadinejad’

Washington Post: ‘Negotiations Falter on Financial Bailout Package’


Washington Post: ‘Debate Remains In Limbo’

L.A. Times: ‘Palin talks to Couric — and if she’s lucky, few are listening’

Baltimore Sun: ‘McCain hints debate appearance “possible” ‘

Financial Times: ‘Ex-Merrill chief considers hedge-fund return’

Jurist: ‘US military commissions prosecutor resigns due to “ethical qualms” ‘

N.Y. Times: ‘Pakistani and American Troops Exchange Fire’


Daily Flog: In NYC, the end of the houses that Ruth and ruthlessness built

History was unmade this weekend in New York City: In the Bronx, the closing of the House That Ruth Built, and in lower Manhattan, the closing of the houses that ruthlessness built.

A double dose of tears for those Wall Street investment bankers in their skyboxes at Yankee Stadium.

A double dose of publicly subsidized bailouts for both the Yankees and the investment banks.

But first . . .


MarketWatch: ‘End of capitalism as we know it’

Telegraph (U.K.): ‘Islamabad hotel blast ‘was Pakistan’s 9/11’


The Register (U.K.): ‘Sockpuppeting civil servant Wikifiddles himself’

McClatchy: ‘Congress’ fiscal conservatives declare free market “dead” ‘

Jurist: ‘Former Special Forces officer wins transgender discrimination lawsuit’

Financial Times (U.K.): ‘Taxpayers shoulder trillion-dollar deficit’

N.Y. Times: ‘Foreign Banks Hope Bailout Will Be Global’

Wall Street Journal: ‘Goldman, Morgan Scrap Wall Street Model, Become Banks in Bid to Ride Out Crisis’

Financial Times (U.K.): ‘Obama Targets Wall Street Greed’

Running down the press:

The closing of Yankee Stadium prompted a bevy of retired baseball players to hitch up their belts over their big bellies and weigh in, but the best quote in the past few days came from former Detroit Tigers pitcher Jim Bunning:

“The free market for all intents and purposes is dead in America.”

McClatchy’s James Rosen, in his Friday story “Congress’ fiscal conservatives declare free market ‘dead,’ ” called that offering from the flame-throwing right-hander-turned-right-winger-Kentucky-senator a “knockdown pitch.”

And that was before the monumental news over the weekend that Wall Street’s investment bankers committed harakiri.

How did the press cover the news that Goldman sacks itself?

Sufferin’ seppuku! Pretty darn well! And with surprisingly large doses of reality, like this piece from the Financial Times (U.K.): “Taxpayers shoulder trillion-dollar deficit.” And this one from the Washington Post: “A Sense of Resentment Amid the ‘For Sale’ Signs.”

If Barack Obama weren’t black, he’d now be a shoo-in. After all, John McCain had pushed the GOP’s scheme (hare-brained even before Wall Street’s meltdown) to privatize Social Security. And the GOP (McCain included) has always preached deregulation. See this Wall Street Journal story for details: “Crisis Draws Attention to McCain Social Security Plan.” And then look at this one from the Financial Times (U.K.): “Obama targets Wall Street greed.”

If we had a parliamentary democracy, McCain and Obama would be duking it out on the floor of Congress, and not only would the fur fly but there would actually be meat on the killing floor. Instead, we’ll have to put up with the lame-ass, tame-ass TV “debates” moderated, massaged, and manipulated by the mainstream media. But the first debate, Friday, ought to be more interesting in light of Wall Street’s collapse.

In any case, New York’s days as the world’s financial capital may be numbered, but ruthlessness hasn’t disappeared. Wall Street’s self-destruction heralds the true end of U.S. domination of the financial world. That’s probably true, but the private-equity folks who control billions of dollars will find other ways to pick at our carcasses.

Last week at least, the private-equity types were licking their chops. In Friday’s edition of Private Equity Online, a handmaiden to the vultures smugly wrote:

‘Cleaning up the carnage’

Buyout titans have said publicly the situation is unlike anything they’ve ever seen. However, there’s also a certain amount of calm present in the private equity industry, where nerves are less frazzled than in other corners of the financial world.

This is to do largely, of course, with private equity’s core principle: long-term investment horizons are less susceptible to public market volatility and periods of short-term distress.

But it’s also to do with the opportunities available to cash-flush firms, considering the more than $60 billion (€42 billion) in pure private equity assets that are now in play as a result of the meltdown.

“Core principle,” my dying ass. Drool and slobber are their principles. The newsletter’s anonymous author gets down to it:

The collapse of Lehman Brothers makes the sale (or spin-out) of all or parts of its investment management division even more imminent. The sale of Merrill Lynch to Bank of America has suddenly put a question mark over its private equity division. And AIG’s new US government owner could indeed decide to unwind the firm’s sizable alternative platform, which is sure to include attractive assets despite the prospect of cumbersome government-run auctions.

