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Discussion Forum : News and Current Events : The Dynamics of the 8/9/07 Stock Market Panic ... continue ...

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rookie
Member



Joined: 2003/6/3
Posts: 4791


 Re:

Brother Chris wrote:

Quote:
I don't think that there is a perfect financial system in the world. I tend to agree with capitalism simply because it provides freedom to succeed or fail. While it may be a little more difficult to make a living for some rather than others (due to certain financial or economic handicaps), it isn't impossible for anyone in America to live.




Scripture accurately describes God's economy. As MoeMac and Notme added to the discussion...it is God that provides for us.

But since you have said that you have understanding in micro and macro economics, I thought that you would understand the point that I have been developing here in this thread.

I believe that the world finacial system, especially the world banking system is based on shifting sand. I believe this system is refered to by Jesus in Scripture as mammon.

I listed a certain precept that is clearly described in Scripture...

Eze 45:8 In the land shall be his possession in Israel: and my princes shall no more oppress my people; and [the rest of] the land shall they give to the house of Israel according to their tribes.

Eze 45:9 ¶ Thus saith the Lord GOD; Let it suffice you, O princes of Israel: remove violence and spoil, and execute judgment and justice, take away your exactions from my people, saith the Lord GOD.

Eze 45:10 Ye shall have just balances, and a just ephah, and a just bath.

Eze 45:11 The ephah and the bath shall be of one measure, that the bath may contain the tenth part of an homer, and the ephah the tenth part of an homer: the measure thereof shall be after the homer.

Eze 45:12 And the shekel [shall be] twenty gerahs: twenty shekels, five and twenty shekels, fifteen shekels, shall be your maneh.
Pro 20:10 Divers weights, [and] divers measures, both of them [are] alike abomination to the LORD

Likewise we find this in Scripture...

Pro 20:10 Divers weights, [and] divers measures, both of them [are] alike abomination to the LORD.

There is no gray area if one understands world economics...

How does God's precept on economic standards compare with the world's financial system?

In Christ
Jeff


_________________
Jeff Marshalek

 2008/5/9 10:26Profile
ccchhhrrriiisss
Member



Joined: 2003/11/23
Posts: 4498


 Re:

Hi rookie...

Quote:
I believe that the world finacial system, especially the world banking system is based on shifting sand. I believe this system is refered to by Jesus in Scripture as mammon.

Of course, this is true. This has been true from the beginning of time (well, since Adam and Eve were banished from the Garden). But I would go so far as to say that it isn't just a "world banking system" that would be considered "Mammon." It is the unhealthy lust and craving for more of this present world. Remember, money is not the root of evil. It's not the money of Rome. It's not the Shekel. It's not the dollar. It is the LOVE of money that is the root of all kinds of evil.

I think that we can both agree on this. But the question, of course, comes back to our involvement. Since you have said that the financial systems of this world are "Satanic," at what point should we (or should we not) be involved? Every person on SermonIndex is indirectly contributing to the financial systems of this world. It takes real money (rather than gold or trading) to keep this website on the Internet. When I give to my local congregation, I give money (with the name of the United States of America written on it authenticating it as "legal tender"). We have bank accounts, credit purchases (such as homes, cars, computers, etc...). At what point do we draw the line if it is so "Satanic?" Wouldn't ANY involvement make us "partakers" with Satan?

I suppose that I should simply ask for your purpose in the continuance of this thread. It was started to show how the world might be headed toward an great economic depression by January 1, 2008. That didn't happen. I suspect that this might be more than just a demonstration of how "evil" or "Satanic" the world's financial system is -- because it would be just as "evil" during times of plenty as during times of famine. Is there something that you are trying to imply other than what we already know? Are you rebuking or advocating a particular behavior or practice? Are you simply cautioning the reader about the "shifting sands" of the economy (which have been shifting since Eden)? Or are you predicting something imminent might be on the horizon?

My brother, please understand that I am not prodding you or bringing contempt into this purpose. While I did study economics in a few courses, I am not an economist. However, I cannot foresee any way to live in this world without participating within the financial system. After all, Jesus instructed us to "render unto Caesar" using the very coins that contained the legal inscription and seal of pagan Rome. I've been looking through this thread but I haven't found any sort of direction other than the obvious inclusion of dire economic commentary from various news threads. I do appreciate them. But are they included for a reason?



_________________
Christopher

 2008/5/9 12:33Profile









 Re:

Quote:
Ccchhhrrriiisss wrote:
I've been looking through this thread but I haven't found any sort of direction other than the obvious inclusion of dire economic commentary from various news threads. I do appreciate them. But are they included for a reason?



.............................................
moe wrote:
Christians have many different theologies when it comes to money and giving. Jesus certainly used money. He sent Peter to catch the fish to pay the taxes.
Matt 17:26-18:1
"Then the sons are exempt," Jesus said to him. 27 "But so that we may not offend them, go to the lake and throw out your line. Take the first fish you catch; open its mouth and you will find a four-drachma coin. Take it and give it to them for my tax and yours."
In my opinion and understanding of theology, we are serving money when we hang on to it and not give to the Kingdom. Whereever our treasure is, our heart is also.
There are certainly some ungodly things about the world's economic system and always has been. There are some Godly things also in how we use it, if we use the money he provides to aid and help other people through the church, to further the Kingdom of God. When church history began, the disciples and all the new converts sold all that they had and put it together, to advance the Kingdom and had all things in common, yet some today will call a Christian a Pharisee if he preaches tithing 10%.
I am not trying to insinuate this is the reason for this thread because I don't know. There are some truth in the thread about the economy getting tight. The economy has gotten tight in the past, naming one, the great depression. People were jumping out of windows in loss of their money and fear and the end wasn't then. It may be now, in this economic downturn, I don't know, but it is very dangerous to call the day and the hour or to be in fear. Everything starts with a thought, if we are writing fear stories, we may become fearful.
Instead may we could encourage each other more as we see the day approaching.
Just my 2 cents



 2008/5/9 15:50
rookie
Member



Joined: 2003/6/3
Posts: 4791


 Re:

Brother Chris wrote:


Quote:
Of course, this is true. This has been true from the beginning of time (well, since Adam and Eve were banished from the Garden). But I would go so far as to say that it isn't just a "world banking system" that would be considered "Mammon." It is the unhealthy lust and craving for more of this present world. Remember, money is not the root of evil. It's not the money of Rome. It's not the Shekel. It's not the dollar. It is the LOVE of money that is the root of all kinds of evil.




