whit said...
If the AIG people are shamed or cajoled into returning the bonuses, that's one thing. But using tax laws to get the money back is unthinkable. Any kind of coercion by the Feds is unacceptable. This is America, dammit, not some banana republic where the tinhorn du jour can run roughshod over whoever he wishes to.
It is scary that so many people from opposite ends of the political spectrum agree on grabbing back the bonuses. The country is going to hell in a rocket ship.
March 18, 2009 politico
House To Vote Tomorrow On Bonus Tax
Democrats will introduce a bill on the House floor tomorrow morning that would apply a 90 percent income tax to bonuses given to employees of companies that have received at least $5 billion in TARP money. This would apply to bonuses paid by AIG, as well as Fannie Mae and Freddie Mac.
"We passed a recovery act. We did not pass a license to steal," said Rep. Steve Israel (D-N.Y.), one of the architects of the bill. "If you won't give the bonuses back, we will tax them back."
House Majority Leader Steny Hoyer, who sets the House floor agenda, said at an afternoon press conference that the bill would be voted on tomorrow and that he expects it to pass "in an overwhelmingly bipartisan fashion."
Hoyer was particularly "outraged" that AIG employees would accept such large bonuses and that the House would be forced to act, especially on the same day the House passed the GIVE Act. That bill will, among other things, increase the number of AmeriCorps volunteers and promote volunteering through college incentives.
"Give it back," Hoyer said. "Give it back to the company and to the people that kept your company alive after your failure to act responsibly. Act responsibly now."
According to a release handed out at the press conference, the bill will apply only to bonus payments received since the beginning of the year and to individuals whose annual income exceeds $250,000.
"This money doesn't belong to AIG," Israel said. "It belongs to the American taxpayer, and we're going to take it back."
The head of insurance giant AIG says other executives at the firm have started returning some of the $165 million AIG handed out last week. Edward Liddy, who was brought in last year to oversee AIG, was scolded by lawmakers at a Washington hearing.
ReplyDeleteHouse Democrats say they'll vote on legislation tomorrow that would tax away the bonuses.
Vote Set
heheheh--Sam first posted that. Laugh every time I see it. I remember when I first saw that years ago, too, kind of through a mist.
ReplyDelete----
Is this tax bill constitutioal?
Answers Here from Lawrence Tribe via Wall Street Journal.
Contracts are made to be broken. Have these fscks sue, if they dare.
ReplyDeleteRegardless of what Tribe says, I don't see how you can go back and tax something in the past.
ReplyDeleteEx Post Facto: Article I, Section 9 of the Constitution also, generally speaking, prohibits Congress from passing laws that apply retroactively. Would a law that imposed a tax on past-gotten earnings violate the Ex Post Facto Clause?
ReplyDeleteResponded Tribe:
The Ex Post Facto Clause applies exclusively to criminal punishment and poses no difficulty here. And the fact that the measure contemplated would operate retroactively as well as prospectively doesn’t distinguish it from any number of tax and other financial measures that the Supreme Court has upheld over the claim that fundamental fairness precludes retroactively undoing contractual obligations.
What's safe, then?
Nothing, it seems.
Downwind neighbours fight Dylan's outhouse
ReplyDeleteFor more than six months, Dylan, 67, has ignored their pleas to remove the outhouse, the downwind neighbours say.
"It's a scandal – 'Mr. Civil Rights' is killing our civil rights," said David Emminger, whose home is directly behind the toilet – which apparently is intended for use by employees of the entertainer, best known for 1960s-era protest songs.
Emminger and his wife have installed five industrial-sized fans in their front yard in an attempt to blow the odour back at Dylan. They say the fans are no match for the ocean breeze that sweeps across the singer's land, however.
Mat's ready to join Obama's Youth Corps to fight capitalism.
ReplyDeletePresident T. Karaoke
ReplyDelete(Pres teleprompter for short)
31. Doug:
Wadeusaf,
Limbaugh reminds NOT A SINGLE REPUBLICAN Housemember voted for TARP.
Meanwhile Barney McCarthy is going to SUBPOENA the greedy bonustakers.
32. Doug:
Are you now, or have you ever been a Capitalist?
Mat's ready to join Obama's Youth Corps to fight capitalism.
ReplyDelete==
This isn't capitalism, it's piracy. And I would raid these pirates' bank accounts and take that money back.
This group is NOT sufficiently broad; thus, it IS a "Bill of Attainder," and IS illegal.
ReplyDelete"People have to have some mechanism to get out of the shadows," Obama said.
ReplyDeleteBut, while illegal immigrants who have "put down roots" in the United States should be given a chance to stay, they should have to pay a fine, learn English and go to the back of the line behind those who have already applied to be in the U.S, he said.
"This is not going to be a free ride," Obama said.
President Obama
I agree with Rufus. They may not 'deserve' the bonus, but the bill stinks.
ReplyDeleteThe chief executive of American International Group (nyse: AIG - news - people ), trying to quell the wrath of the public and politicians over millions of dollars in bonuses, told Congress that he had just asked a few hundred employees of the beleaguered insurance company to give back at least half of the extra pay.
ReplyDeleteAIG
It just demonstrates the contempt our masters and rulers have for our constitution or their ignorance thereof. Either is scary.
ReplyDeleteBlogger bobal said...
ReplyDeleteShell Dumps Wind, Solar, Hydro In Favor Of Biofuels
---
"We're businessmen and women."
Wed Mar 18, 08:46:00 PM EDT,
-----------------------------------------
Linda Cook, Shell's executive director of gas and power, said: "If there aren't investment opportunities which compete with other projects we won't put money into it. We are businessmen and women. If there were renewables [which made money] we would put money into it."
