"John R. Carroll" wrote in message
...
F. George McDuffee wrote:
On Wed, 16 Jul 2008 18:21:53 -0700, "John R. Carroll"
wrote:

F. George McDuffee wrote:
On Wed, 16 Jul 2008 11:36:20 -0700, "John R. Carroll"
wrote:
snip

Whatcha think of them apples Unka' George?
Does it tick like a watch or a bomb!
=======
Both. This appears to be a classical "double bind" situation."

If we don't reorganize F&F, there is a substantial danger of
bringing the entire global economy down, and if we do pump in
enough capital, at best it will simply disappear down the tubes
like all the rest, with the only effect that we have gained a
little time at enormous expense. There is always the possibility
that F&F will go down anyhow (with all that this implies), even
with huge tax payer funded capital injections.

The single group of people most responsible is Congress, both for
removing the "fire walls" and "bulk heads" put in place as the
result of the 1929 depression, and for failing to deal with the
new unregulated and global economy in a timely and prudent
fashion. There was plenty of warning from the S&L debacle to
BCCI, through "Long Term Capital Management," all of which was
ignored.

Foreclosure Phil

Years before Phil Gramm was a McCain campaign adviser and a lobbyist for a
Swiss bank at the center of the housing credit crisis, he pulled a sly
maneuver in the Senate that helped create today's subprime meltdown."
Who's to blame for the biggest financial catastrophe of our time? There
are
plenty of culprits, but one candidate for lead perp is former Sen. Phil
Gramm. Eight years ago, as part of a decades-long anti-regulatory crusade,
Gramm pulled a sly legislative maneuver that greased the way to the
multibillion-dollar subprime meltdown. Yet has Gramm been banished from
the
corridors of power? Reviled as the villain who bankrupted Middle America?
Hardly. Now a well-paid executive at a Swiss bank, Gramm cochairs Sen.
John
McCain's presidential campaign and advises the Republican candidate on
economic matters. He's been mentioned as a possible Treasury secretary
should McCain win. That's right: A guy who helped screw up the global
financial system could end up in charge of US economic policy. Talk about
a
market failure.
Gramm's long been a handmaiden to Big Finance. In the 1990s, as chairman
of
the Senate banking committee, he routinely turned down Securities and
Exchange Commission chairman Arthur Levitt's requests for more money to
police Wall Street; during this period, the sec's workload shot up 80
percent, but its staff grew only 20 percent. Gramm also opposed an sec
rule
that would have prohibited accounting firms from getting too close to the
companies they audited-at one point, according to Levitt's memoir, he
warned
the sec chairman that if the commission adopted the rule, its funding
would
be cut. And in 1999, Gramm pushed through a historic banking deregulation
bill that decimated Depression-era firewalls between commercial banks,
investment banks, insurance companies, and securities firms-setting off a
wave of merger mania.
But Gramm's most cunning coup on behalf of his friends in the financial
services industry-friends who gave him millions over his 24-year
congressional career-came on December 15, 2000. It was an especially tense
time in Washington. Only two days earlier, the Supreme Court had issued
its
decision on Bush v. Gore. President Bill Clinton and the
Republican-controlled Congress were locked in a budget showdown. It was
the
perfect moment for a wily senator to game the system. As Congress and the
White House were hurriedly hammering out a $384-billion omnibus spending
bill, Gramm slipped in a 262-page measure called the Commodity Futures
Modernization Act. Written with the help of financial industry lobbyists
and
cosponsored by Senator Richard Lugar (R-Ind.), the chairman of the
agriculture committee, the measure had been considered dead-even by Gramm.
Few lawmakers had either the opportunity or inclination to read the
version
of the bill Gramm inserted. "Nobody in either chamber had any knowledge of
what was going on or what was in it," says a congressional aide familiar
with the bill's history.
It's not exactly like Gramm hid his handiwork-far from it. The balding and
bespectacled Texan strode onto the Senate floor to hail the act's
inclusion
into the must-pass budget package. But only an expert, or a lobbyist,
could
