(Belated) Easter "Good News" - Evil Talx Corp/Bernanke "Shocked" At Own Incompetence/Jamie Dimon: "By Far the Most Dangerous American" Bankster

The library on Easter Sunday. (EXTRA: If anyone could make a contribution to my PayPal account (or otherwise - contact me for further info), it would be sincerely appreciated as I've just gone off the cliff financially. I really appreciate everything that my kind readers have done for me in the past financially and otherwise. Now . . . back to your regular viewing.) It's been a planet-wide shakedown from the first, and if you haven't figured out that this is why the same players are in charge and still fighting any kind of real re-regulation . . . I have no sorrow to spare about your coming financial demise. From the imperturbably Earth-Bound Misfit on this just-passed brilliantly lit Easter weekend here in shell-shocked N.C., we learn that (and I should have suspected there was a corporation behind this as I was denied (with no recourse) unemployment that should have paid - according to my manager at my last contract job which lasted eight months):

If You Work for the Talx Corporation: You Work for Evil.

You should consider funding a more humane job, such as working as a killer in a slaughterhouse, or you should off yourself. It doesn't matter which you do, not to me. For you work for a company that makes its money by fucking over unemployed people on behalf of scum-sucking corporations such as Wal-Mart.

Here is how it works:

If you were employed by a company that retains the Talx Corporation, they will contest every unemployment claim that a fired employee of those companies file.

They will do it without having any reasons for such a contest. When the hearing officer rules against Talx, they will appeal. The idea is to grind people down and get them to withdraw their unemployment claims by just wearing them down. Even when those former employees finally prevail, they have been even more financially crippled because they have gone for months without any unemployment compensation. Which doesn't bother the evil fuckers at Talx not one bit, for it is all in a day's work to them. Talx is a subsidiary of Equifax. Just so you know that even demons can be wholly owned by vultures.

I wrote months ago that Ben Bernanke should be nobody's idea of any type of decent, integrity-defining Man of the Year (although Time Magazine disagreed with me). I thought I had plenty of facts to back up my opinion, although I did get some flak from those who thought him a real hummer (of a sort) in fixing the financial predicament (and who was only a minor participant in the setting up of the shill game). He's fixed it all right - as only one truly instrumental in helping it materialize can. It's a high finance game of "let's hide the salami" actually, although nowhere near as fun as the expected payoff (the orgasm) is pure manure for most of the unknowing participants. And if you wondered why Bernanke, et al., didn't/couldn't fix this situation after Enron exploded and ruined so many people's lives, well, it didn't benefit their benefactors. Nope. And that's the truth. And don't believe a word they say about not understanding the complexity of what they had allowed to come into being in the risky ever-upward-spiraling hide-the-debt under the con artist's moving cup game; complexity was the game - and they won -witness the magnificent bonuses. (And why anyone should expect Volcker to clean up this mess he helped to initially put in place is fantastic (in its worst sense) rationalization after the fact.) Trying to keep its fingers in the pie all the way to the final denouement is The New York Times, and it's finally telling us some of the truth surrounding this massive fraud at the taxpayers' expense. I can only imagine the cocktail party chatter among the financialattes as they carefully fail to let each other in on exactly what was happening at their respective firms. Right.

How Washington Abetted the Bank Job

A FEW weeks ago, two Republican House members asked Ben Bernanke, the chairman of the Federal Reserve, whether the Fed knew — before Lehman’s bankruptcy examiner revealed it — about the bookkeeping scam at Lehman known as “Repo 105.”

This scam allowed Lehman to disguise how much debt it was carrying, right up until it collapsed. Lehman got new loans to pay off old loans, pretended the new loans were “sales,” and through a complicated series of steps made both the old and new loans disappear just in time for its quarterly reports.

Mr. Bernanke said the Fed had known nothing about this. After all, he explained, the Fed wasn’t Lehman’s regulator — the Securities and Exchange Commission was. The Fed had placed some people at Lehman — not as many as the S.E.C. had — but they were there only to ensure that Lehman paid back money it was borrowing from the government. Can’t lay this on him.

Meanwhile, the S.E.C. insists that it could not have known what Lehman was up to because it was “understaffed” and “ill-suited” to run a voluntary oversight program. But, the commission says, since the Lehman bankruptcy examiner’s report, it has sprung into action, investigating whether other banks might also have cooked the books.

Any minute now, expect to hear that the Treasury, the Office of the Comptroller of the Currency, the Office of Thrift Supervision and the Federal Deposit Insurance Corporation — our other federal bank regulators — were just as shocked that Lehman used make-believe sales to hide its ocean of red ink.

