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HomeRecommended Reading
Posted by Larry Doyle on August 30th, 2009 6:09 AM |
In the midst of doing some reading today, I came across several articles which made me pause and wonder just how far we’ve come and just how much further we have to go in terms of getting beyond our current economic issues.
I hope you also find these articles enlightening:
1. It’s Time to Admit That Money Funds Involve Risk
by Joe Nocera
The New York Times; August 28, 2009
2. Wall Street Fox Beds Down in Taxpayer Henhouse
by David Reilly
Bloomberg; August 26, 2009
3. Banking Crisis of Historic Proportions
by John Lounsbury
Seeking Alpha; August 16, 2009
***Reminder: John Lounsbury will be my guest tonight on No Quarter Radio’s Sense on Cents with Larry Doyle
4. Local Governments Expect Big Jump in Pension Costs
by Joseph Spector
Star Gazette; August 28, 2009
5.The End of the Line for California Automaking
by Martin Zimmerman and Maura Dolan
Los Angeles Times; August 28, 2009
The real world impact of the issues highlighted in these stories is an indication that we have miles to go and numerous hills to climb as we navigate our economic landscape.
LD
NoQuarter Radio’s Sense on Cents with Larry Doyle, Sunday Night at 8PM
Posted by Larry Doyle on August 29th, 2009 1:07 PM |
UPDATE: The show has concluded, but you can listen to a recording in its entirety by clicking the Play button on the audio player below. Once the playback has started, you can forward or rewind to any portion of the show by clicking at any point along the play bar.
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Many analysts would promote the performance and developments on Wall Street as the clear indicator of future developments on Main Street. The divide between these two great thoroughfares has never been greater. In fact, The Wall Street Journal’s lead article on Saturday morning, Halting Recovery Divides America in Two, highlights this very point. What is the name of the street trying to bridge this divide? Pennsylvania Avenue.
Please join me Sunday evening, August 30th from 8-9pm as I traverse the economic landscape along these three distinct avenues. I will be joined by an individual, John Lounsbury, who is a student, professor, and practitioner on a wide array of topics played out on these streets.
John Lounsbury provides comprehensive financial planning and investment advisory services to a small number of families. He has a background which includes 34 years with a major international corporation, 25 years in R&D management, and corporate staff positions. More recently he was a Series 6, 7, and 63 licensed representative with a major insurance company brokerage from 1992 to 2001. Since 2002 he has operated his own sole proprietorship business. John’s specific interests include political and economic history and investment strategy analysis.
John is also a featured contributor at TheStreet.com Real Money and has his own blog, PiedmontHudson.
Please join me Sunday night as I chat with John Lounsbury. We will hold nothing back in dispensing a healthy dose of wisdom and riveting analysis as we collectively navigate the economic landscape. Share your questions and thoughts by calling in to (347) 677-0792, and also join our live chat room, which I’ll start up about 10 minutes before the show begins.
As a reminder, all of my radio shows are archived and can be listened to right here at Sense on Cents by clicking on the NoQuarter Radio tab located under the page header. (FYI, I keep an audio player of my most recent episode in the right sidebar). In addition, all NoQuarter Radio programming is available as a free podcast on iTunes. From the iTunes Store page, type “NQR podcasts” in the search window.
Many thanks to Larry Johnson and the rest of the team at NoQuarterUSA blog for providing such a vibrant vehicle as NoQuarter Radio. I look forward to having you join me Sunday evening as we collectively navigate the economic landscape!!
LD
Auctions Across America
Posted by Larry Doyle on August 28th, 2009 4:07 PM |
How does an entity sell a massive amount of assets? Individual sales are too time consuming. Personal negotiations would be too onerous. How about utilizing the internet and engaging a wider audience? That is, in fact, exactly what is happening as America goes on sale via auctions. That’s right, folks.
From the state of California to small banks and all points in between, there are and will be ongoing liquidations via auctions for the foreseeable future.
How does one receive a list of items for sale? Check out the following to start:
>> Great California Garage Sale held by the California Department of General Services.
I have two rhetorical questions:
1. What will these auctions mean for consumer spending and retail sales going forward?
2. What will these auctions mean for the pace of inventory buildup?
All part of the new dynamic within the Uncle Sam economy.
Have fun shopping.
LD
How Will Bank Failures Impact Economy?
Posted by Larry Doyle on August 28th, 2009 1:04 PM |
Will the failure of a small bank in a small community truly impact America?
Analysts discount the impact that the expected massive number of bank failures will have on the U.S. economy.
Additionally, analysts also discount the fact that the FDIC fund to cover depositors of failed institutions is close to zero. This fund can be replenished by the FDIC imposing an assessment on remaining banks or, if need be, tapping an emergency line of credit at the U.S. Treasury.