Linda obviously doesn't buy into mat's propaganda.
Who has the better insights, eh?
This isn't capitalism, it's piracy. And I would raid these pirates' bank accounts and take that money back.
ReplyDeleteFrom the master of scientific intuition and defender of capitalism.
Makes a Hell of a useful idiot, tho.
ReplyDelete"Mr. Obama approved the $500,000 advance on Jan. 15. The advance is against royalties under a deal with Crown Publishing, a division of Random House. The project calls for an abridged version of his book "Dreams From My Father" for middle-school-aged children, according to the disclosure. "
ReplyDelete---
That's one sick fuckin N.....
BTW,
ReplyDeleteWretch links a video of a discussion w/Hank Greenberg ex AIG CEO.
Well worth watching.
The largest, most successful Insurance Company in the World, then along comes Spitzer to force out Greenberg, and some frigging non-insurance office in London brings down the whole company with their magic paper trades.
Richardson suffered a head injury Monday while taking a beginners ski course in Quebec.
ReplyDeleteIt wasn't immediately clear who sent the first ambulance away or why, but a resort spokeswoman said Tuesday that Richardson initially said that she was fine.
The resort also issued a statement Tuesday that said Richardson didn't appear hurt and was walking around shortly after the incident.
"She did not show any visible sign of injury but the ski patrol followed strict procedures and brought her back to the bottom of the slope and insisted she should see a doctor," the resort said in its statement.
The ski resort said the instructor and a ski patroller accompanied the actress to her hotel, where they again recommended she should be seen by a doctor.
Coderre said victims of head trauma often believe they are fine, a mistake that can cost them their lives.
"When you have a head trauma you can bleed. It can deteriorate in a few hours or a few days," he told the newspaper.
---
She didn't hit a tree or anything, how does that happen on snow?
(maybe hit another skier?)
Doug's believe it or not:
ReplyDeleteLikely shark bite ends channel swim
WAILUKU - Something, most likely a cookie-cutter shark, took a bite out of Mike Spalding's left calf Monday night as he was attempting to swim the nearly 30-mile Alenuihaha Channel from the Big Island to Maui.
"I'm a glutton for water time," said the 61-year-old Kula resident, a well-known open-ocean swimmer and a Maui Realtor. "I was in a zone. . . . I was in pig heaven. And then this thing happens."
"This thing" was a 3-inch-diameter, 1-inch-deep wound on the back of his left leg, an injury most likely inflicted by a species of shark that grows about 20 inches long and takes melon-ball-sized chunks of flesh from its prey.
Dad had his little 2 bedroom house at Waikoloa Village al-Doug. He had it figured out their was someone in a witness protection program living across the street for awhile, but don't know how he came to that conclusion. Wife and I drove up to the top of Mauna Kea one time, got light headed. Heck of a view, quite something.
ReplyDelete---
Maybe she hit her head on the tip of her ski, that sometimes happens.
Heard Christopher Whalen, Institutional Risk Analytics, a NY financial analyst on BBC radio talking about the four zombies: Freddie, Fannie, Citi and AIG.
ReplyDeleteHe said that they're all "eating money", the tax payers could be on the hook for trillions of dollars. AIG should have already been placed in receivership and will be the first to fail. This will result in the end of the Credit Default Swap market. AIG Chairman Liddy is a Goldman Sachs man and was placed at AIG by Goldman.
He also said that Geithner would be gone by June and the Cabinet will be reshuffled.
"Maybe she hit her head on the tip of her ski, that sometimes happens."
ReplyDelete---
I can't picture how that would happen, but I could do it, no doubt.
Hey, Mat:
ReplyDeleteDodd and Barry and Barney are all upset about the bonus, but Dodd "explained" today that he's the one that put in the exemption.
(after spending ALL DAY yesterday DENYING that he did it)
Dodd and Barry are two highest money winners from AIG.
Do you think maybe, just maybe, you're ignoring the big time crooks with your anger at the small fry?
"He also said that Geithner would be gone by June and the Cabinet will be reshuffled."
ReplyDelete---
and Timmy will be the bad guy of the month while The Messiah rams through health care, carbon trades, and amnesty.
Tax Cheat a Repeat
ReplyDeleteAIG has pulled one over Geithner before
(or, more properly, this isn't the first time Timmy's pulled one over on us)
This isn't the first time AIG has used tax dollars to cushion their top officials under Tim Geithner's watch.
Last year, after the New York Federal Reserve shot AIG a generous infusion of $85 billion, AIG blew $440,00 on spa treatments and golf outings at the St. Regis resort in Los Angeles, prompting outrage about the misuse of tax dollars.
That didn't stop the New York Fed from sending AIG another $37.8 billion lifeline. At the time, AIG President Edward Liddy promised there would be no bonuses for his executives. Then, news came out at least 2,000 employees were on pace to receive "retention bonuses."
And, who was chairman of the New York Federal Reserve all this time? Tim Geithner.
40% of all babies born out of wedlock
ReplyDeleteMore sex and less contraception have resulted in more babies born than even at the peak of the baby boom after World War Two.
"A record 39.7 percent of babies in 2007 were born to unmarried women, including 71.6 percent of black babies and 51.3 percent of Hispanic babies."
HFS
The Kabuki Theater of AIG Outrage
ReplyDeleteMichelle Malkin
All the world's a stage, wrote Shakespeare, and in the world of Washington, the curtains have opened on the most elaborate farce of the year.
