Financial Heroes Awards: Elizabeth Warren.

THE FINANCIAL HEROES AWARD: ELIZABETH WARREN

As we have read, there are some seriously screwed up sleezeballs in the world of high finance. And it seems that no one has the courage to keep them in line. With most politicians willing to look the other way at first glace of a hand-me-out, it seems that there aren’t a lot of people willing to wear the big S on their chest and go fight crime the modern way: through legislation and policy that will protect consumers. And that’s why this week we are recommending none other than newly appointed Massachusettes state senator, Elizabeth Warren, for our bi-weekly feature “The Financial Hero Awards.”

Elizabeth Warren is a bankruptcy law expert, having graduated with a JD from Rutgers School of Law–Newark. She’s been a professor and Harvard law school and has also served on. She’s done countless interviews about the mortgage collapse, served on the chair of the Congressional Oversight Panel for the TARP bailout (trust me, she was one of the good ones in this mess,) and was an adviser to Obama’s Consumer Financial Protection Bureau. Her whole life has been dedicated to one main concern: preventing the financial elite from completely screwing folks like you and me.

Her rising star shone even brighter this election cycle when she took down Scott Brown, the Republican incumbent senator of Massachusettes. And right on time, too: her relationship with the Obama administration has been a positive one, and their work together has already proven crucial in the world of financial reform.

Elizabeth Warren has been a rumored candidate for the 2016 presidential election. Obviously, it was far too early to start projecting future candidates. But it could happen. She’s popular in the political world and clearly ambitious enough to fight Wall Street. If she becomes the first woman president, a clear irony will occur: that a woman will be the only person with the balls to take on corrupt financial practices.

That’s why we tip our hat to you, Senator Warren. May your work strike effectively against the elite, and may we never have another crash again with your protective oversight over our economy.

Avoid the “fiscal cliff” America: Cut the cord with big business.

Over the past couple of days, it seems that everytime I turn on the computer two things seem to pop up every time:  Former head of CIA David Petraeus’ scandal and how America is about ready to jump off a financial cliff.  I’ve been hearing the term “austerity” or the reduction of services to citizens throughout the past couple of days and after reading countless of articles about how to cut the budget, one thing came to mind: why not cut corporate welfare?  The United States’ defecit is filled with a myriad of debts, loans, subisdaries, mostly from big businesses.  Also let’s not forget that Social Security and Medicare has unfunded liabilities at over 100 trillion dollars.  However, the biggest culprit is the Department of Agriculutre, which is given in excess of 25 billion dollars, follwed by energy department (17 billion).  

There are many types of corporate welfare, from the 182 million dollar bailout of insurance company AIG in 2008, to President Obama’s 67 billion dollar bailout of the automotive industry.  Both of these I feel are prime examples bailouts in which there were polarizing points of view.  Let’s be honest, by cutting corporate welfare and saving an estimated 100 billion dollars a year, won’t balance our government’s budget however it will start a new wave of politics in which lobbyists in Washington will have no pull over anyone and law-makers will not have to fear giving anymore subusidies to those who constantly need them.  This is easier said than done, however if there is anything that both republicans and democrats believe in it corporate welfare.  On one side you have the republicans, who favor big business such as the banks, and companies, and then you have the Democrats, who oppose big business but are in favor of bigger government so in regards of handling of handling people’s monies, both have their fair share of screw ups (I’m being overtly nice with my use of langugage).

Cutting corporate welfare from our government is vital for us simply because we cannot run the risk of making money off of companies investments.  Some may argue that the AIG bailout was a success, as it brought the US an 18 billion dollar profit.  However, that is not the norm and when one wants to think about corporate welfare I would like to infrom you about a little company that due to it’s risky investments collapsed: Enron.  December 31, 2012 is the date that we are supposed to fall off the fiscal cliff, taxes are supposed to increase, unemployment might go up, and if not managed carefully, we will spiral downard into a sea of recession.  Ending corporate welfare is not going to single-handedly end our recession, however it will show the public that our governemnt is starting to take care of those who vote them to their positions in the first place, and that alone is a small step for all of us.

The Financial Sympathy Awards: Ben Bernanke

The Financial Sympathy Awards: Ben Bernanke

By Steve Thomsen

There are very few people in the world of high finance that I have respect for. Most are like Lloyd Blankfein, balding little twerps with a pathetic sense of self-entitlement. The Angelo Mozilos of the world all seem to have this attitude that anyone who talks about income inequality is directly blaming them, and therefore they should have no sympathy toward their detractors when they screw them over with junk financial products. It keeps them in an oddly removed state of mind where they’re never wrong and anyone who criticizes them is doing so for good old-fashioned character assassination. Except for Franklin Raines (this link contains a list of stories pertaining to his many many sins), who will say that you’re a racist for criticizing his work as Director of the Office of Management and Budget and his role in the Fannie Mae disaster.