Well, the truth is this: The collapse of Enron back in 2001 revealed that the biggest financial institutions, here and abroad, were busy creating products whose sole purpose was to help companies magically transform their debt into capital or revenue. At the time, there were news reports about Merrill Lynch pretending to buy Nigerian barges from Enron, JPMorgan Chase dressing up its loans to Enron as commodity trades and Citigroup disguising Enron debt as profits from Treasury-bill swaps.

This went well beyond Enron. Our banks had gone into the business of creating “products” to help companies, cities and whole countries hide their true financial condition. Consider the recent revelations about how Goldman Sachs and J. P. Morgan helped Greece hide its debt. Now we discover that our banks not only were raking in huge profits helping others hide debt, they also drank their own Kool-Aid. As a chief executive of Citibank said in 2007 about financing dangerously leveraged deals, “As long as the music is playing, you’ve got to get up and dance.”

Our bank regulators were not, as they would like us to believe, outside the disco, deaf and blind to the revelry going on within. They were bouncing to the same beat. In 2006, the agencies jointly published something called the “Interagency Statement on Sound Practices Concerning Elevated Risk Complex Structured Finance Activities.” It became official policy the following year.

What are “complex structured finance” transactions? As defined by the regulators, these include deals that “lack economic or business purpose” and are “designed or used primarily for questionable accounting, regulatory or tax objectives, particularly when the transactions are executed at year end or at the end of a reporting period.”

How does one propose “sound practices” for practices that are inherently unsound? Yet that is what our regulatory guardians did. The statement is powerful evidence of the permissive approach bank regulators took toward the debt-dissolving financial products that our banks had been developing, hawking and using themselves for years. And it’s good reason for Americans to be outraged by the “who me, what, where?” reaction of Mr. Bernanke and the S.E.C. to the revelation of Lehman’s Repo 105 scam.

. . . Since the financial crisis struck in 2008, many have bemoaned the supposed inability of bank regulators to coordinate their efforts. That assumes a joint effort would somehow have helped. In fact, our regulators could coordinate, and did, and thereby contributed to the crisis.

Their cooperation began in the early 2000s, when the regulators decided they had to say something about how our banks helped Enron conceal its debt through complex transactions and how financial institutions were devising ever more complex instruments. In 2004, the agencies issued their first proposed statement on these practices.

This proposal was not quite “regulation” (in the sense of a set of new binding rules), but rather more like a position paper that set forth safeguards the regulators thought the banks should adopt. Mild really, given what Enron had exposed.

Still, the plan included significant hurdles that the regulators wanted banks to clear before selling or using potentially dangerous financial instruments. The focus of the 2004 proposal was complexity itself; it would have applied to all new complex products developed by banks.

That focus was right. Complexity was what made it possible to hide debt, avoid capital requirements and evade taxes. Thus the statement said that banks should document their reasons for concluding that each complex instrument developed and sold would be used for a legitimate purpose and not to evade the law. It also said that financial institutions should ensure that the buyers of complex instruments understood how they worked and what risks they entailed.

The financial industry would have none of that. It bombarded the agencies with comments denouncing the proposal. Banks did not want the responsibility of explaining to customers the risks inherent in these instruments. And, while banks couldn’t say it directly, how they could document that products that were valuable specifically because they could get around laws were not being bought for that purpose?

MOREOVER, the banks understood that the statement threatened the virtually regulation-free zone they had won for other forms of complex structured finance, particularly collateralized debt obligations. So the industry condemned the 2004 proposal, and the regulators caved. They agreed to think it over — for two more years.

Hence the interagency statement on “sound practices” of 2006 we described earlier, which was greeted with effusive praise from bankers, their lawyers and accountants. Gone was the requirement to ensure that customers understood these instruments and that the banks document that they would not be used to phony-up a company’s books.

The focus on complexity was also gone, as was the concern over transactions “with significant leverage” — that is, deals with little real cash underneath, another unfortunate deletion because attending to excessive leverage would have served us well.

Instead, the only products that the banks were asked to handle with special care were so narrowly defined and so obviously fraudulent that suggesting that they could be sold at all was outrageous. These included “circular transfers of risk ... that lack economic substance” and transactions that “involve oral or undocumented agreements that ... would have a material impact on regulatory, tax or accounting treatment.”

Just as troubling, at least in retrospect, the new statement specifically exempted C.D.O.’s from the need for any special care because they were akin to other “plain vanilla” derivatives, in that they were “familiar to participants in the financial markets” and had “well-established track records” (yes, the same C.D.O.’s backed by bundled mortgages that financial firms and the government are now stuck trying to value and absorb, the infamous “toxic assets” ).