What will be the real impact of bank failures? In my opinion, American consumer confidence and small business owners will bear the brunt of the pain from the bank failures. Why?
>> The reality of further job losses at these banks and those they support within local economies.
>> The psychological impact of seeing small and community banks fail.
>> The lack of credit availability to consumers and small business owners in communities across America.
What are the plans to stem the tide and plug the holes created by bank failures?
1. Have larger banks take over these institutions. What are the risks in this transition? Many of these banks are already filled with underperforming and delinquent loans. The acquiring banks typically want the cheap deposit base of the failed banks and little more.
2. Private equity buyers will have the opportunity to purchase failed banks. What are the risks in this process? The private equity buyers will have to maintain higher capital ratios. Another risk is that the private equity buyers may utilize the cheap deposit base as a pool of liquidity and capital for higher return undertakings than traditional lending in the local communities.
In my opinion, the gap dividing Wall Street and Main Street is only going to grow wider in the midst of these bank failures. The party on Wall Street has little appreciation for this reality on Main Street.
John Kanas, the former chairman and CEO of North Fork Bank, and his private equity firm purchased BankUnited in Florida this past May. Kanas addresses these topics in an interview on CNBC.
LD
Related Commentary:
Halting Recovery Divides America in Two
by Cari Tuna, Liz Rappaport, and Julie Jargon
The Wall Street Journal (August 29, 2009)
Wall Street ARS Betrayal Brings Losses and Sleepless Nights
Posted by Larry Doyle on August 28th, 2009 9:19 AM |
Those who would betray the trust and integrity of a market and investment must be held to account.
Such is the current dynamic within Wall Street’s greatest fraud that encompasses Auction-Rate Securities.
At times, I wonder if I focus too much on the ARS debacle. Then, when I read of the depths of despair experienced by ARS investors, both institutions and individuals, I personally seethe at the injustice of it all.
Bloomberg provides a wide ranging review of institutional investors who were defrauded by Wall Street in purchasing auction-rate securities. Bloomberg writes Wall Street Betrayal Seen in $4.8 Billion Company Debt Losses. The highlights in this article are almost too numerous to single out, but suffice it to say this fraud has likely touched almost every investor in either a direct or indirect fashion.
I am heartened that the fraud is finally receiving significant focus. That said, how will Wall Street be held accountable and how will investors be made whole? Let’s address some specific details as highlighted by Bloomberg:
Bristol-Myers Squibb Co. the New York-based pharmaceutical company, took an 82 percent loss in 2008 when it sold a portion of its auction-rate debt with a $642 million face value.
The maker of Plavix, the world’s second best-selling medicine behind Pfizer Inc.’s Lipitor, continues to hold $169 million worth of auction-rate bonds. It wrote them down by $75 million in the second quarter, according to regulatory filings.
An 82% loss on a supposed cash surrogate! A 44% writedown on cash! (more…)
Federal Reserve Fighting Transparency
Posted by Larry Doyle on August 27th, 2009 12:54 PM |
Given the enormous costs and burdens currently being borne by the American taxpayer during this financial crisis, are taxpayers supposed to blindly trust the Federal Reserve? Kudos to Bloomberg News for doggedly pursuing increased transparency on behalf of the Fed. Bloomberg reports, Federal Reserve Says Disclosing Loans Will Hurt Banks:
The Federal Reserve argued yesterday that identifying the financial institutions that benefited from its emergency loans would harm the companies and render the central bank’s planned appeal of a court ruling moot.
The Fed’s board of governors asked Manhattan Chief U.S. District Judge Loretta Preska to delay enforcement of her Aug. 24 decision that the identities of borrowers in 11 lending programs must be made public by Aug. 31. The central bank wants Preska to stay her order until the U.S. Court of Appeals in New York can hear the case.
“The immediate release of these documents will destroy the board’s claims of exemption and right of appellate review,” the motion said. “The institutions whose names and information would be disclosed will also suffer irreparable harm.”
The Fed’s “ability to effectively manage the current, and any future, financial crisis” would be impaired, according to the motion. It said “significant harms” could befall the U.S. economy as well.
The central bank didn’t say when it would file its appeal.
Fed lawyer Kit Wheatley told Preska in a conference call today that she did not know how long it would take for the Fed board to search the New York Fed for records.
“We really don’t know what’s in New York,” Wheatley said. “We don’t control the system of record-keeping in New York.”
The Standard
The Fed’s lawyer went on to say that she did not know what records would fall under a “delegated function,” which would be a task assigned to the New York Fed.
Preska interrupted Wheatley, saying that “Ms. Wheatley, I held that’s not the standard. You didn’t search under the regulation. You’re supposed to search under the regulation.”
Preska scheduled another conference call for 2:30 p.m. today to discuss the schedule for a search of the New York Fed.