I was thinking more in line with Fractional Reserve Banking Practices. Most of the issues we see today in the current financial crisis are rooted in this precept of creating something of value, "paper money" out of nothing. It seems to me that this financial system is not based on God's precepts. Man can easily manipulate and steal the value of a man's labor or assets. But in God's economy, His provisions are sure and never changing.

You see, in the book of Revelation, the financial system enables the kings, princes, and merchants to grow rich through trade. These men become rich because they create imbalances between nations. These "imbalances" are enabled by a financial system which can be manipulated by those who control the printing of fiat currencies.

Have you ever wondered why we Americans have to pay interest on the money that is printed by the Federal Reserve?

In Christ
Jeff


_________________
Jeff Marshalek

 2008/5/11 20:24Profile
ccchhhrrriiisss
Member



Joined: 2003/11/23
Posts: 4498


 Re:

Hi Jeff...

Quote:
I was thinking more in line with Fractional Reserve Banking Practices. Most of the issues we see today in the current financial crisis are rooted in this precept of creating something of value, "paper money" out of nothing. It seems to me that this financial system is not based on God's precepts. Man can easily manipulate and steal the value of a man's labor or assets. But in God's economy, His provisions are sure and never changing.

But don't you think that it is going a little far to accuse God of even having an [i]economy[/i]? God doesn't print money. He doesn't have a Heavenly Reserve Bank. He can (and does) create something from nothing. Instead of operating on a manager of his "assets," he freely gives to those who are in need or to those who have been good stewards. However, I don't believe that this goes to the extent that the prosperity gospel teaches -- where they "give so that they can receive." To accuse the American economic system of Satanic precepts would then indict anyone involved in the system (including those who use its currency certificates [dollars]).
Quote:
You see, in the book of Revelation, the financial system enables the kings, princes, and merchants to grow rich through trade. These men become rich because they create imbalances between nations. These "imbalances" are enabled by a financial system which can be manipulated by those who control the printing of fiat currencies.

Are you implying that the poor are poor and the rich are rich because of some great conspiracy? While I agree that the rich have a better opportunity to make more money (because of Investment Capital), the goal of capitalism is to provide each person the opportunity to earn a living through a free market. History has been filled with stories of individuals who started at the bottom and worked their way toward a fortune. Some of these individuals had little personal wealth or startup funds. Each time I walk into a KFC (Kentucky Fried Chicken), I am amazed at the work of an older gentleman who was able to turn his small truckstop diner into a nation-wide restaurant specializing only in fried chicken (a novelty at the time).

Remember -- a dollar is just a certificate (real or implied) that is "valued" at one dollar by the government. The Treasury only keeps a finite amount of money in circulation in order to prevent inflation or the overvalue of our currency. This is a sharp contrast with China, whose currency is drastically irregular.

At the same time, it is interesting to consider how we, as believers, should act. Should we use money? Jesus encouraged us to. Should we covet the things of this world? Jesus warned us against it. Should we provide for our familes? Yes -- or we are worse than an infidel.

I've noticed many good believers who almost boast about their poverty. Some of them have pointed the finger at those who own a house, a car, etc... and claimed that they were participating in the "Babylonian world system." Ironically, some of these were on "Government Assistance" and all of them used money. Shockingly, many of them have complained about the rich and even middle class (as if they could arrive to such a condition only by "selling their soul" to this "Satanic system"). I once told one of them that if they are going to "boast" in their poverty, then then need to be [u]content[/u] and stop complaining about anyone who isn't happily joining them.
Quote:
Have you ever wondered why we Americans have to pay interest on the money that is printed by the Federal Reserve?

I'm not sure what interest you are talking about. Remember, banks are NOT charities. They are private companies or corporations that are trying to earn a profit. If you are against paying interest, then don't borrow money or buy something on credit. It can be done! My wife's family built a 5 bedroom house using nothing but cash. Her parents don't even have a bank account! Her dad doesn't speak English and works as a janitor at a nearby Wal-Mart. They spent their summers as migrant workers, working in the fields (doing jobs that "supposedly" other Americans will not do). Yet he saved his money long enough to buy several nice acres and build (by hand) a large 5 bedroom 3 bathroom two-story home. How did he build it? He taught himself.

My wife has always been a US citizen (even though she was raised in Mexico throughout grade school). Yet she has been amazed at how little work ethic that Americans seem to have developed. Pastors in Mexico, she said, often have two or three jobs. One time, a pastor of a small nearby Spanish church visited her parents in their home asking for donations. This pastor said that he needed a car to drive back and forth from the church (he lived about a half-mile away from it). My wife's father politely told him that if he wanted a car, he needed to get a job. The pastor was offended and explained that a "workman is worthy of his hire." My father-in-law asked, "Well what is it that you do during the daytime?" The pastor replied, "Oh, I spend my days praying for the town, the congregation and revival in this area." My father-in-law replied, "SO DO I -- BUT I DON'T ASK TO GET PAID FOR IT!"

This is a little harsh, but I think that he has a point. David Wilkerson once preached that "greed is not only the sin of the rich, but the sin of the poor." In his message, Holy Ground, Wilkerson explained that those who have had enough often have seen the emptiness of wealth. They are content with the provisions needed to get through life. The poor, however, often become so envious of the things that others have. But this rich/poor contrast varies from place to place and culture to culture. At one point, a telephone or indoor bathroom was a sign of wealth. You know what? It still is. If you have a telephone, an indoor bathroom or even hot/cold running water in many places in the world (including Mexico), you would stand out as "rich."