Spare me President Obama's finger wag. He's "outraged"? Meh. Two weeks ago, Team Obama forked over another $30 billion for the basket-case company after it reported $61.7 billion in fourth-quarter losses. That's on top of the first $85 billion round and the second $38 billion round under Bush -- both of which Obama supported. (Obama, by the way, collected more than $101,000 in AIG campaign contributions.) Don't talk to me about how the Obama administration opposes rewarding failure
And don't talk to me about all the politicians stampeding to tax AIG's bonuses. Democratic Sen. Chris Dodd, the corporate crony who is the largest recipient of AIG donations, is now leading the charge to tax the retention payments in order to recoup the $450 million the company is paying to employees in its financial products unit.
But Dodd, it turns out, was for protecting AIG's bonuses before he was against them.
Fox Business reporter Rich Edson pointed out that during the Senate porkulus negotiations last month, Dodd successfully inserted a teeny-tiny amendment that provided for an "'exception for contractually obligated bonuses agreed on before Feb. 11, 2009,' which exempts the very AIG bonuses Dodd and others are seeking to tax."
Pay no attention to what his left hand was doing.
Dodd's right fist is pounding mightily, mightily for the sake of the taxpayers.
Oil, and Gasoline is flying. $2.00 gas is back.
ReplyDeleteCiti at $1.00 was the greatest buy of all time.
Recession's over. We'll get negative number for the first quarter; but, at this moment, the recession's over.
AIG gives folks the chance to vent. The Lords and Masters damned near threw us into hell. It's AIG into the cornfield to face the baseball bats.
ReplyDeleteAs an old poker-playing buddy used to say: "It's good for their nuts."
In the interest of equal time and a vestige of political reality, I give you all the culprit of the entire "Crisis", Barney Frank
ReplyDelete...
In the House of Representatives, the majority party has almost unlimited power over the minority party. The majority party owns the committee chairmanships; it controls what bills come to a vote; and it is under no obligation to consider the ideas of the beleaguered minority. When the Republicans were in the majority they ruled with an iron first; it is no accident that Tom DeLay was known as "The Hammer."
That is why I find it particularly flattering the Republicans now claim that in the years 1995 to 2006 I personally possessed supernatural powers which enabled me to force mighty Republican leaders to do my bidding. Choose your comic book hero -- I was all of them.
I wish I had the power to force the Republican leadership to do my bidding! If I had had that power, I would have used it to block the impeachment of Bill Clinton, to stop the war in Iraq, to prevent large tax cuts for the extremely wealthy, and to stop government intervention into the private life of Terri Schiavo. Yet that power eluded me, and I was unable to stop those things.
According to the Republicans' misty memories of the period before 2007, I allegedly singlehandedly blocked their determined efforts to regulate Fannie Mae and Freddie Mac, and my supposed intransigence literally caused the worldwide financial crisis.
Fortunately, we have tools to aid memory -- pencil and paper, word processing, transcripts, newspapers, and the Congressional record. And as described in the most reputable published sources, in 2005 I in fact worked together with my Republican colleague Michael Oxley, then Chairman of the Financial Services Committee, to write a bill to increase regulation of Fannie Mae and Freddie Mac. We passed the bill out of committee with an overwhelming majority -- every Democrat voted in favor of the legislation. However, on the House floor the Republican leadership added a poison pill amendment, which would have prevented non-profit institutions with religious affiliations from receiving funds. I voted against the legislation in protest, though I continued to work with Mr. Oxley to encourage the Senate to pass a good bill. But these efforts were defeated because President Bush blocked further consideration of the legislation. In the words of Mr. Oxley, no flaming liberal, the Bush administration gave his efforts 'the one-finger salute.'
in 2005 I in fact worked together with my Republican colleague Michael Oxley, then Chairman of the Financial Services Committee, to write a bill to increase regulation of Fannie Mae and Freddie Mac. We passed the bill out of committee with an overwhelming majority -- every Democrat voted in favor of the legislation. However, on the House floor the Republican leadership added a poison pill amendment ...
ReplyDeleteForgotten too is the significant progress that was made after the 2006 elections, when the Republicans in Congress were repudiated by American voters.
ReplyDeleteIronically, this is the period in which I and my Democratic colleagues actually did possess the magical power needed to make real change in Washington -- we became the majority party. In March 2007, just two months after I became the Chairman of the Financial Services Committee for the first time, I moved quickly to forge a bill which would regulate Fannie Mae and Freddie Mac. The bill passed the House in May, with all 223 Democrats voting for it, and 103 Republicans voting against it. President Bush later signed that legislation into law.
Later in 2007, I introduced legislation to restrict subprime mortgages. The bill passed the Financial Services Committee and the House, but it did not pass the Senate, where because of the filibuster rule, the Republican minority actually does have the power to hobble the majority. The bill passed the full House with all 227 Democrats and 64 Republicans voting for it, and 127 Republicans voting against.
Ironically, those Republicans who now attack me most viciously and whose memories are the most impaired were among those who voted against both bills.
Rufus, do you think the fed, buying $300 bilion of treasuries, may be a test run and demonstration to the Chinese, that the US has a plan B, if the Chinese decide to dump and run?
ReplyDeleteIt also throws them a bone in their bond holding prices go up.
One of trish's favorite writers, George Will says this about
ReplyDeleteArizona in the Cross Hairs
The turmoil is, however, taking a toll on Arizona, which has a 370-mile border with Mexico. Terry Goddard, Arizona's attorney general, says this is a "transit state" not a "destination state." Phoenix is a distribution center for smuggled drugs destined for more than 230 American cities, and for people. Each commodity is stashed in different "drop houses." The people are kept in what Goddard calls "cattle-car conditions." He says that although a million people a year are moving north through Arizona, it is still a seller's market for traffickers in human beings.