Secondaries firms are already rubbing their hands in anticipation – one secondaries specialist told PEO his recent meetings in New York made him feel like “a kid in a candy shop”. And many big buyout shops are reportedly interested in buying the franchises outright.

Some of the private-equity scumbags (my word, not theirs) have already started infiltrating the “normal world” — at the request (insert shudder here) of Hank Paulson‘s rescue team:

David Zweiner, who joined The Carlyle Group little over a year ago to co-head its nascent financial services group, was selected last week as chief financial officer for struggling US bank Wachovia.

This week, the US government asked Clayton Dubilier & Rice operating partner Edward Liddy to take the helm at AIG. It also selected American Capital director John Koskinen for the board chairman role at troubled mortgage giant Freddie Mac, after having earlier in the month asked Carlyle senior advisor David Moffett to become chief executive.

And who knows where the lobbying for further corporate welfare will lead? Check out this morning’s Times harbinger, “Big Financiers Start Lobbying for Wider Aid”:

Even as policy makers worked on details of a $700 billion bailout of the financial industry, Wall Street began looking for ways to profit from it.

Financial firms were lobbying to have all manner of troubled investments covered, not just those related to mortgages.

At the same time, investment firms were jockeying to oversee all the assets that Treasury plans to take off the books of financial institutions, a role that could earn them hundreds of millions of dollars a year in fees.

Nobody wants to be left out of Treasury’s proposal to buy up bad assets of financial institutions.

So don’t start singing “The Internationale” just yet.

Go ahead, though, and download the global lefty anthem here, in any of 80 or so languages, including Billy Bragg‘s and Pete Seeger‘s versions. Or Maxx Klaxon‘s version.

If you can find it, you can even hum along to Tuli Kupferberg‘s “The New Internationale,” which encourages we “prisoners of stagnation” to arise.


Daily Flog: Hedgehog Day on Wall Street; no one’s selling greed short


Every morning, the same grim news from Wall Street, but first…


Telegraph (U.K.): ‘US “bad bank” to staunch toxic debt losses’

Bulletin of the Atomic Scientists: ‘How can we reduce the risk of human extinction?’

Dubai Weekly Newsletter: ‘Master plan of The Tiger Woods Dubai unveiled’


Slate: ‘Where Did the Government Get $85 Billion? Was it just lying around somewhere?

N.Y. Daily News: ‘Where’s the federal bailout for us little guys?’

Slate: ‘Cheney Unchained’

Kommersant (Russia): ‘Georgia War Spills Over to New World: Russia mobilizes Latin America for war against the U.S.’

L.A. Times: ‘Facebook reflects struggle over Islam’s role’


Running down the press:

It’s about time somebody got out the mallet and started playing whack-a-mole with hedge-fund hogs.

Now the U.S. and U.K. governments are calling a halt to short-selling? This was a questionably legal and unquestionably immoral and unethical practice long before the Great ’08 Crash.

Perhaps the best read this morning on the stock market’s suppurating sinkhole comes from Gordon Rayner at the Telegraph (U.K.), whose “Hedge funds clipped by short-selling ban” notes:

As the dust settled yesterday on the ruins of Britain’s fifth-biggest banking group [HBOS], there was little doubt as to the immediate cause of their misery – the hedge fund billionaires who have made a killing by playing poker with their livelihoods.

Rayner names names, including that of at least one New Yorker whose smile widened as the crash deepened:

Unlikely as it may have seemed even a week ago, HBOS was unable to withstand a sustained attack on its share price by mavericks who have such huge sums at their disposal that they can destroy major companies almost on a whim.

Take Philip Falcone, whose fund is said to have made £280 million by gambling that HBOS’s share price would plunge. Falcone, who has just paid £24 million in cash for a 27-room mansion in New York, has been nicknamed “The Midas of Misery” for his ability to make millions by betting on failing companies.

Falcone makes a convenient pantomime villain at a time when the nation desperately needs a hate figure. He earned a staggering £950 million last year through his hedge fund, Harbinger Capital Partners, while insisting: “It’s just money. It doesn’t define who I am.”

Rayner succinctly explains the short-selling scam and its impact, particularly when the stock market becomes as stable as a Slinky:

Mr Falcone is one of a select band of private fund managers who have made their money through the morally dubious practice of short- selling which, despite involving trading something you don’t own, is perfectly legal.

A short-seller will borrow shares from an institutional investor for a fee, agreeing to return them at a set time. The shorter sells the shares to a third party, gambling that the price will drop before they have to buy a similar number of shares to return to the lender on the set date. The difference in the price of the shares is the shorter’s profit.