The point that I have been trying to make is about why are we even concerned about the economic systems of this world? We should be so emotionally detached that we are ready to depart at any moment. Of course, I certainly want to provide for my wife (and future children). I will be relocating to California soon, and I am already in the process of job-hunting. But I know what it is like to have plenty, and I know what it is like to be poor. While I prefer to have enough, I still feel a need to be content no matter my condition.

I just think that it might be fruitless to point to the dire conditions of the economy just to illustrate how "Satanic" its precepts are. This is especially true if we partake -- even in the slightest -- in this system that we accuse of "Satanic" origins. In fact, the events that affect the economy on a national scale do not necessarily reflect difficulty on a local level. The housing market (complete with the foreclosures of people who were willing to accept those type of loans with unfixed rates) hasn't affected my wife and I. In fact, we are doing fairly well: We are not in poverty. But regardless of whether or not we eat steak or ramon noodles for dinner, we always give thanks.

:-)


_________________
Christopher

 2008/5/12 11:32Profile
rookie
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Joined: 2003/6/3
Posts: 4791


 Re:

Brother Chris

I hope to write back to you soon.

Your brother in Christ
Jeff


_________________
Jeff Marshalek

 2008/5/13 10:22Profile
rookie
Member



Joined: 2003/6/3
Posts: 4791


 Re:

Here is an article which talks about the type of lies I am refering too...


Libor Poised for Shake-Up as Credibility Is Doubted (Update3)

By Ben Livesey and Gavin Finch

May 13 (Bloomberg) -- The benchmark interest rate for $62 trillion of credit derivatives and mortgages for 6 million U.S. homeowners faces its biggest shakeup in a decade as lawmakers question if banks are understating borrowing costs.

For the first time since 1998, the British Bankers' Association is considering changing the way it sets the London interbank offered rate, according to Chief Executive Officer Angela Knight, who appeared before a parliamentary committee in London today. ``We've put Libor under review,'' Knight said in an interview yesterday. The BBA will announce changes May 30, she said.

The BBA, an unregulated London-based trade group, sets Libor by polling 16 banks each day on the rates they pay for loans in dollars, British pounds, euros and eight other currencies. The association is under pressure to show the rates are reliable following complaints by investors that financial institutions weren't telling the truth after the collapse of subprime mortgages nine months ago contaminated credit markets and drove up borrowing costs.

While the BBA set the one-month dollar Libor rate at 2.72 percent on April 7, the Federal Reserve said banks paid 2.82 percent for secured loans later that day. Secured loans typically yield less than unsecured debt.

``The Libor numbers that banks reported to the BBA were a lie,'' said Tim Bond, head of global asset allocation at Barclays Capital in London. ``They had been all the way along. The BBA has been trying to investigate them and that's why banks have started to report the right numbers.''

April Warning

Libor rates jumped after the BBA said April 16 that any member banks found to be misquoting rates will be banned. The cost of borrowing in dollars for three months rose 18 basis points to 2.91 percent in the following two days, the biggest increase since the start of the credit squeeze last August. The one-month rate climbed 14 basis points, its biggest gain since November.

The cost of borrowing in dollars for three months should be as much as 30 basis points, or 0.30 percentage point, higher than the current rate, Citigroup Inc. said in a report last month. Banks are understating borrowing costs on concern they will be perceived as ``weakened'' by the credit turmoil that forced banks to record $323 billion of losses and credit-markets writedowns, said Peter Hahn, a fellow at the London-based Cass Business School.

``Since the credit crunch, it's something that appears to have been manipulated,'' said Hahn, a former managing director at Citigroup. ``We are in an extraordinarily delicate confidence time where a small event can shatter things quite easily.''

Review Brought Forward

The BBA accelerated its annual review of Libor to assess if there's a fault with how the rate is computed, if it reflects ``difficult markets'' or is ``giving the right answer, just one that people don't want to hear,'' Knight said yesterday.

``Libor has stood the test of two decades,'' she said at today's parliamentary committee hearing. While the association has contacted all the member banks to investigate Libor ``volatility,'' the swings in the rate are ``hardly surprising'' amid the credit turmoil, Knight said.

``We have not run away or hidden from the need for reform or the need for review'' of ``serious'' issues in the U.K. financial-services industry, Knight said.

The BBA has submitted a report based on discussions with member banks to its independent Foreign Exchange and Money Market Committee, which is carrying out the review of Libor, said Brian Mairs, a spokesman for the BBA in London.

BIS Report

The banking group, which represents Citigroup, HSBC Holdings Plc and 14 other lenders, asks members each morning to say how much it would cost them to borrow from each other for 15 different periods ranging from a day to a year.

The Bank for International Settlements said in a March report some lenders were manipulating the rates to prevent their borrowing costs from escalating. The system still worked as it was meant to do as the credit crunch began in the middle of last year, the Basel, Switzerland-based BIS said.

Libor is used to guide banks in setting rates on most adjustable-rate mortgages. The prices they quote for credit default swaps are also linked to Libor.

``Libor is a proxy for the effective rates of the economy,'' said Rav Singh, an interest-rate strategist at Morgan Stanley in London. ``Libor eventually feeds into the economy. There's so much on the back of the Libor problem. There are structured products, all the swaps and then there are the hedging positions.''

Fed Action

To ease the credit crunch, the Fed cut rates seven times, created three lending facilities to help both banks and securities firms obtain funds and backed the takeover of Bear Stearns Cos., which was on the verge of collapse. In all, the central bank made more than $600 billion available to lenders and allowed Wall Street firms to borrow money overnight at the same so-called discount rate charged to commercial banks. Fed Chairman Ben S. Bernanke provided $29 billion of financing to back JPMorgan Chase & Co.'s bailout of Bear Stearns in March.

Bank representatives declined to say what recommendations they are making to change Libor.