Extrapolating from wire transfers of hundreds of millions of dollars from customers in dozens of U.S. states to smugglers operating in Arizona, Goddard believes that the "coyotes" who bring in the human contraband are extremely violent extensions of the cartels. One gang will swoop down on a "drop house" holding smuggled persons, or on a truck carrying such persons on the interstate from Tucson, and then "negotiate" their own deals with people who thought they had already paid for the smuggling. Some who object are shot in the head, which is, Goddard says, "a pretty good technique" for encouraging payments from the others. He estimates that half of Phoenix's 169 murders last year were related to human and drug smuggling.
Mexico, he says, is no longer importing up to four times more pseudoephedrine than its pharmaceutical industry requires. This ingredient was used to make methamphetamines destined for the U.S. market. Today, measured by volume (millions of pounds) and profit (up to 70 percent of the cartels' earnings), the biggest business is still marijuana. It is shipped in two-ton lots, in trucks that cross over the border fence without touching it, using "bridges" that can be assembled in 90 seconds at places identified by spotters who are equipped to live in the desert for weeks at a time. They can report where U.S. border patrols are at any moment.
...
ahhh, but the $1.2 trillion they are buying, in Mortgage backed Securities, sent the dollar lower, on inflation fears.
ReplyDeleteDollar Rally Crumbles as Fed Ramps Up Printing Press
March 19 (Bloomberg) -- The rally that pushed the dollar to the highest levels since 2006 is in danger of crumbling as the Federal Reserve starts buying Treasuries and ramps up its purchases of mortgage debt, adding to a flood of greenbacks.
“The implications of today’s Fed decision are unambiguous,” currency strategists at Citigroup Inc. wrote in a research report within a half hour of the Fed’s decision yesterday. The dollar “should weaken,” they said.
Fed policy makers said yesterday they plan to buy as much as $300 billion of U.S. government bonds and step up purchases of mortgage bonds, expanding the central bank’s balance sheet by as much as $1.15 trillion. The extra supply of dollars threatens to overwhelm investors just as the budget deficit swells.
The trade-weighted Dollar Index, which tracks the currency’s performance against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, tumbled 2.7 percent to 84.595, its biggest one-day drop since 1971. That pushed its decline to 5.6 percent since reaching 89.62 on March 4, the highest in almost four years.
It fell yesterday by the most in nine years versus the euro, to $1.3474, and traded at $1.3631 as of 12:01 p.m. in London. The dollar dropped today against Japan’s currency to a three-week low of 94.72 yen.
“Sell the dollar!” said Scott Ainsbury, a portfolio manager who helps manage about $12 billion in currencies at New York-based hedge fund FX Concepts Inc. “This is huge, huge. It’s equivalent to the Plaza accord. This is the last thing they have in the closet, and they used it a bit early.”
Do you think maybe, just maybe, you're ignoring the big time crooks with your anger at the small fry?
ReplyDelete==
Really? And how do you come to that conclusion when almost daily I rail against the corruptokrats, when from the very start of this piracy scam I advocated for no bailout money and lining up all these fraudsters against the wall and shooting them dead.
Balance the currency exchange losses against the rise in bond prices and where does that leave Charlie Chicom?
ReplyDeleteFrom the master of scientific intuition and defender of capitalism.
ReplyDelete==
Chew on your Puppy Chow, Chewbacca.
March 18, 2009 | Vol. 4, No. 11
ReplyDeleteBankruptcy, Not Bailout
by Newt Gingrich
==
Where the hell was you back in september? Damn sellout creep.
He was there, sayin' the same kinda stuff, mat.
ReplyDeletePosted and linked to it, at the time, myself.
No one really cared, then, either.
We had to something, something that involved authorizing the spending of $750 Bn USD on a weeks' notice.
I'm thinking, Deuce. That's probably a large (maybe, very large) part of it.
ReplyDeleteI need some coffee. This is pretty complicated. I know they're attempting to balance on a pretty slack wire.
Oh, great call on GE, by the way. :)
ReplyDeleteHow long do you plan on holding GE? Don't count your chickens til they hatch.
ReplyDeleteThe buying of treasuries is the next step to reflating now that interest rates are virtually zero. Holding US dollars and T bills in particular is not a good idea in my view.
The Belmont link to the Charlie Rose round table discussion on AIG is well worth listening through RIGHT THROUGH TO THE END!
http://www.charlierose.com/view/interview/10153
Obama Administration Announces Some Gitmo Detainees May Be Released in US
ReplyDeleteThe Fed may have been informed, in a round-about way, that China (and, maybe some oil producers) aren't interested in buying many more treasuries at these levels.
ReplyDeleteGeneric Congressional Ballot
ReplyDeleteRepublicans Take Small Lead on Generic Congressional Ballot
Support for the Democratic Congressional candidates fell to a new low over the past week, allowing the GOP to move slightly head for the first time in recent years in the Generic Congressional Ballot.
The latest Rasmussen Reports national telephone survey found that 41% said they would vote for their district’s Republican candidate while 39% would choose the Democrat.
Investors now favor Republicans by a 46% to 36% margin, while non-investors would vote Democratic by a 45% to 33% margin.
- Rasmussen
Saw that Charlie Rose program, yesterday, ash. It was the entry to a long piece on Pakistan and the return of the Supreme Court Judge fired by the General President.
ReplyDeleteOf course, by buying treasuries the Fed is forcing prices even higher.
ReplyDeleteIt's a "tricky" proposition. Will this force the marginal dollar into "private sector" investments?
In the end, the really (only?) important message is that the Fed won't let the economy (banks) fail. When you accept that you've gotta buy Citi, and GE (and all the rest.)
ReplyDeleteWhen you accept that, you've accepted fascism.
ReplyDeleteSaying they won't fail doesn't mean that the stock price will be any good but rather that the depositors will be able to withdraw their money when needed, creditors paid, money loaned. In fact the shareholders should be eviscerated for taking government money.