have followed what Gramm was saying. The act, he declared, would ensure
that
neither the sec nor the Commodity Futures Trading Commission (cftc) got
into
the business of regulating newfangled financial products called swaps-and
would thus "protect financial institutions from overregulation" and
"position our financial services industries to be world leaders into the
new
century."
Subprime 1-2-3
Don't understand credit default swaps? Don't worry-neither does Congress.
Herewith, a step-by-step outline of the subprime risk betting game. -Casey
Miner
Subprime borrower: Has a few overdue credit card bills; goes to a
storefront
lender owned by major bank; takes out a $100,000 home-equity loan at 11
percent interest
Lending bank: Assuming housing prices will only go up, and that investors
will want to buy mortgage loan packages, makes as many subprime loans as
it
can
Investment bank: Packages subprime mortgages into bundles called
collateralized debt obligations, or cdos, then sells those cdos to eager
investors. Goes to insurer to get protection for those investors, thus
passing the default risk to the insurer through a "credit default swap."
Insurer: Thinking that default risk is low, agrees to cover more money
than
it can pay out, in exchange for a premium
Rating agency: On basis of original quality of loans and insurance policy
they are "wrapped" in, issues a rating signaling certain slices of the cdo
are low risk (aaa), medium risk (bbb), or high risk (ccc)
Investor: Borrows more money from investment bank to load up on cdo
slices;
makes money from interest payments made to the "pool" of loans. No one
loses-as long as no one tries to cash in on the insurance.It didn't quite
work out that way. For starters, the legislation contained a
provision-lobbied for by Enron, a generous contributor to Gramm-that
exempted energy trading from regulatory oversight, allowing Enron to run
rampant, wreck the California electricity market, and cost consumers
billions before it collapsed. (For Gramm, Enron was a family affair. Eight
years earlier, his wife, Wendy Gramm, as cftc chairwoman, had pushed
through
a rule excluding Enron's energy futures contracts from government
oversight.
Wendy later joined the Houston-based company's board, and in the following
years her Enron salary and stock income brought between $915,000 and $1.8
million into the Gramm household.)
But the Enron loophole was small potatoes compared to the devastation that
unregulated swaps would unleash. Credit default swaps are essentially
insurance policies covering the losses on securities in the event of a
default. Financial institutions buy them to protect themselves if an
investment they hold goes south. It's like bookies trading bets, with
banks
and hedge funds gambling on whether an investment (say, a pile of subprime
mortgages bundled into a security) will succeed or fail. Because of the
swap-related provisions of Gramm's bill-which were supported by Fed
chairman
Alan Greenspan and Treasury secretary Larry Summers-a $62 trillion market
(nearly four times the size of the entire US stock market) remained
utterly
unregulated, meaning no one made sure the banks and hedge funds had the
assets to cover the losses they guaranteed.
In essence, Wall Street's biggest players (which, thanks to Gramm's
earlier
banking deregulation efforts, now incorporated everything from your
checking
account to your pension fund) ran a secret casino. "Tens of trillions of
dollars of transactions were done in the dark," says University of San
Diego
law professor Frank Partnoy, an expert on financial markets and
derivatives.
"No one had a picture of where the risks were flowing." Betting on the
risk
of any given transaction became more important-and more lucrative-than the
transactions themselves, Partnoy notes: "So there was more betting on the
riskiest subprime mortgages than there were actual mortgages." Banks and
hedge funds, notes Michael Greenberger, who directed the cftc's division
of
trading and markets in the late 1990s, "were betting the subprimes would
pay
off and they would not need the capital to support their bets."
These unregulated swaps have been at "the heart of the subprime meltdown,"
says Greenberger. "I happen to think Gramm did not know what he was doing.
I
don't think a member in Congress had read the 262-page bill or had thought
of the cataclysm it would cause." In 1998, Greenberger's division at the