. . . Only two years later, these same regulators were explaining that the complexity and opaqueness of instruments like C.D.O.’s had contributed significantly to the economic collapse. And it is now common wisdom that many of the bankers themselves did not understand the risks of these “familiar” instruments.

Moreover, the collapse was characterized by institutions supposedly healthy one day and on the verge of collapse the next, due in no small part to their extraordinary debt burdens — debt burdens that complex instruments magically removed from the books.

To this day, that final interagency statement (which was adopted in 2007) has not been repealed or replaced. It can still be found on the S.E.C. Web site, along with the letters from industry representatives praising the 2006 draft.

The site also has a single letter begging the agencies not to adopt that draft statement — a letter the four of us wrote. Our position was simple: products having no economic purpose except to achieve questionable accounting, tax or regulatory goals; or that raise serious concerns that customers will use them to issue materially misleading financial statements; or that meet any of the other bullet points in the 2006 statement’s list, should, at a minimum, be labeled presumptively prohibited.

The final statement notes and rejects our plea, saying that if any firm determined that its participation in a complex financial transaction “would create significant legal or reputational risks for the institution,” it could “take appropriate steps to manage and address these risks.”

As Congress now considers reforming the financial industry, it needs to take into account how abysmally our regulators performed when they coordinated their efforts and how insular their decision-making has been on matters that affect the entire economy. Congress needs to recognize that “regulatory capture,” in which an agency becomes a pawn of the industry it is supposed to oversee, is real.

Ideas like the proposal by Paul Volcker, the former Fed chairman, to prohibit traditional banks from trading on their own accounts, will do little to improve the situation so long as enforcement is left up to regulators’ discretion. Passing piecemeal fixes to outlaw each fraud-inviting instrument — like the provision slipped into the recent jobs bill that outlaws a derivative that had been designed by the industry to allow individuals to evade paying taxes on their stock dividends — will never be a substitute for restoring civil liability for abetting securities fraud. Innovation can too easily outstrip specific rules.

Yes, we can lay Lehman’s Repo 105 and the proliferation of dangerously complex instruments at the feet of the Fed, the S.E.C. and the other signatories to the watered-down interagency statement. Years earlier, after Enron collapsed, they learned all they needed to know about the bogus structures banks developed to conceal financial instability. Yet by backing down and giving in, the regulators encouraged them. We are paying for those mistakes today.

(The writers - Susan P. Koniak is a law professor at Boston University, George M. Cohen is a law professor at the University of Virginia, David A. Dana is a law professor at Northwestern University and Thomas Ross is a law professor at the University of Pittsburgh.)

I'm sure you can guess how I feel about Simon Johnson's work in documenting how the banksters have rolled over us and the world's economy. He takes no prisoners in the following essay as he details exactly who the clever Jamie Dimon (a real diamond dog - friend of fraudsters, Presidents and rock stars) is and what the world he (and his easily-swayed friendsters) has brought us will be. Please read from Simon Johnson's (MIT Professor and co-author of 13 Bankers) latest essay below.

April 3, 2010

Jamie Dimon: The Most Dangerous Man In America

There are two kinds of bankers to fear. The first is incompetent and runs a big bank. This includes such people as Chuck Prince (formerly of Citigroup) and Ken Lewis (Bank of America). These people run their banks onto the rocks - and end up costing the taxpayer a great deal of money. But, on the other hand, you can see them coming and, if we ever get the politics of bank regulation straightened out again, work hard to contain the problems they present.

The second type of banker is much more dangerous. This person understands how to control risk within a massive organization, manage political relationships across the political spectrum, and generate the right kind of public relations. When all is said and done, this banker runs a big bank and - here's the danger - makes it even bigger.

Jamie Dimon is by far the most dangerous American banker of this or any other recent generation.

Not only did Mr. Dimon keep JP Morgan Chase from taking on as much risk as its competitors, he also navigated through the shoals of 2008-09 with acuity, ending up with the ultimate accolade of "savvy businessman" from the president himself. His letter to shareholders, which appeared this week, is a tour de force - if Machiavelli were a banker alive today, he could not have done better. (You can access the full letter through the link at the end of the fourth paragraph in this WSJ blog post; for another assessment, see Zach Carter's piece.)

Dimon fully understands - although he can't concede in public - the private advantages (i.e., to him and his colleagues) of a big bank getting bigger. Being too big to fail - and having cheaper access to funding as a result - may seem unfair, unreasonable, and dangerous to you and me. But to Jamie Dimon, it's a business model - and he is only doing his job, which is to make money for his shareholders (and for himself and his colleagues).