HSBC and HBOS Plc spokesmen declined to comment. Deutsche Bank AG spokesman Ronald Weichert and Bank of America Corp. spokesman Scott Silvestri weren't immediately able to comment. Barclays, Royal Bank of Scotland and Lloyds TSB Group Plc declined to comment.

``I can confirm that along with the other 15 members of the BBA, as happens every year, we have been in consultations,'' said Richard Bassett, a London-based spokesman for WestLB AG. Rabobank Groep NV spokesman Anthony Arthur wasn't immediately available for comment.

Spokesmen for Mitsubishi UFJ Financial Group Inc. and Norinchukin Bank Ltd. weren't immediately available. A Royal Bank of Canada spokeswoman said it had discussions with the BBA as part of consultations with all Libor panel members and awaits the association's recommendations.

(end of article)

Part of the reason for this ongoing financial crisis is based on the fact that the banks stopped lending and doing business with each other because they don't trust each other....

In Christ
Jeff



_________________
Jeff Marshalek

 2008/5/13 10:25Profile
rookie
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Joined: 2003/6/3
Posts: 4791


 Re:

The Next Shoe to Drop
BY ROB KIRBY

In the wake of the recent unprecedented and highly questionable demise of Bear Stearns, I had the opportunity to speak with Catherine Austin Fitts regarding some of the fuzzier elements surrounding Bear’s demise.

Issues discussed included claims by options expert, John Olagues, outlining how massive buying of ‘puts’ and shorting stock led to the demise of Bear Stearns in an article titled, Bear Stearns Buy-Out... 100% Fraud:

“This article is about how Bear Stearns stock was artificially collapsed so that illegal insider traders would make billions and J.P. Morgan would be paid $55 billion of US tax payer money to shore up themselves and buy Bear Stearns at bankruptcy prices.”

By the way, the article referenced above is really great stuff – discussing details as to what happened and the timelines involved - which everyone should take the time to read. One particular issue surrounding the Bear Stearns event we discussed, which I feel must have been related more so due to “timing” than anything else, was the revelation of impropriety and the lightening quick removal from office of New York State Governor, Eliot Spitzer [announced resignation March 12, 2008]. Bear Stearns collapsed the very next weekend.

Tip Toeing Through the Tulips

Folks would do well to remember this op-ed piece Spitzer penned for the Washington Post:

Predatory Lenders' Partner in Crime
How the Bush Administration Stopped the States From Stepping In to Help Consumers
By Eliot Spitzer
Thursday, February 14, 2008; Page A25

Several years ago, state attorneys general and others involved in consumer protection began to notice a marked increase in a range of predatory lending practices by mortgage lenders. Some were misrepresenting the terms of loans, making loans without regard to consumers' ability to repay, making loans with deceptive "teaser" rates that later ballooned astronomically, packing loans with undisclosed charges and fees, or even paying illegal kickbacks. These and other practices, we noticed, were having a devastating effect on home buyers. In addition, the widespread nature of these practices, if left unchecked, threatened our financial markets.

Even though predatory lending was becoming a national problem, the Bush administration looked the other way and did nothing to protect American homeowners. In fact, the government chose instead to align itself with the banks that were victimizing consumers….

Ms. Fitts explained to me the following:

“The Governor of NY is responsible for three state pension funds one of the largest pension fund pools in the country. The Governor does not have direct control. The NY State Comptroller has the direct governance responsibilities. However, if there is serious fraud, it is the Governor's political responsibility to ensure that the retirement savings of State government workers are protected and the Comptroller and the boards have the resources and support they need to protect such savings. As fund performance impacts the amounts that the state and governmental budgets must fund annually, significant losses in the pension funds can impact government budgets not only in Albany but throughout New York. That is very much the Governor's business.”

Running the Gauntlet

And who would argue, regardless of any personal indiscretion, that Mr. Spitzer had a penchant for prosecuting cases of blatant fraud? How do you think Spitzer might have reacted under these circumstances had he remained governor?

But what I really learned from the dissertation above was this:

“The Governor of NY is responsible for three state pension funds one of the largest pension fund pools in the country.”

This talk of pension funds got me thinking – and researching:

“There are more than 100 public retirement systems in the U.S. managing a combined $2.3 trillion. The amount is $380 billion short of the funds needed to pay pensions over the next 30 years, according to the National Association of State Retirement Administrators in Baton Rouge, Louisiana.”

And then this comment by Fitts got me thinking a little bit more:

“I suspect that one of the reasons for the Bear Stearns deal, related market manipulations combined with the Paulson Plan was the fear of what was due out in March from the pension funds about their losses on mortgage and structured finance paper as well as financial stocks. Remember, UBS, Merrill, Citigroup...these firms package mortgage securities and sell them to investors, with a significant amounts going to pension funds and insurance companies. They traditionally do not hold large amounts of inventory. My guess is their write downs include derivatives and other types of assets. The really big write downs should hit the pension funds. Yet the silence coming from the pension funds since March has been deathly -- just as deathly as the suppression of the gold and silver price.

Spitzer could have proved -- and would have had a moral obligation to prove -- that the federal government's insistence on stopping enforcement in 2005 (see his editorial in the Washington Post -- linked on my blog -- in one of several Spitzer posts). Presumably this means that some of the financial liability for losses could have been shifted to feds or banks or both.

Over the past few months, who hasn’t read or watched articles or interviews streaming from the mainstream financial press about banks caught up in ‘sub-prime’ or derivatives issues – writing off seemingly endless amounts of toxic, un-saleable securitized mortgage derivatives?

But so far, as Fitts said, the silence coming from pension funds HAS BEEN DEAFENING!