“Nobody is going to deny you your right to an appeal,” Preska said on the call, “We’re going to do it expeditiously, not in a piecemeal fashion and hand it all off to the Second Circuit.”
The Fed has refused to name the financial firms it lent to or disclose the amounts or the assets put up as collateral under the emergency programs, saying disclosure might set off a run by depositors and unsettle shareholders.
Bloomberg LP, the New York-based company majority-owned by Mayor Michael Bloomberg, sued on Nov. 7 under the Freedom of Information Act on behalf of its Bloomberg News unit. (more…)
“Retired Securities Attorney Sues Nuveen Over Auction-Rate Shares”
Posted by Larry Doyle on August 27th, 2009 5:03 AM |
Wall Street can keep its arbitration hearings, it is time to sue banks and brokers over the frauds perpetrated in the sales and marketing of auction-rate securities. A securities arbitrator by the name of Howard Kastel is taking that very approach.
Every individual who opens a brokerage account typically signs a statement indicating that disputes will be addressed through an arbitration process. I find it fascinating that Kastel, a retired securities attorney who served as an arbitrator, has chosen to sue rather than arbitrate over his purchase of ARS.
You can’t make this stuff up!!
The Wall Street Journal highlights this case in reporting, Retired Securities Atty Sues Nuveen Over Auction-Rate Shares:
A retired securities attorney is suing Nuveen Investments and others in federal court over a $2 million investment in now-frozen auction-rate securities, contending that his case is too complex for arbitration.
Howard Kastel, 77, and his wife, Joan, filed suit Friday in the U.S. District Court for the Middle District of North Carolina against Deutsche Bank AG (DB), Nuveen Investments Inc. (JNC), Merrill Lynch & Co. and others. It alleges the couple were victims of a “fraudulent scheme” in which markets for the securities were manipulated.
I would maintain that Mr. and Mrs. Kastel should not be subjected to arbitration nor should any investor in auction-rate securities. I have yet to come across an ARS investor who was not a victim of the fraudulent scheme in which ARS were marketed and sold. The WSJ continues:
Investor complaints are generally handled in arbitration, but Kastel, who has been an arbitrator for years and still does some arbitration work, said that as a complex fraud case his complaint is inappropriate for arbitration. As a former securities attorney, Kastel said, he would also be an inappropriate plaintiff in a class-action lawsuit.
Arbitration is CLEARLY NOT the forum for any ARS investor. Who hosts arbitration hearings? FINRA. Yes, the same FINRA which owned and liquidated upwards of $647 million ARS from its own investment portfolio in 2007. Can you say, ‘conflict of interest?’ Do you think FINRA front-ran the market in the process of liquidating its ARS position? (more…)
Mary Schapiro Comments on Examining Books and Records
Posted by Larry Doyle on August 29th, 2009 6:51 AM |
If hedge funds and other financial firms are to be regulated for purposes of reviewing business practices, doesn’t it go without question that a financial self-regulatory organization which has invested in hedge funds should also be required to open its books and records?
In a recent interview, SEC chair Mary Schapiro was asked about the regulation of hedge funds. Wall Street Pit captured the entire interview, SEC Chair Schapiro: The Agency Lacks the Tools to Get the Job Done. This interview is very comprehensive and covers market structures, high frequency trading, derivatives, the Federal Reserve, systemic risk, the future of the SEC, and more.
The segment that jumped out at me was the following:
My point of this commentary is not hedge funds specifically but that Ms. Schapiro raises the topic of examining books and records and understanding how an entity conducts business.
Just as Ms. Schapiro feels hedge funds should be regulated for these purposes, who in their right mind would not want the same exposure and transparency required of the Wall Street self-regulatory organization, FINRA? That exposure and transparency is the basis for the complaint filed by Amerivet Securities vs. FINRA (Amerivet Complaint Against FINRA Alleges Madoff Investment).
Ms. Schapiro may have to recuse herself from any review of FINRA given her position as head of FINRA prior to heading the SEC.
In fact, given the questionable nature of FINRA’s activities (investment, regulatory oversight, compensation practices), the review of FINRA should be undertaken by an independent investigator.
Although FINRA itself does not want to provide transparency into its activities, transparency for a financial regulatory organization must happen without question.
LD
Tags: Amerivet complaint vs. FINRA, FINRA must open its books and records, hedge fund regulation vs FINRA, Mary Schapiro, Mary Schapiro comments on need to open books and records of hedge funds, Mary Schapiro comments on need to regulate hedge funds, Schapiro interview with Liz Claman, SEC Chair Schapiro: The Agency Lacks the Tools to Get the Job Done
Posted in FINRA, General, Hedge Funds, Mary Schapiro | 2 Comments »