Dimon represents the heavy political firepower and intellectual heft of the banking system. He runs some of the most effective - and tough - lobbyists on Capitol Hill. He has the very best relationships with Treasury and the White House. And he is determined to scale up.

The only problem he faces is that there is no case at all for banking of the size and form he proposes. Consider the logic he presents on p.36 of his letter.

He starts with a reasonable point: Large global nonfinancial companies are an integral and sensible part of the American economic landscape. But then he adds three more steps:

1. Big companies need big banks, operating across borders, with large balance sheets and the ability to execute a wide variety of transactions. This is simply not true - if we are discussing banking at the current and future proposed scale of JP Morgan Chase. We go through this in detail in 13 Bankers - in fact, refuting this point in detail, with all the evidence on the table, was a major motivation for writing the book. There is simply no evidence - and I mean absolutely none - that society gains from banks having a balance sheet larger than $100 billion. (JP Morgan Chase is roughly a $2 trillion bank, on its way to $3 trillion.) 2. The US banking system is not particularly concentrated relative to other OECD countries. This is true - although the degree of concentration in the US has increased dramatically over the past 15 years (again, details in 13 Bankers) and in key products, such as credit cards and mortgages, it is now high. But in any case, the comparison with other countries doesn't help Mr. Dimon at all - because most other countries are struggling with the consequences of banks that became too large relative to their economies (e.g., in Europe; see Ireland as just one illustrative example). 3. Canada did fine during 2008-09 despite having a relatively concentrated financial system. Mr. Dimon would obviously like to move in the Canadian direction - and top people in the White House are also very much tempted. This is frightening. Not only does it represent a complete misunderstanding of the government guarantees behind banking in Canada (which we have clarified here recently), but this proposal - at its heart - would allow, in the US context, even more complete state capture than what we have observed under the stewardship of Hank Paulson and Tim Geithner. Place this question in the context of American history (as we do in Chapter 1 of 13 Bankers): If the US had just five banks left standing, would their political power and ideological sway be greater or less than it is today?

For a long time, our leading bankers hid behind their lobbyists and political friends. It is most encouraging to see Mr. Dimon come out from behind those layers of protection, to engage in the intellectual fray.

It is entirely appropriate - and most welcome - to see him make the strongest case possible for keeping banks at their current size and, in fact, for making them bigger. We should encourage such engagement in public discourse, but we should also examine carefully the substance of his arguments.

As we point out in the Washington Post Outlook section this week, Theodore Roosevelt carefully weighed the views of J.P. Morgan and other leading financiers in the early twentieth century - when they pushed back against his attempts to rein in their massive railroad and industrial trusts. Roosevelt was not at that time against big business per se, but he insisted that big was not necessarily beautiful and that we also need to weigh the negative social impact of monopoly power in all its economic and political forms.

If we don't find our way to a modern version of Teddy Roosevelt, Jamie Dimon - and his successors - will lead us into great harm. It's true that, after another crash or in the midst of a Second Great Depression, we can reasonably hope to find another Roosevelt - FDR - approach. But why should we wait when such a disaster is completely preventable?

Books & More From Simon Johnson

And across the pond, Will Hutton believes that "Modern Capitalism Is At a Moral Dead End. And the Bosses Are To Blame." How does one remain an authoritarian-loving serf by arguing otherwise at this moment in history?

Sunday 4 April 2010

Capitalism will be continue to be demonised while our CEOs refuse to put their own corrupt house in order

The aliens have spoken. New Labour's proposed "tax on jobs" – next April's increase in national insurance contributions – must be rescinded, they say. Instead, the money must be found from further "efficiency savings", despite both parties' existing commitment to find at least £11bn of such savings. To discover another £6bn to compensate for the lost tax revenue stretches credulity, but that's not a worry for our aliens, Britain's crusading chief executive officers.

As Richard Lambert, the director-general of the CBI, said last week, today's CEOs are people who, for the first time in history, have become seriously rich as mere officers of their companies rather than risking any money of their own.

In his speech at the Royal Society of Arts, he pointed out that these CEOs are now so extravagantly remunerated that they occupy a different galaxy from the rest of us – and risk becoming aliens in their own communities. Nobody can be certain for whom and what they speak. Sir Stuart Rose, a leading signatory of the joint letter to the Daily Telegraph, is the best-paid executive chair of a public company ever to stalk these islands. Mick Davis, CEO of Xstrata, now based in Zug, Switzerland, collected £5m last year. Even one of the few genuine entrepreneurs among them, Stelios Haji-Iaonnou, the founder of easyJet, offers his CEOs an eye-popping 200% annual bonus on their base pay and a long-term incentive plan on top.