Walk On the Wild Side

I decided to take a look at the largest pension pool in the U.S. – the 240 billion Calpers [California Public Employees Pension Fund] - we can see the breakout of their Fixed Income Investments. The following is from their most recent June 30, 2007 Annual Investment Report:

FIXED INCOME REPORTS - Calpers

ASSET BACKED SECURITIES

COMMERCIAL MORTGAGE LOANS

CORPORATE SECURITIES

DIRECT LOANS

DOMESTIC CASH EQUIVALENTS

GOVERNMENT SECURITIES

HIGH YIELD

INTERNATIONAL CASH EQUIVALENTS

INTERNATIONAL DEBT SECURITIES

INTERNATIONAL FIXED INCOME

MORTGAGE BACKED SECURITIES (CMO)

MORTGAGE BACKED SECURITIES (FHLMC)

MORTGAGE BACKED SECURITIES (FNMA)

MORTGAGE BACKED SECURITIES (GNMA)

MORTGAGE LOANS

SOVEREIGN SECURITIES

SWAPS

For the purposes of saving you readers a bit of time, represented above are 245 individual asset backed securities, 564 mortgaged backed securities of varying descriptions, 66 individual currency and interest rate swaps and two entries in the high yield category totaling more than 400 million in reported market value.

Selected Calpers Equity Highlights:

Having glanced through the equities portion of the same Calpers report, we see no less than 641 thousand shares of Bear Stearns with a reported market value of 140 bucks per share, more than 22 million shares of B of A with a reported value of 48+ bucks, 23 million shares of Citibank with a reported value of 51+ dollars per share, 565 thousand shares of AMBAC with a reported value of 87+ bucks per share, 948 thousand shares of MBIA valued at 62 bucks+ per share and for a bit of international diversification, let’s not forget 819 thousand shares of good ole Northern Rock valued at 17.70 per share.

Calpers is soon due to release their updated June 2008 Annual Investment Report. Anyone want to place a friendly wager on the extent of losses that are going to be reported?

Run for the Roses?

Isn’t it amazing that some folks REALLY DO KNOW when they’ve had too much of good thing?

The Rats [or at least some of the smart ones] Are Jumping Ship:

CalPERS resignations not connected - turmoil denied
Sam Zuckerman, Chronicle Staff Writer
Wednesday, April 30, 2008

The resignation of the CEO of California's public employee retirement system, announced Monday, was its second high-level departure in less than a week, prompting speculation about turmoil at the $240 billion pension fund.

It seems Calpers is not alone – misery really does love company, eh?

State Street Corp. Is Sued Over Pension Fund Losses

By VIKAS BAJAJ
Published: January 4, 2008

The State Street Corporation, which manages $2 trillion for pension funds and other institutions, ousted a senior executive on Thursday and said it would set aside $618 million to cover legal claims stemming from investments tied to mortgage securities.

State Street made the announcement after five clients sued it, claiming they had lost tens of millions of dollars in State Street funds that they were told would be largely invested in risk-free debt like Treasuries. One fund lost 28 percent of its value during the credit troubles in the summer after placing big bets on mortgage-related securities, according to the lawsuits.

I’ve got a ‘sinking feeling’ that State Street’s woes – cited above – are “jacks for openers.”

So who owned the rest of Bear Stearns stock anyway? According to Wikipedia:

Major shareholders [Bear]
The largest Bear Stearns shareholders as of December 2007 are:

Barrow Hanley Mewhinney & Strauss - 9.73% of the company

Joseph C. Lewis - 9.36%

Morgan Stanley - 5.37%

James Cayne - 4.94%

Legg Mason Capital Management - 4.84%

Private Capital Management - 4.69%

Barclays Global Investors - 3.60%

State Street 3.01%

Vanguard Group - 2.67%

Janus Capital Management - 2.34%

Legg Mason Funds Management - 1.95%

Fidelity Management- 1.93%

Putnam Investment Management - 1.90%

Neuberger Berman - 1.55%

UBS - 1.54%

Mr. Aglamaz - 0.85%

So it wouldn’t be a “stretch” to suggest that State Street [or whoever the beneficial owner of those shares really was] lost a pile of money.

Conclusion[s]: Damage to the financial system is, in all likelihood and despite claims from the likes of Mr. Paulson or Mr. Bernanke, much, much greater than has already been reported. While banks have reported ‘write downs,’ the pension funds have barely, to date, uttered a word.

The public retirement/pension system has likely been “looted.” We just don’t know how bad – yet.

As Catherine Austin Fitts reminds us,

“Remember, UBS, Merrill, Citigroup...these firms package mortgage securities and sell them to investors, with a significant amounts going to pension funds and insurance companies. They traditionally do not hold large amounts of inventory.”

What we can take away from the clarity and wisdom of Ms. Fitts – another shoe is going drop - and soon.

(end of article)

In a little more than a month we will see if this is true...




_________________
Jeff Marshalek

 2008/5/21 10:36Profile
rookie
Member



Joined: 2003/6/3
Posts: 4791


 Re:

Reuters
Moody's stock suffers record plunge on rating error
Wednesday May 21, 11:00 am ET
By Walden Siew


NEW YORK (Reuters) - Shares of Moody's Corp (NYSE:MCO - News) fell more than 13 percent on Wednesday, the biggest one-day drop since becoming an independent company in 2000, after the rating agency said a computer snafu resulted in incorrect top ratings for complex debt.


The Financial Times first reported a coding error resulted in wrong "Aaa" ratings for debt known as Constant Proportion Debt Obligations, known as CPDOs.

Moody's shares fell over 13 percent to $37.95 in the largest one-day drop in the stock since it was spun off from Dun & Bradstreet in 2000.

A Moody's spokesman in New York said the rating agency is "conducting a thorough review" of its rating methods for European CPDOs specifically, due to the computer glitch. The review of its computer coding does not extend to subprime mortgage debt, collateralized debt obligations or corporate bonds, Moody's said.

"Moody's is simply telling the truth slowly, and there's more truth to be told," said Janet Tavakoli, a consultant and president of Tavakoli Structured Finance in Chicago.

"Up until now I thought the rating agencies were incompetent rookies in structured products," Tavakoli said. "Now I'm suspicious that they may be crooked."

Agencies like Moody's Corp (NYSE:MCO - News), McGraw-Hill Cos. Inc.'s (NYSE:MHP - News) Standard & Poor's and Fimalac's (Paris:LBCP.PA - News) Fitch Ratings have been under pressure by investors, regulators and critics for the past year for incorrectly rating subprime mortgage debt.