ReplyDeleteI'd say they've been "eviscerated" pretty damned good.
ReplyDelete"Not letting them fail"
ReplyDeleteMeans they will not be "nationalized", they will not be taken over by the FDIC. Their parts will not be divvied up amongst the remaining healthy banks.
Stockholder equity is assured, but it's value will be marked to market. Which, as the liquidity crisis clears, should begin to rise.
It is not an oldtime value investor market, yet.
But it could be a traders paradise.
The fed has liquified the economy by about $1.3 trillion. Without considering the multiplier affect, that is equal to the Gross State Production of the following states:
ReplyDeleteKansas
Utah
Arkansas
District of Columbia
Mississippi
Nebraska
New Mexico
Hawaii
Delaware
West Virginia
New Hampshire
Idaho
Maine
Rhode Island
Alaska
Montana
South Dakota
Wyoming
North Dakota
Vermont
What do you think will be the effect?
The US according to the CIA
ReplyDeleteGDP (purchasing power parity):
$14.58 trillion (2008 est.)
The Fed injected $1.3 trillion USD, in addition to over a trillion USD borrowed and spent on the various 'financial rescues' during the past year.
The deflationary spiral should level out, as liquidity flows back into the American marketplace.
ReplyDeleteOnce again the "Masters of Macroeconomics" will try to fine tune the whirled economy.
Balancing the deflationary bubble busts against the hidden tax of inflation.
This way the Federals will gain from the double whammy of income inflation and increased revenues at the Clinton tax rates.
Should flood the Treasury with increased revenues. While the economy booms on the strength of the "Obama Bubble".
Naked Short Sales Hint Fraud in Bringing Down Lehman (Update1)
ReplyDeleteShare | Email | Print | A A A
By Gary Matsumoto
March 19 (Bloomberg) -- The biggest bankruptcy in history might have been avoided if Wall Street had been prevented from practicing one of its darkest arts.
As Lehman Brothers Holdings Inc. struggled to survive last year, as many as 32.8 million shares in the company were sold and not delivered to buyers on time as of Sept. 11, according to data compiled by the Securities and Exchange Commission and Bloomberg. That was a more than 57-fold increase over the prior year’s peak of 567,518 failed trades on July 30.
The SEC has linked such so-called fails-to-deliver to naked short selling, a strategy that can be used to manipulate markets. A fail-to-deliver is a trade that doesn’t settle within three days.
“We had another word for this in Brooklyn,” said Harvey Pitt, a former SEC chairman. “The word was ‘fraud.’”
While the commission’s Enforcement Complaint Center received about 5,000 complaints about naked short-selling from January 2007 to June 2008, none led to enforcement actions, according to a report filed yesterday by David Kotz, the agency’s inspector general.
The way the SEC processes complaints hinders its ability to respond, the report said.
Twice last year, hundreds of thousands of failed trades coincided with widespread rumors about Lehman Brothers. Speculation that the company was being acquired at a discount and later that it was losing two trading partners both proved untrue.
After the 158-year-old investment bank collapsed in bankruptcy on Sept. 15, listing $613 billion in debt, former Chief Executive Officer Richard Fuld told a congressional panel on Oct. 6 that naked short sellers had midwifed his firm’s demise.
Gasoline on Fire
Members of the House Committee on Government Oversight and Reform weren’t buying that explanation.
“If you haven’t discovered your role, you’re the villain today,” U.S. Representative John Mica, a Florida Republican, told Fuld.
Yet the trading pattern that emerges from 2008 SEC data shows naked shorts contributed to the fall of both Lehman Brothers and Bear Stearns Cos., which was acquired by JPMorgan Chase & Co. in May.
“Abusive short selling amounts to gasoline on the fire for distressed stocks and distressed markets,” said U.S. Senator Ted Kaufman, a Delaware Democrat and one of the sponsors of a bill that would make the SEC restore the uptick rule. The regulation required traders to wait for a price increase in the stock they wanted to bet against; it prevented so-called bear raids, in which successive short sales forced prices down.
Driving Down Prices
Reinstating the rule would end the pattern of fails-to- deliver revealed in the SEC data, Kaufman said.
“These stories are deeply disturbing and make a compelling case that the SEC must act now to end abusive short selling -- which is exactly what our bill, if enacted, would do,” the senator said in an e-mailed statement.
Short sellers arrange to borrow shares, then dispose of them in anticipation that they will fall. They later buy shares to replace those they borrowed, profiting if the price has dropped. Naked short sellers don’t borrow before trading -- a practice that becomes evident once the stock isn’t delivered. Such trades can generate unlimited sell orders, overwhelming buyers and driving down prices, said Susanne Trimbath, a trade- settlement expert and president of STP Advisory Services, an Omaha, Nebraska-based consulting firm.
The SEC last year started a probe into what it called “possible market manipulation” and banned short sales in financial stocks as the number of fails-to-deliver climbed.
‘Unsubstantiated Rumors’
The daily average value of fails-to-deliver surged to $7.4 billion in 2007 from $838.5 million in 1995, according to a study by Trimbath, who examined data from the annual reports of the National Securities Clearing Corp., a subsidiary of the Depository Trust & Clearing Corp.
Trade failures rose for Bear Stearns as well last year. They peaked at 1.2 million shares on March 17, the day after JPMorgan announced it would buy the investment bank for $2 a share. That was more than triple the prior-year peak of 364,171 on Sept. 25.
Fuld said naked short selling -- coupled with “unsubstantiated rumors” -- played a role in the demise of both his bank and Bear Stearns.
“The naked shorts and rumor mongers succeeded in bringing down Bear Stearns,” Fuld said in prepared testimony to Congress in October. “And I believe that unsubstantiated rumors in the marketplace caused significant harm to Lehman Brothers.”