These gentlemen weigh in from Planet Extravagance when a tax is proposed, but are mute in the debate that Lambert opened about the purpose of business after the epic strategic mistakes that capitalism has recently made. There has been a culture change, argues Lambert, begun in the financial sector, in which takeovers, deals, financial engineering and wild short-termism has become the order of the day. Chief executives were paid 47 times average pay in 2000; today, they are paid 81 times the average. And all directly or indirectly colluded in the change that triggered the greatest economic calamity since the 1930s. None blew a whistle, raised a doubt or suggested strategic options. All trousered the bonuses.

Nor was there any noteworthy collective improvement, despite all the dealing, in the performance of the firms they ran over and above what one might expect from reasonable stewardship. Are they intervening now, within weeks of a general election, because of their genuine concern to promote employment or because absorbing an increased payroll tax will hit their profits and personal bonuses and a Conservative government will be more congenial for their personal interests? Society should be suspicious of their motives. Capitalism, and the worthwhile purpose of profit, becomes devalued and delegitimised.

Richard Lambert quoted one of his heroes, American Dave Packard, co-founder of Hewlett-Packard, who declared that only an adequate profit was necessary to fund research and product innovation along with serving customers, communities and providing employment. Packard came from the generation of entrepreneurs who lived through depression, war and the great clash with socialism and knew that while capitalism was better, it had to be fought for. Its personal rewards had to remain proportional and profits had to deliver wider goals than just shareholder value. Today, no such concern worries Britain's class of bounty hunter CEOs.

Lambert could have come closer to home, to two great British contemporaries of Packard: Ove Arup (OK, he was half-Danish), founder of one of the Arup Partnership, and John Spedan Lewis, founder of John Lewis. In his parting speech, Ove Arup declared that excessive personal pay divided rather than united companies and the divided organisation collapsed. Best keep the pay of the top people satisfactory and in touch with what other workers earned.

Arup, like Lewis, was a visionary. Both believed in the notion that firms were essentially moral enterprises and that the point of profit was to serve the business purpose of the firm. Both created firms are employee-owned, value-driven partnerships. Neither Lewis nor Arup was especially religious, but they were closely aware of religious teaching. Arup's appeal to unity and morality in business closely follows Catholic social doctrine.

As for Lewis, he declared in quasi-biblical terms that "it is all wrong to have millionaires before you have ceased to have slums". "The present state of affairs is really a perversion of the proper working of capitalism," he thundered in 1957. "Capitalism has done enormous good and suits human nature far too well to be given up as long as human nature remains the same. But the perversion has given us too unstable a society. Differences of reward must be large enough to induce people to do their best but the present differences are far too great." You can only guess at what he would have made of today's excesses.

Lambert is right – modern capitalism has arrived at a moral dead end, interested largely in feathering the nests of its leaders while imposing enormous costs on the rest of society and accepting no reciprocal obligations. Neither Lewis nor Arup would have dreamt of needing to be paid 81 times the salary of an average worker to do their job or of investing a nanosecond in trying to evade or avoid tax. They aimed to build enduring innovative organisations and to do so was a matter of enormous satisfaction in itself. And don't think of them as quasi-socialists – there are no unions in either firm because none is needed.

To change matters requires both moral conviction and a political readiness to engineer a series of deep reforms in the way company ownership is discharged, corporate governance is conceived, executives are remunerated and workers represented. Today's secularisation of society and decline of religion have meant that the kind of value system that succoured Packard, Arup and Lewis in their moral beliefs is disappearing. I doubt if any CEOs signing letters much worry about morals or religion and even practising Christian business leaders, such as HSBC's chair Stephen Green, while wringing their hands and searching their souls, do not offer a bold lead. For all its merits, hardly a passage in Green's recent book, Good Value, compares to the standard set by Lewis or Arup, even if his heart is plainly in the right place.

But you also need morally convinced politicians prepared to take the risk of reform. We have none. The Tories are fired up by the thought of curbing the state and building a Big Society, but not by correcting capitalist excess. New Labour, 13 years in office, has not dared, apart from the odd speech by Paul Myners and Peter Mandelson at the last, to propose any significant reform. On this question, this Easter, it presents a moral vacuum. The banks have got away virtually scot free after the greatest bailout in history. We need a reformed capitalism driven by innovation and a sense of responsibility, yet there is no such prospectus on offer. That's amazing after what we have lived through. The aliens rule.

Anyone else feel the urge to pitch in for some guillotines yet? Suzan

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