Losses from deteriorating subprime mortgage and repackaged debt have led to more than $400 billion of market losses, according to Fitch Ratings.


(end of article)

again from the article for emphasis...

"Moody's is simply telling the truth slowly, and there's more truth to be told," said Janet Tavakoli, a consultant and president of Tavakoli Structured Finance in Chicago.

"Up until now I thought the rating agencies were incompetent rookies in structured products," Tavakoli said. "Now I'm suspicious that they may be crooked."


_________________
Jeff Marshalek

 2008/5/21 12:18Profile
rookie
Member



Joined: 2003/6/3
Posts: 4791


 Re:

Here is an example of changing weights and measures....



JPMorgan Swap Deals Spur Probe as Default Stalks Alabama County

By William Selway and Martin Z. Braun

May 22 (Bloomberg) -- As nighttime temperatures plunged in Birmingham, Alabama, last October, Dora Bonner had a choice: either pay the gas bill so she could heat the home she shares with four grandchildren, or send the Birmingham Water Works a $250 check for her water and sewer bill.

Bonner, who is 73 and lives on Social Security, decided to keep the house from freezing.

``I couldn't afford the water, so they shut it off,'' she says.

Bonner's sewer bills have risen more than fourfold in the past decade. So have those of others in Jefferson County, which has 659,000 residents and includes Birmingham, the state's largest city.

What's threatening to increase them even more isn't the high cost of treating waste; it's the way county officials chose to finance the $3.2 billion in debt they took on to build a new sewer system. The county relied on advice from a bank, JPMorgan Chase & Co., to arrange its funding, rather than use competitive bidding.

Like homeowners who took out mortgages they couldn't afford and didn't understand, Jefferson County officials rejected fixed- rate debt and borrowed instead at rates that varied with the market.

The county paid banks $120 million in fees -- six times the prevailing rate -- for $5.8 billion in interest-rate swaps. That was supposed to protect the county from rising rates for their bonds. Lending rates went the wrong way, putting the county $277 million deeper into debt.

Interest Rate Soared

In February, the county's interest rate soared to as much as 10 percent, up from 3 percent just weeks earlier. The swaps have now compounded the risk that Jefferson County will file for bankruptcy as it faces its worst financial crisis since it was founded in 1819.

The same subprime chaos that has felled chief executive officers on Wall Street and forced banks to write off $322 billion has plowed into Jefferson County and other municipalities. That means local officials now have to pay to banks money that otherwise might have been used to build schools, hospitals or public housing.

Meanwhile, the U.S. Securities and Exchange Commission and the Justice Department are now investigating bankers and officials involved in Jefferson County's swap agreements.

Bankers who worked for New York-based Bear Stearns Cos. and JPMorgan when Jefferson County bought its swaps have been told they might face criminal charges under an antitrust investigation of the municipal derivatives industry, according to records filed with the Financial Industry Regulatory Authority Inc.

SEC Sues Mayor

On April 30, the SEC sued Larry Langford, the former county commission president and now Birmingham's mayor, for fraud in allegedly accepting $156,000 from a local banker while refinancing the sewer debt. Langford denies any wrongdoing. JPMorgan spokesman Brian Marchiony declined to comment for this article.

The Federal Bureau of Investigation has raided financial advisers in California, Minnesota and Pennsylvania to get files. In January 2007, Charlotte, North Carolina-based Bank of America Corp. agreed to cooperate with federal prosecutors in exchange for leniency. Bank of America spokeswoman Shirley Norton declined to comment.

Jefferson County -- which weathered the U.S. Civil War in the 1860s and racial strife in the 1960s -- is now scrambling to avert what would be the biggest municipal bankruptcy in the nation's history, measured by outstanding bonds.

``It's going to come back to us, to the people,'' says Bonner, a retired waitress. ``Whether you're poor or you're rich, you're going to end up paying.''

Secret Swap Fees

JPMorgan, Bank of America, Bear Stearns, and Lehman Brothers Holdings Inc. charged Jefferson County about $50 million above prevailing prices for 11 of the interest-rate swaps the county bought between 2001 and 2004. None of the fees were disclosed to the commissioners, records show.

Porter, White & Co., the Birmingham-based financial advisory firm later hired by the county to analyze its swaps, said the banks raked in as much as $100 million in excessive fees on all 17 of its swaps.

The swaps are contracts in which the county and the banks agreed to exchange periodic payments based on the size of the outstanding debt and changes in prevailing lending rates. Swaps are derivatives, which are unregulated financial contracts tied to the underlying value of a security, commodity or index.

Jefferson County's deals started to unravel in January after its bond insurers, Financial Guaranty Insurance Co. and XL Capital Assurance Inc., suffered hundreds of millions of dollars in losses on securities tied to home loans.

Bonds Take Hit

Standard & Poor's downgraded Financial Guaranty's credit rating to AA from AAA on Jan. 31. The next week, Moody's Investors Service cut XL Capital six levels to A3. Moody's then downgraded Financial Guaranty to A3.

When a bond insurer takes a ratings hit, so do the bonds it has guaranteed; the insurer effectively lends its high rating to the bond issuer.

That's what happened to about $3 billion of Jefferson County's debt, causing its interest rate to balloon to as high as 10 percent in February and March from 3 percent in January. That helped increase its total monthly debt payments to $23 million from $10 million.

``It happened overnight,'' County Commission President Bettye Fine Collins says. ``It became a situation that worsened every day.''

The turmoil in Jefferson County might be just the beginning of a new, painful chapter in the subprime debacle.

``The Jefferson County crisis could have national implications,'' says U.S. Representative Spencer Bachus, who represents the county and is the top Republican on the House Financial Services Committee. ``Large defaults in the municipal bond market could have a ripple effect on the larger U.S. financial system, again causing systemwide financial stress.''