cftc proposed applying regulations to the burgeoning derivatives market.
But, he says, "all hell broke loose. The lobbyists for major commercial
banks and investment banks and hedge funds went wild. They all wanted to
be
trading without the government looking over their shoulder."
Now, belatedly, the feds are swooping in-but not to regulate the industry,
only to bail it out, as they did in engineering the March takeover of
investment banking giant Bear Stearns by JPMorgan Chase, fearing the
firm's
collapse could trigger a dominoes-like crash of the entire credit
derivatives market.
No one in Washington apologizes for anything, so it's no surprise that
Gramm
has failed to issue any mea culpa. Post-Enron, says Greenberger, the
senator
even called him to say, "You're going around saying this was my fault-and
it's not my fault. I didn't intend this."
Whether or not Gramm had bothered to ponder the potential downsides of his
commodities legislation, having helped set off an industry free-for-all,
he
reaped the rewards. In 2003, he left the Senate to take a highly lucrative
job at ubs, Switzerland's largest bank, which had been able to acquire
investment house PaineWebber due to his banking deregulation bill. He
would
soon be lobbying Congress, the Fed, and the Treasury Department for ubs on
banking and mortgage matters. There was a moment of poetic justice when
ubs
became one of the subprime crisis' top losers, writing down $37 billion as
of this spring-an amount equal to its previous four years of profits
combined. In a report explaining how it had managed to mess up so grandly,
ubs noted that two-thirds of its losses were the fault of collateralized
debt obligations-securities backed largely by subprime instruments-and
that
credit default swaps had been "key to the growth" of its out-of-control
cdo
business. (Gramm declined to comment for this article.)
Gramm's record as a reckless deregulator has not affected his rating as a
Republican economic expert. Sen. John McCain has relied on him for policy
advice, especially, according to the campaign, on housing matters. The two
have been buddies ever since they served together in the House in the
1980s;
in 1996, McCain chaired Gramm's flop of a presidential campaign. (Gramm
spent $21 million and earned only 10 delegates during the gop primaries.)
In
2005, McCain told a Wall Street Journal columnist that Gramm was his
economic guru. Two years later, Gramm wrote a piece for the Journal
extolling McCain as a modern-day Abraham Lincoln, and he's hailed McCain's
love of tax cuts and free trade. Media accounts have identified Gramm as a
contender for the top slot at the Treasury Department if McCain reaches
the
White House. "If McCain gets in," frets Lynn Turner, a former chief sec
accountant, "we'll have more of the same deregulatory mess. I like John
McCain, but given what I know about Phil Gramm, I wouldn't vote for
McCain."
As a thriving bank exec and presidential adviser, Gramm has defied a prime
economic principle: Bad products are driven out of the market. In John
McCain, he has gained an important customer, so his stock has gone up in
value. And there's no telling when the Gramm bubble will burst.

http://www.motherjones.com/news/feat...sure-phil.html
David Corn is Mother Jones' Washington, D.C. bureau chief.



--

John R. Carroll
www.machiningsolution.com

This should be a lesson to everyone. When you keep reelecting the same
people and allowing them to stay in office for decades you wind up getting
all of their crooked friends and cronies along with them. When Bush was
elected we got all the dregs from earlier republican administrations, most
of them crooked *******s out to make themselves wealthy. I could name some
of the very familiar names but the list would be too long. This is why you
have to clean house regularly. If McCain gets the White House all the same
bunch of criminals are going to get access to power once again. If Obama is
elected there is no guarantee that he won't wind up with a different group
that is just the same. But if you don't make the change you will certainly
get more of the corruption we have now. Allowing the same people to get
entrenched into the center of power and to have control of the levers of
power brings us the kind of problems we are now facing. Frequent changes of
personnel in Washington is the best medicine for what ails the country.

Hawke