Despite all of this, there is one man in the financial elite that doesn’t deserve the same heat as the rest of the goons on Wall Street. He’s been our Federal Reserve chainman since 2006 and has been called the worst names in the book. His partnering with Henry Paulson to pass the $700 billion TARP was truly controversial and his alliances in politics and finance have been widely condemned. Oh yeah, and he also was rumored to have bullied Bank of America in their merger with Meryl Lynch. But really, when it comes to Fed Chairman Ben Bernanke, we probably couldn’t have done much better than he did when it came to the financial crisis.

Ben Bernanke is a very bright man. He was a Harvard University undergrad, having been accepted with an SAT score of 1590 out of 1600 (and, strangely, he was very good friends with former Goldman Sachs CEO, Lloyd Blankfein.) From there, he attended the Massachusetts Institute of Technology for his doctorate of philosophy in economics. And from there, he was a Princeton professor and taught a class at George Washington University. After his teaching tenure, he went into government. He first sat at the governor’s board of the Federal Reserve in 2002. And then, in 2006, George Bush appointed him the chairman to follow Allan Greenspan.

It is perhaps because of the despicable cast of characters that surrounded Bernanke that I have a lot of sympathy for him. Compared to Greenspan, Bernanke was a saint. Bernanke was much more pragmatic in his dealings with the financial crisis, often making the moves that he did because it seemed the only way to handle such a horrible situation. This is in direct contract with someone like Franklin Raines, who was implicated in severe accounting fraud (and was still able to retire with his fortune intact.) And throughout the disaster, Bernanke was the only one who seemed nervous. Henry Paulson would blow up the world, then calmly present Congress with three pages of paper that were worth $700 billion total. When Bernanke gave his input, you could see him visibly shaking. My only assumption was that he was astonished by the God damn severity of the situation he found himself in.

Republicans and Libertarians are the most vocal in their hatred for Bernanke. They say he’s the Monopoly guy, printing fake money and telling everyone that it’s real. And they aren’t entirely wrong in that assessment. Bernanke has pumped a lot of paper money in the system to try and drive down interest rates. This has led to a level of inflation, but you’d be hard pressed to say it didn’t prevent a full-blown depression. As a matter of fact, many of the methods Bernanke used to try and avoid an even bigger crisis is straight out of the Great Depression playbook. His use of government bonds and low interest rates is truly strategic, like a good game of chess. And it must be the most nerve-racking job in the world. It’s no wonder he’s lost all his hair by this point.

The Ron Pauls of the world are convinced that Bernanke is Satan and his bailouts were “unconstitutional” (despite the fact that the founding fathers had no idea about the world of modern finance.) Many fiscal conservatives say AIG should have gone bankrupt. But that’s a narrow-minded view. The truth is, Bernanke’s actions to save AIG, while imperfect, were necessary to saving the whole financial world. Every depositor in America would have lost their savings if he had done things the conservative way. And while he shouldn’t have forced AIG to pay 100 cents on the dollar of what they owed to shady financial firms like Goldman Sachs, the takeover was an example of how we need government and big business to work together.

In 2009, TIME magazine named him the person of the year. And I have to say, I agree with them. He was the bold (although somewhat shaken) man who prevented the disaster. The people who hate him have to understand one thing: this was the man who sat at the table with the real villains of the story. He watched them all sit around the financial world’s self-destruct button and prayed to God that they wouldn’t push it. But when they did, he took on the bold task of cleaning up their mess. And that’s why, in a weird way, I have much respect for Mr. Bernanke. I’m very interested to see who will succeed him after his departure in 2014. But we can all agree on one thing: whoever succeeds him can’t possibly be as bad as Allan Greenspan.

What’s the “fiscal cliff” and why are we jumping off of it?

The morning after last Tuesday’s presidential election one of the first things that I heard and read on the radio was the subject of the United States falling off a “fiscal cliff” and how Speaker of the House John Boehner told the president that we as Americans are looking up to him to help us avoid off of it.  I was curious as to what Mr. Boehner was referring to as a “fiscal cliff” and this article from NPR explained it to me plain and simple.  What Boehner was talking about was that effective Dec. 1 2013, the Bush tax cuts that were imposed in 2001 would expire, meaning that taxes will increase even more on both the wealthy and the middle class.  Further more unemployment benefits will be cut so millions of Americans that receive help from the government will be on their own.  If you would like some more information on how jumping off  the “fiscal cliff” would affect you, there is another wonderful article by NPR that highlights certain scenarios from the increase in taxes that could possibly affect our economy.  As we near the end of the year, we will probably hear this term of “fiscal cliff” become more prevalent, however it is important to look at both sides of the coin, no matter how one sided it looks right now.