Bear Stearns Saved

The banks that sold the toxic financing to Jefferson County have themselves fallen victim to the subprime crisis -- none more so than Bear Stearns. The firm, which sold $1.6 billion in swaps to the county, saw its shares plunge 95 percent from Jan. 1 to March 17 before it was bailed out by the Federal Reserve in March.

The Fed negotiated a deal in which JPMorgan bought Bear for $10 a share. JPMorgan had sold $3.2 billion in swaps to Jefferson County.

``It's ironic that the Fed can do corporate welfare for the banks, but they can't bail out a county that was victimized by these banks,'' says Craig Greer, a Catholic chaplain at a Birmingham hospice.

The SEC and Justice Department are probing whether the banks that financed Jefferson County conspired nationwide to fix prices for derivatives, violating the Sherman Antitrust Act, according to target letters sent to bank employees.

Criminal Charges

At least four JPMorgan bankers who worked for the bank at the time Jefferson County deals were done, including Douglas MacFaddin, the former head of municipal derivative sales, have been told by the U.S. Attorney's office that they could face criminal charges, records show. MacFaddin, who was fired in March, couldn't be reached for comment.

``In Jefferson County's case, the people who were allegedly doing the price fixing were right at the center of the scandal,'' says Christopher ``Kit'' Taylor, who ran the Municipal Securities Rulemaking Board, the public finance regulator in the U.S., from 1978 to 2007.

Jefferson County could use the federal probe of the banks that financed the sewer debt as leverage to stop the firms from demanding more money, Taylor says. So far, the county has won agreements with JPMorgan and the other banks to keep from being forced to buy back as much as $847 million of unwanted bonds or pay up the $277 million it owes on its swaps.

Don't Pull Trigger

The banks might be worried that Jefferson County, if pressed, could walk away from the derivatives trades on the grounds that they were signed in what might have been fraudulent deals written by the banks, Taylor says. That threat could be enough for the county to bide its time as it works for a solution.

``The big boys don't want to pull the trigger,'' Taylor says. ``Then they might end up upsetting the whole derivatives apple cart because of what a judge may do in a court case.''

Some Jefferson County residents have taken to joking about the mess local officials and banks have dumped on them. Greer, the chaplain, is selling what he calls look-alike bonds, for $2.50. He says they should be used as toilet paper. He's also distributed bumper stickers saying ``Wipe Out Sewer Debt.''

Not everyone is laughing. Outside a Piggly Wiggly grocery store in western Birmingham, Charles Boyd, a construction supervisor, says it seems like the only thing he does is pay bills.

``It's just not like it used to be,'' Boyd, 67, says. ``It's rough. And I'm working, so when people talk about their sewer bills, I know it's hard. The sewer bill is higher than the water bill. It's ridiculous. It's outrageous.''

Seeds of Crisis

The seeds of Jefferson County's debt crisis were planted in December 1993, when three citizens filed a lawsuit against the county commission, alleging untreated sewage was being discharged into the Black Warrior and Cahaba rivers during heavy rains, in violation of the federal Clean Water Act.

The U.S. Environmental Protection Agency in 1994 joined the taxpayers who filed the complaint. In December 1996, the county settled the case by agreeing to build a sewer system for collecting overflows and cleaning the water.

In 1997, the county began selling bonds to raise money for the project. Most of the bond sales, all done without competitive bidding, were arranged by Charles LeCroy, a banker at St. Petersburg, Florida-based Raymond James & Associates Inc.

`Cash Cow'

By November 2002, the county had issued $2.9 billion in sewer bonds, with an average rate of 5.25 percent; the cost of building the sewer system doubled from initial projections. Meanwhile, LeCroy had been hired by JPMorgan, taking the county's debt work with him.

``Jefferson County became a cash cow,'' says County Commissioner Shelia Smoot, a Democrat.

In 2002, with municipal bond interest rates near a 34-year low, LeCroy told Jefferson County officials they could save millions of dollars by refinancing their sewer debt. He recommended that the county use a combination of adjustable-rate bonds and interest-rate swaps.

The officials took JPMorgan's advice, and in 2002 and '03 Jefferson County issued $3 billion of adjustable-rate bonds, including $2.2 billion of auction-rate securities, bonds whose interest rates reset at periodic auction sales by banks.

Swaps Seminars

Those bonds provided the banks with about $55 million in fees, county records show. JPMorgan sold Jefferson County $2.7 billion of interest-rate swaps, Bank of America sold the county $373 million in swaps and New York-based Lehman Brothers sold the county $190 million more.

The swaps, if they worked as designed, would allow Jefferson County to pay about 4.2 percent on its debt for 40 years.

Jefferson County was so enthusiastic about its sophisticated debt management techniques that in 2003 and 2004 it held ``Investor Relations'' seminars each year in a Birmingham hotel.

The events were sponsored by 32 banks, advisers, law firms, bond insurers and rating companies, including CDR Financial Products, the county's Beverly Hills, California-based swap adviser, Bear Stearns and JPMorgan. County officials solicited sponsorships, including $27,000 from JPMorgan, $15,000 from Bear Stearns and $10,000 from CDR.

``We have so many little municipalities around here that can't afford to go for any kind of training,'' says Linda Goldblatt, the county's investor relations director. ``We thought it would be a good idea to help get them some idea of what's going on out there.''

`Prudent Financial Management'

Bankers from Bear Stearns and JPMorgan, along with advisers from CDR, led the sessions.

``The worldwide use of privately negotiated derivatives has generated considerable momentum,'' a JPMorgan presentation said. ``The need for prudent financial management continues to drive the wider use of privately negotiated derivatives.''

The phrase privately negotiated is a euphemism bankers use to describe debt deals that are struck without competitive bidding -- as all of Jefferson County's were.

Then JPMorgan banker Matthew Roggenburg quoted Federal Reserve Chairman Alan Greenspan, who lauded derivatives because they create a more flexible and efficient financial system.

``New financial products have enabled risk to be dispersed more effectively to those willing, and presumably able, to bear it,'' Greenspan said in an April 2002 speech. ``Shocks to the overall economic system are accordingly less likely to create cascading credit failure.''