Devaluing Stock
Failed trades correlate with drops in share value -- enough to account for 30 to 70 percent of the declines in Bear Stearns, Lehman and other stocks last year, Trimbath said.
While the correlation doesn’t prove that naked shorting caused the lower prices, it’s “a good first indicator of a statistical relationship between two variables,” she said.
Failing to deliver is like “issuing new stock in a company without its permission,” Trimbath said. “You increase the number of shares circulating in the market, and that devalues a stock. The same thing happens to a currency when a government prints more of it.”
Trimbath attributes the almost ninefold growth in the value of failed trades from 1995 to 2007 to a rise in naked short sales.
“You can’t have millions of shares fail to deliver and say, ‘Oops, my dog ate my certificates,’” she said.
Explanation Required
On its Web site, the Federal Reserve Bank of New York lists several reasons for fails-to-deliver in securities trading besides naked shorting. They include misunderstandings between traders over details of transactions; computer glitches; and chain reactions, in which one failure to settle prevents delivery in a second trade.
Failed trades in stocks that were easy to borrow, such as Lehman Brothers, constitute a “red flag,” said Richard H. Baker, the president and CEO of the Washington-based Managed Funds Association, the hedge fund industry’s biggest lobbying group.
“Suffice it to say that in a readily available stock that is traded frequently, there has to be an explanation to the appropriate regulator as to the circumstances surrounding the fail-to-deliver,” said Baker, who served in the U.S. House of Representatives as a Republican from Louisiana from 1986 to February 2008.
“If it’s a pattern and a practice, there are laws and regulations to deal with it,” he said.
Fines and Penalties
Lehman Brothers had 687.5 million shares in its float, the amount available for public trading. In float size, the investment bank ranked 131 out of 6,873 public companies -- or in the top 1.9 percent, according to data compiled by Bloomberg.
While naked short sales resulting from errors aren’t illegal, using them to boost profits or manipulate share prices breaks exchange and SEC rules and violators are subject to penalties. If investigators determine that traders engaged in the practice to try to influence markets, the Department of Justice can file criminal charges.
Market makers, who serve as go-betweens for buyers and sellers, are allowed to short stock without borrowing it first to maintain a constant flow of trading.
Since July 2006, the regulatory arm of the New York Stock Exchange has fined at least four exchange members for naked shorting and violating other securities regulations. J.P. Morgan Securities Inc. paid the highest penalty, $400,000, as part of an agreement in which the firm neither admitted nor denied guilt, according to NYSE Regulation Inc.
Enforcement ‘Reluctant’
In July 2007, the former American Stock Exchange, now NYSE Alternext, fined members Scott and Brian Arenstein and their companies $3.6 million and $1.2 million, respectively, for naked short selling. Amex ordered them to disgorge a combined $3.2 million in trading profits and suspended both from the exchange for five years. The brothers agreed to the fines and the suspension without admitting or denying liability, according a release from the exchange.
Of about 5,000 e-mailed tips related to naked short-selling received by the SEC from January 2007 to June 2008, 123 were forwarded for further investigation, according to the report released yesterday by Kotz, the agency’s internal watchdog. None led to enforcement actions, the report said.
Kotz, the commission’s inspector general, said the enforcement division “is reluctant to expend additional resources to investigate” complaints. He recommended in his report yesterday that the division step up analysis of tips, designating an office or person to provide oversight of complaints.
Schapiro’s Plans
“Our audit disclosed that despite the tremendous amount of attention the practice of naked short selling has generated in recent years, Enforcement has brought very few enforcement actions based on conduct involving abusive or manipulative naked short selling,” the report said.
The enforcement division, in a response included in the report, said “a large number of the complaints provide no support for the allegations” and concurred with only one of the inspector general’s 11 recommendations.
SEC Chairman Mary Schapiro, who took office in January, has vowed to reinvigorate the enforcement unit after it drew fire from lawmakers and investors for failing to follow up on tips that New York money manager Bernard Madoff’s business was a Ponzi scheme. She has “initiated a process that will help us more effectively identify valuable leads for potential enforcement action,” John Nester, a commission spokesman, said in response to the Kotz report.
Last September, the agency instituted the temporary ban on short sales of financial stock. It also has announced an investigation into “possible market manipulation in the securities of certain financial institutions.”
No Effective Action
Christopher Cox, who was SEC chairman last year; Erik Sirri, the commission’s director for market regulation; and James Brigagliano, its deputy director for trading and markets, didn’t respond to requests for interviews. John Heine, a spokesman, said the commission declined to comment for this story.
“It has always puzzled me that the SEC didn’t take effective action to eliminate naked shorting and the fails-to- deliver associated with it,” Pitt, who chaired the commission from August 2001 to February 2003, said in an e-mail. The agency began collecting data on failed trades that exceed 10,000 shares a day in 2004.
“All the SEC need do is state that at the time of the short sale, the short seller must have (and must maintain through settlement) a legally enforceable right to deliver the stock at settlement,” Pitt wrote. He is now the CEO of Kalorama Partners LLC, a Washington-based consulting firm. In August, he and some partners started RegSHO.com, a Web-based service that locates stock to help sellers comply with short-selling rules.
Postponed ‘Indefinitely’
Pitt began his legal career as an SEC staff attorney in 1968, and eventually became the commission’s general counsel. In 1978, he joined Fried Frank Harris Shriver & Jacobson LLP, where as a senior corporate partner he represented such clients as Bear Stearns and the New York Stock Exchange. President George W. Bush appointed him SEC chairman in 2001.