Dodgy as this may sound, short-selling has been going on for hundreds of years, but the obliteration of HBOS – which has been squarely blamed on short- selling – forced the Financial Services Authority to take drastic action last night by banning short-selling of financial stocks.

Hedge fund managers (a hedge fund is a private investment fund offering the possibility of huge returns) control an estimated £2 trillion and their clout is so great that if they gang up against a company they perceive to be weak, there is little anyone can do to stop them bringing the company down.

In the same way that a donkey will become the favourite for a horse race if enough people bet on it, a company’s share price will be driven down if shorters sell enough of its stock, regardless of how healthy the company may be.

Of course, short-sellers stand to lose a fortune if share prices go up, so some have been suspected of using dirty tricks to illegally manipulate stock prices by spreading false rumours about the health of a company.

What make me laugh is the sanctimony of the huge pension funds — the ones holding your retirement money. Out of their own greed, they willingly loan the stock they’ve invested in with your money to short-sellers. It’s like your being the bank for crap-shooters who really have nothing to lose because your money hedges all their bets.

From today’s Wall Street Journal piece “SEC Issues Temporary Ban Against Short Selling”:

Calpers-California Public Employees’ Retirement System, the largest U.S. public pension fund, said it is no longer lending out shares of Goldman, Morgan Stanley or Wachovia. Lending of shares is an essential step in the short-selling process, and the move could help limit negative bets on those stocks. “We share a degree of concern about volatility in financials,” says Eric Baggesen, Calpers senior investment officer.

Meanwhile, New York Attorney General Andrew Cuomo said he was opening investigations into short sellers who he believes are trafficking in false rumors to manipulate the market. “No one is saying short selling caused this crisis,” Mr. Cuomo said in an interview. “I believe it’s possible that it’s been aggravated by illegal short selling — people passing on fraudulent information and conspiring to drive down the value of a stock.”

This WSJ story also reveals that now the hedge hogs are squealing on other rats — “Hey, man, don’t look at me!” — while defending their indefensible position. That’s a short-selling position for which there are no buyers. Anyway, the story continues:

Hedge-fund lobbying groups objected to the moves, saying regulators and executives haven’t presented any evidence of abusive or manipulative short selling.

“While this is all politically pleasing to the regulatory powers that be, the fact of the matter is that there has been no evidence presented of short sellers circulating false market rumors to drive down the price of stocks,” said James Chanos, a well-known short-seller and chairman of the Coalition of Private Investment Companies, a hedge-fund lobby group.

He says regulators are missing the point as the rules don’t address the large market of credit-default swaps, which are insurance contracts to debt instruments that trade outside of established exchanges and are unregulated. “The trading in those contracts dwarfs the trading in equities in financial firms. Until the SEC or Commodity Futures Trading Commission or whomever gets their hands around that, the banning of the short selling is meaningless,” Mr. Chanos said.

In a short sale, a trader sells borrowed stock, hoping it will fall in price, a practice that is permissible. In an abusive short sale, known as naked short selling, a trader never borrows any stock and doesn’t intend to deliver it to the buyer at a later date. Executives and regulators believe some traders are abusing the strategy to pummel shares of financial stocks.

Oh, so the hedge-fund industry, which is unregulated, is blaming another part of the money-changing industry that is also unregulated.

Another WSJ story reminds us of just how dangerous the Bush-Cheney regime’s scheme of privatizing Social Security would have been. Jerry Seib points out in his column:

Anyone want to talk about privatizing Social Security in this environment? Not likely. Imagine the national wailing and gnashing of teeth that would be going on right now if Social Security funds were in the hands of failing private financial institutions instead of the government.


Daily Flog: The Dow of panic; stocks and bondage; U.S. snatches gold

The rest of the world rushes to Wall Street to try to clean up the vomit and wipe Hank Greenberg‘s brow, but first . . .


Gulf News (Dubai): ‘Traffic violators pardoned if they offer body organs’

Wall Street Journal: ‘Worst Crisis Since ’30s, With No End Yet in Sight’

N.Y. Times: ‘Administration Trying for Spy Satellites Again’


CNBC: ‘Morgan Stanley Is in Talks with China for Fresh Funds’

L.A. Times: ‘Insurgents in Afghanistan show strength, sophistication’

China Daily: ‘3 Chinese banks hold $297m in Lehman debt – report’ ‘Speeding bus kills 14 in India’

MarketWatch: ‘Media’s Wimpy Wall Street Coverage’

Forum 18: ‘BELARUS: Orthodox complain of KGB intimidation at village funeral’

Running down the press:

As other countries’ banks join hands, sing “Kumbaya,” and try to bail out our financial system (WSJ: “Central Banks Take Coordinated Action”), don’t you worry about us New Yorkers. We’re going to bounce back.