Upfront Cash

In 2004, three months before one of the seminars, Bear Stearns, along with Montgomery, Alabama-based underwriter Blount Parrish & Co. and Mobile, Alabama-based Gardnyr Michael Capital Inc., pitched the county another swap deal, its largest yet.

The county sought to generate millions in upfront cash to hold down sewer bills by agreeing to pay 67 percent of the one-month rate on the London interbank offered rate. In return, the banks would pay the county 56 percent of one-month Libor plus 0.49 percentage point.

In June 2004, the county entered into $1.5 billion of swaps with Bear Stearns on those terms and another $380 million swap with Bank of America on those terms. Jefferson County received $25 million in upfront cash.

The deals also gave Jefferson County the distinction of holding the most interest-rate swaps -- $5.8 billion in all -- of any county in the U.S.

County Commissioner Jim Carns, 67, says the banks used the lack of transparency in derivatives to overcharge Jefferson County.

`Unregulated Market'

``It's easier for mischief to take place in an unregulated market,'' he says. ``You don't have a teacher watching the playground.''

A year after the swaps deals with Jefferson County, JPMorgan's LeCroy ran into legal trouble. He was indicted in June 2004 on federal fraud charges in a municipal finance corruption scandal in Philadelphia. JPMorgan fired him. In January 2005, LeCroy pleaded guilty and was later fined $15,000 and imprisoned for three months. He declined to comment.

The SEC's action against Langford, the former county commission president, hit closer to home. In April, the agency accused Langford in federal court of fraud for failing to disclose he had accepted more than $156,000 from William Blount of Blount Parrish.

Langford steered a portion of the work on every swap and bond deal in 2003 and 2004 to Blount, which was paid more than $6.7 million in fees, according to the complaint. The SEC said in an April 30 press release that it was still investigating. Langford says the SEC's allegations are untrue.

`Political Witch Hunt'

``It was a political witch hunt from day one,'' he says. ``Blount and I have been friends for 30 years. He wouldn't have had to buy no involvement in no bond deal from me.''

Andrew Campbell, a lawyer for Blount, denies any wrongdoing and says the SEC doesn't have jurisdiction over swaps.

The SEC has asked the Jefferson County commissioners to turn over information regarding payments, fees and gifts relating to the county's bond deals and swaps since January 2002, according to Commissioner Collins.

The agency specifically asked for all communications with Bank of America, Bear Stearns, JPMorgan and Lehman Brothers.

Bachus, the Alabama congressman, says the entire controversy would have been avoided if Jefferson County had simply used the kind of financing all municipalities once used: fixed-rate bonds, which through the early 1970s were almost always sold through competitive bidding.

`Knew the Risk'

``On a 30-year issue at a fixed rate, then everybody knew the risk,'' Bachus says. ``Now, with these swaps and these different transactions, the taxpayers, the ratepayers, even the county -- I don't think they understood what they were getting into.''

Some of Jefferson County's commissioners agree. Collins, a Republican and one of the two current members of the five-person board who were there when the deals were struck, says it's now clear that the financing was wrong for the county.

Commissioner Smoot says the commission misplaced its confidence in the bankers and advisers.

``I blame the people who said they were the experts,'' Smoot says. ``The big Wall Street bankers. Where are they now? We trusted them. We asked our folks to trust them. And you know what- -- they violated our trust.''

The interest rate on $2.2 billion of the county's bonds was determined by bond auctions to investors, periodically run by banks. Because of the global debt crisis, investors and banks began pulling money away from the auction-rate-securities market at the start of 2008.

Almost Doubled Rates

When those auctions failed because no one bought the securities, Bank of America and JPMorgan, seeking to shore up their own capital, didn't step in and buy the Alabama debt, as banks that had run such auctions had in the past. That forced Jefferson County to almost double the interest payments on its auction-rate bonds.

Meanwhile, the payments the county received under its swap agreements, which were supposed to cover the interest payments on its floating-rate bonds, went down. The payments were supposed to track the county's bonds, covering any increase to its bills. Instead, they added to them.

``We were already on the razor's edge of what we could afford,'' Commissioner Carns says. ``We're going into the Superbowl with one arm in a cast and another tied behind our backs.''

Cut to Junk

February brought even worse news, Carns says. On Feb. 26, Moody's cut the sewer bonds to Baa3, one step above junk. The downgrade triggered clauses in the county's swap agreements. Bank of America, Bear Stearns, JPMorgan and Lehman Brothers now had the right to cancel the deals -- at a cost of $277 million to the county.

The group of banks left holding almost all of its $847 million of unwanted bonds could also cancel the deals to act as buyers of last resort and force the county to buy the bonds back. On Feb. 29, Standard & Poor's cut the sewer bonds to junk.

``Once we got cut to junk status, we couldn't go any lower without just leaving the scene and turning over a corpse to somebody,'' Carns says.

In March, the county sent its financial advisers from Porter White to meet with JPMorgan, other banks and bond insurers in New York.

They tried to convince the bank to take about $30 million of the revenue from the one-cent sales taxes it collects for a $1 billion school construction bond and add those funds to the $115 million of annual income the county's sewer system can use to pay for the debts.

`We Cannot'

That would still have left the county with at least $100 million less than what it says its annual interest bill would be. The banks and insurers didn't accept the offer. They told the county to find ways to increase sewer revenue, Porter White's President Jim White says.

``We cannot raise sewer rates,'' Commissioner Collins says. ``We've done that and we've done that.''

Birmingham resident Dora Bonner, the grandmother who lost her water, says she feels betrayed by the county's politicians.

``They're not interested in us,'' she says. ``We elect them, then they turn the other way.''

Bonner and other residents are paying for a lesson that Warren Buffett, the world's richest man, wrote about in 2003. Derivatives are like hell, he said: ``Easy to enter and almost impossible to exit.''


_________________
Jeff Marshalek

 2008/5/22 8:20Profile





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