The flip side of an uncompleted transaction resulting from undelivered stock is called a “fail-to-receive.” SEC regulations state that brokers who haven’t received stock 13 days after purchase can execute a so-called buy-in. The broker on the selling side of the transaction must buy an equivalent number of shares and deliver them on behalf of the customer who didn’t.
A 1986 study done by Irving Pollack, the SEC’s first director of enforcement in the 1970s, found the buy-in rules ineffective with regard to Nasdaq securities. The rules permit brokers to postpone deliveries “indefinitely,” the study found.
The effect on the market can be extreme, according to Cox, who left office on Jan. 20. He warned about it in a July article posted on the commission’s Web site.
Turbocharged Distortion
When coupled with the propagation of rumors about the targeted company, selling shares without borrowing “can allow manipulators to force prices down far lower than would be possible in legitimate short-selling conditions,” he said in the article.
“‘Naked’ short selling can turbocharge these ‘distort-and- short’ schemes,” Cox wrote.
“When traders spread false rumors and then take advantage of those rumors by short selling, there’s no question that it’s fraud,” Pollack said in an interview. “It doesn’t matter whether the short sales are legal.”
On at least two occasions in 2008, fails-to-deliver for Lehman Brothers shares spiked just before speculation about the bank began circulating among traders, according to SEC data that Bloomberg analyzed.
On June 30, someone started a rumor that Barclays Plc was ready to buy Lehman for 25 percent less than the day’s share price. The purchase didn’t materialize.
‘Green Cheese’
On the previous trading day, June 27, the number of shares sold without delivery jumped to 705,103 from 30,690 on June 26, a 23-fold increase. The day of the rumor, the amount reached 814,870 -- more than four times the daily average for 2008 to that point. The stock slumped 11 percent and, by the close of trading, was down 70 percent for the calendar year.
“This rumor ranks up there with the moon is made of green cheese in terms of its validity,” Richard Bove, who was then a Ladenburg Thalmann & Co. analyst, said in a July 1 report.
Bove, now vice president and equity research analyst with Rochdale Securities in Lutz, Florida, said in an interview this month that the speculation reflected “an unrealistic view of Lehman’s portfolio value.” The company’s assets had value, he said.
‘Obscene’ Leverage
During the first six days following the Barclays hearsay, the level of failed trades averaged 1.4 million. Then, on July 10, came rumors that SAC Capital Advisors LLC, a Stamford, Connecticut-based hedge fund, and Pacific Investment Management Co. of Newport Beach, California, had stopped trading with Lehman Brothers.
Pimco and SAC denied the speculation. The bank’s share price dropped 27 percent over July 10-11.
Banks and insurers wrote down $969.3 billion last year -- and that gave legitimate traders plenty of reason to short their stocks, said William Fleckenstein, founder and president of Seattle-based Fleckenstein Capital, a short-only hedge fund. He closed the fund in December, saying he would open a new one that would buy equities too.
“Financial stocks imploded because of the drunkenness with which executives buying questionable securities levered-up in obscene fashion,” said Fleckenstein, who said his firm has always borrowed stock before selling it short. “Short sellers didn’t do this. The banks were reckless and they held bad assets. That’s the story.”
‘Market Distress’
On May 21, David Einhorn, a hedge fund manager and chairman of New York-based Greenlight Capital Inc., announced he was shorting stock in Lehman Brothers and said he had “good reason to question the bank’s fair value calculations” for its mortgage securities and other rarely traded assets.
Einhorn declined to comment for this story. Monica Everett, a spokeswoman who works for the Abernathy Macgregor Group, said Greenlight properly borrows shares before shorting them.
Even when they’re legitimate, short sales can depress share values in times of market crisis -- in effect turning the traders’ negative bets into self-fulfilling prophecies, says Pollack, the former SEC enforcement chief who is now a securities litigator with Fulbright & Jaworski in Washington.
The SEC has been concerned about the issue since at least 1963, when Pollack and others at the commission wrote a study for Congress that recommended the “temporary banning of short selling, in all stocks or in a particular stock” during “times of general market distress.”
Airport Runway
On Sept. 17, two days after Lehman Brothers filed for Chapter 11 bankruptcy, the number of failed trades climbed to 49.7 million, 23 percent of overall volume in the stock.
The next day, the SEC announced its ban on shorting financial companies in 2008. The number of protected stocks ultimately grew to about 1,000. On Sept. 19, the commission announced “a sweeping expansion” of its investigation into possible market manipulation.
The ban, which lasted through Oct. 17, didn’t eliminate shorting, according to data from the SEC, the NYSE Arca exchange and Bloomberg. Throughout the period, short sales averaged 24.7 percent of the overall trading in Morgan Stanley, Merrill Lynch & Co. and Goldman Sachs Group Inc. on NYSE Arca. In 2008, short sales averaged 37.5 percent of the overall trading on the exchange in the three companies.
To date, the commission hasn’t announced any findings of its investigation.
Pollack, the former SEC regulator, wonders why.
“This isn’t a trail of breadcrumbs; this audit trail is lit up like an airport runway,” he said. “You can see it a mile off. Subpoena e-mails. Find out who spread false rumors and also shorted the stock and you’ve got your manipulators.”
To contact the reporter on this story: Gary Matsumoto in New York at gmatsumoto@bloomberg.net.
Last Updated: March 19, 2009 03:30 EDT
What they wont tell you is, who is issuing all these fraudulent stock shares.
ReplyDeleteTwo weeks ago the President called the bottom, the S&P was at the 680 level. In the two weeks since it has risen to 786.
ReplyDeleteRight around 100 points, or 15% rise in market value. In the past two weeks, yet no one, save rufus, sees a "recovery".
Are there ideological blinders in place or is the dying cat just bouncing?
That female talking head, on Charlie Rose, said the math indicates the cat has just about run out of its' nine lifes.