We’re still No. 1 in the stuff that counts. Take a look at David Seifman‘s piece in this morning’s N.Y. Post:

New York City ranks as the undisputed condom capital of the nation.

The Mayor’s Management Report, issued yesterday, showed that the Health Department gave away 39,070,000 male condoms to community groups in fiscal 2008, which ended on June 30.

That’s enough for every man, woman and child in the city six times over.

Sadly, few of them went to investment bankers and lawyers, ensuring that we’ll continue to be overpopulated with both species and thus always in danger of future Wall Street meltdowns.

The actual truth is that Wall Street hasn’t been dominant for quite some time. In fact, many of its denizens are downright submissive, as the Daily News tells us:

‘Tribeca S&M palace raided; owner, ‘Domina’ held on prostitution raps’

A Manhattan S&M club that billed itself as the “Leading House of Domination in NYC” was put out of business Wednesday after the NYPD busted its manager and seized its business records.

The ladies at the Walker St. club, Rapture, all had “extensive and rigorous” training in the art of bondage, and customers of the Tribeca dungeon were whipped and poked by professionals, its advertising claimed.

Give me those goddamn whips, and I’ll show you how to flay the backsides of those downtown bankers.

Financial Times (U.K.): ‘Housing data reinforce threat to US growth’

And a bottom of th’ mornin’ to you from London:

New housing starts fell to their lowest level in 17 years last month, sharply worse than expected, signalling the still deepening threat from the housing market to US economic growth.

Daniel Pimlott‘s story notes that this may not be such bad news for the long run:

The fall in starts is likely to further detract from US economic growth in the third quarter. But economists also believe that slowing construction of new homes is a necessary precondition to the stabilisation of the housing market and the financial system. A huge inventory of new and previously owned homes for sale is dragging down prices.

Well, that’s good: One way out of this crisis is for the price of houses to stay too high to afford. And there’s more of the same kind of supposedly good news:

The poor housing starts came as other indicators in the mortgage markets suggested a better outlook ahead.

Applications for mortgages jumped 33.4 per cent in the week ending September 12 in response to a fall in mortgage rates after the US government took over Fannie Mae and Freddie Mac, the Mortgage Bankers Association reported.

The rise in applications was driven by a 88 per cent jump in attempts to refinance – the largest weekly increase since the beginning of 2001 – as home owners rushed to take advantage of lower rates.

Yes, more money for the mortgage bankers and investment houses to play with. That’s the kind of thing it will take to lift us out of this crisis. No joke, it really is.


Paul Tharp‘s solid story early this morning notes:

Fearful investors armed themselves with safe cash, gold and oil to fight back a possible trading rout looming today over Wall Street.

Gold shot up $70 an ounce in the biggest one-day jump in a decade. Lending effectively shut down between US and European banks as a key lending-rate spread surged to an all-time high to break the record close after Black Monday in 1987.

Tharp recognizes that the rise in oil prices is a really slippery slope:

Oil jumped $6 a barrel here to $97.16 as investors scrambled for safety, pushing crude back onto its dangerous upward trajectory.

McClatchy: ‘Pakistan reportedly opens fire on U.S. forces in tribal area’

The only thing that may re-fill the wallets of Wall Street’s bankers is another full-scale war from which to profit. They may get their wish, if things don’t calm down a little in South Asia:

Pakistani troops opened fire Monday on U.S. forces who were trying to enter the country’s lawless tribal area, local officials said, marking a dangerous further deterioration in relations between the allies in the war on terrorism.

Both armies — and the Pentagon — denied that the reported incident had occurred, but local security officials and tribesmen in South Waziristan told McClatchy that two American helicopters had entered Pakistani airspace in the early hours and were forced to retreat when they came under fire.

Sex and money — is there anything else? How about sex, money, and movies? Turn to the Post‘s Page Six for, among other gossip, “NAUGHTY PRODUCT PLUGS”:

George Clooney has sparked a sex-toy craze. In the Coen brothers’ film Burn After Reading, Clooney plays a sex addict who totes along marital aids, including two items called “The Liberator Ramp” and “The Silky,” both of which are sold in stores. reports sales of both are on the rise thanks to the movie. Says one retailer: “Small mentions of adult products in mainstream media can have an outsized effect on sales.”

BBC: ‘India drug firm turns to Giuliani’

Too rich. Our ex-mayor is now trying to help people acquire drugs:

Indian drug firm Ranbaxy has hired ex-New York City Mayor Rudolph Giuliani as an adviser, the company says.

The move comes a day after the US Food and Drug Administration (FDA) banned the import of more than 30 generic drugs made by the drug firm.