Throughout the period, short sales averaged 24.7 percent of the overall trading in Morgan Stanley, Merrill Lynch & Co. and Goldman Sachs Group Inc. on NYSE Arca. In 2008, short sales averaged 37.5 percent of the overall trading on the exchange in the three companies.
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Who is it that is issuing all these fraudulent stock shares at Morgan Stanley, Merrill Lynch, and Goldman Sachs?
What do you think will be the effect?
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Bonds crash
Newt in his own words, dRat:
ReplyDeletehttp://www.youtube.com/watch?v=hJb2NfqwghY
Triple Fibonacci Confluence at 800 on SP500
ReplyDeletehttp://farm4.static.flickr.com/3612/3368353048_43c94041b3_o.jpg
Peak Watch: Steven Chu's Energy Miscalculations
ReplyDeletehttp://peakwatch.typepad.com/peak_watch/2009/03/steven-chus-lip-service-on-the-oil-question.html
http://snipurl.com/e5e3o
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Excellent read.
There was almost complete consensus that:
ReplyDelete"We have to do something"
He had already lost the debate, on the reforms that should have been implemented. So, as a Federal Socialist he would have voted yes. But he had other action options put forward, options that did not carry the day, politically.
Newt Gingrich Bailout Proposal - Part 1
ReplyDeleteGingrich Bailout Proposal - Part 2
He had already lost the debate
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There was no debate. They had the votes to torpedo this nonsense, and they did not do it. They are all liars.
Gincrich has no greater vote than I do. He came to the same conclusions I did. As to supporting TARP1, he reached the same decision, in October, of needing to reluctantly vote "Yes" to the "Rescue" Bill that emerged from Congress, as did our host, duece.
ReplyDeleteWho had the votes, in October of 2008?
ReplyDeleteThe Republicans and Bush. But then again, it was their plan.
ReplyDeleteOuch. Big black candle on GE.
ReplyDelete(Not red, not white, but black!)
The small-town dealership where I bought my flexfuel said they sold 10 cars, yesterday.
ReplyDeleteThis comment has been removed by the author.
ReplyDeleteGingrich Denies Whipping Against Bailout
ReplyDeleteSeptember 30, 2008 4:00 PM
ABC News' Teddy Davis, Arnab Datta, and Rigel Anderson Report: Former House Speaker Newt Gingrich said Tuesday that he did not personally urge members of Congress to vote against Monday's failed Wall Street bailout bill, disputing a report made earlier in the day on MSNBC by correspondent Andrea Mitchell.
"MSNBC is just wrong," said Gingrich. "And it is probably wrong deliberately. It is a stunningly dishonest network."
http://ndnblog.org/node/2921
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Crooks and liars. That sums them all.
Zero credibility = Zero Business
And that's where the US is heading. People will simply take their money and energy elsewhere. They will divest from the US dollar, they will vote with their feet and divest from anything having to do with the US. You will become another failed USSR. Shape up, god dammit!
Mat, you gotta quit reading that nonsense over at the oil drum. Use Ace, and Rembrandt's charts, and disregard the rest of the silliness. It'll put you in the funny farm.
ReplyDeletedisregard the rest of the silliness
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So peak oil is a ruse? I want to hear you say it, Rufus.
Well, Rufus,
ReplyDeleteAll this, seems to me, is likely a grand setup to a trade war, if not a real war with the Chinezies. The US might win the initial battle(s), but by definition the US will lose the war.
Zero credibility = Zero business
No, Mat. I believe we are at Peak Oil. That's why I said "Pay attention to the Oil Charts that Ace, and Rembrandt, et al put out. It's just the rest of their silly anti-growth, Malthusianist, hate-America, gloom, and doom, bullshit that you need to take with enormous quantities of nacl.
ReplyDeleteTrade Wars are Always a danger when times get tough. Especially when the Dems are driving the bus.
Keeping in mind, of course, that it was a Republican Congress that passed Smoot-Hawley.
ReplyDeleteAll those political assholes are populists at heart.
Just like that 90% tax on bonuses bullshit law that they're passing, right now.
ReplyDeleteThey know good and well that that stupid shit will be taken down in court. It's a "Bill of Attainder," pure and simple. They're just grandstanding to take the attention off of their own culpability.
Don't misunderstand, I think that, due to "Peak Oil," we'll be IN Recession as much as we're OUT of recession in the next ten years.
ReplyDeleteI just think we'll "Pop out" for awhile starting pretty much, Right Now (2nd quarter numbers.)
They're just grandstanding
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Exactly.
Zero credibility = Zero business
My tolerance for this kind of nonsense might be lower than the general public's, but that's just because I'm slightly better informed. I telling you, if the US continues on this path, you're going down the toilet.
Take a "chill pill" Matty. Ain't nobody goin in no toilet. We could've, but we didn't.
ReplyDeleteBut, if you take all this "seriously" you will end up with a busted carotid.
It's jist a "gig, and a party," dude. That's what the U.S. does.
But, if you take all this "seriously" you will end up with a busted carotid.
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Hmm,..
Well, maybe I'm too many steps ahead of reality. I can see where this is going. That doesn't mean we'll necessarily get there. But where we're going is a very ugly place, Rufus. Very ugly.
Not necessarily, Matty. Not necessarily. We've done all this before. It's just you young'uns that think this is all something new.
ReplyDeleteOur system thrives on "crisis." Without the "Urgency" we can't operate at full capacity. We've got impending energy problems, but they're solvable. We'll be fine.
As for "Economics," and "Politics:" Read a little "Cicero." Those things NEVER change.
It's a beautiful Spring day; let's go get a milkshake.
Did he have the Fed buy bonds?
ReplyDelete