Money Talks....for now.

Back in 2010, the United States Supreme Court made a ruling in The Citizens United vs. the Federal Election Commission which ruled that the government could not declare corporations spending in candidate elections as unconstitutional, in which President Obama declared it “a big victory for oil companies” and corporations in general.  The supreme court backed up its decision by saying that they cannot prohibit people from participating in political speech.  Bollocks! I can’t seem to wrap my mind around the fact that our Supreme Court thinks that political action committees “simply engage” in political activity.  The facts are all over the place.  There are websites dedicated to show the public who and and how much certain people or corporations donate to each political candidate.  Opensecrets.org, which is one of these websites that show us how much political influence some corporations have over both political parties.  

For example, take American Crossroads, founded by none other that republican Karl Rove (insert ominous music here) donated 105 million dollars to their respected parties, and also opened up a 501(c)(4), or a tax exempt, nonprofit organization which donated 71 million dollars, all without disclosing information on whom they donated for.  Other top contributors for Governor Romney include, Goldman Sachs, Bank of America, and JP Morgan and Chase.  However, the big spender of this years presidential election is Nevada casino billionaire, Sheldon Adelson.  The New York Times wrote that Adelson donated more that 60 million dollars spread amongst eight candidates.  We all heard of the phrase money talks, well in Mr. Adelson’s case he wants the whole world to hear him out.  However, this election had an interesting turn of events in which the following happened: All eight of the candidates that Adelson supported, none of them won any of their respected elections.  This marks a sudden change in which it feels like people don’t need to feel like they need money to have things go their way.

Granted, one could argue that President Obama also had their PAC’s try to help them out (in which companies like Microsoft and Google contributed significantly) however people do not have a real disdain for these corporations, whereas the first things that comes to people’s minds when you hear of the banking industry is “money hungry bastards who have no concerns for anyone but themselves and their pockets.  However, people now more than ever feel like they have a voice and are slowly starting to unite to get what they need: the students.  In a highly tight poll, Proposition 30 which would have created trigger cuts by about 6 billion dollars to the education system, failed to pass, creating happy students and happy teachers all across the state of California.  Proposition 30 was heavily supported by the California Faculty Association, in which it successfully spread the word and advertised to the students about how this was going to affect them.  Charles T. Munger, a California based lawyer, donated about 55 million dollars out of his own pocket to stop proposition 30 from passing and failed. I feel like it was a giant step towards what democracy in its finest form, in which the people got what they wanted, not what the corporations were spending all that money to simply “engage in political speech”

The Aftermath of The Bursted Bubble

THE AFTERMATH OF DEREGULATION

By Steve Thomsen

September 15^th, 2008. AKA, the day the whole financial world went into cardiac arrest. This was the day when all transactions stopped, several financial companies were pronounced officially dead, and the DOW Jones Industrial dropped 700 points in a single day. This was the day known as the Great Collapse. And in it, all of America feared for the future of our financial security.

In my previous post I described how the new securitization system had been put into place to secure mortgage, credit card, and student loan payments. These financial products, known as derivatives, gave birth to investments like Collateralized Debt Obligations (CDOs), Collateralized Mortgage Obligations (CMOs), and one final product to ensure your financial products from going bad called Credit Default Swaps (CDSs). I also went over the ways these products were used to lump lousy mortgages into lump sum products that were sold as AAA rated investments. As mentioned, this picture got ugly. So ugly, in fact, that it completely stopped the market on that fateful day in September. Here’s how it was abused:

By 2006, the mortgage market was already raising eyebrows. Allan Sloan, the editor in chief of Fortune Magazine, wrote a column entitled “House of Junk.” The article was very critical on the real estate products hitting the market. These CMOs that were being offered to investors, he wrote, were comprised of mortgages that the owners had lass than 5% on in many cases. Basically, even though they were sold as solid investments, he was realizing that they consisted almost entirely of sub-prime loans. And sub-prime meant the owner could walk away from his house for basically any reason. After all, he had almost no money in it. So why should he care?

More troubling still, a third of all mortgages that made up these CMO derivatives had defaulted. The products were going to go bad. It wasn’t a question of “if.” It was a question of “when.” And WHEN these products went bad, it would be much bigger than simply drying out payments for investors: it would also mean that everyone who had an insurance policy on these products would ALSO need to be paid out for the CMOs defaulting. And, as mentioned, a lot of these products were leveraged FAR beyond a single person insuring their house. Often times, dozens or even hundreds of investors would buy insurance policies against these houses going bad. They didn’t even own the house. They were just placing HUGE bets against the real estate market.

So imagine this: your house burns down. You have insurance on the house, so you’re not worried. But fifty other people ALSO insured your house against burning down. So now the loss isn’t just for one house: it’s for fifty. And everyone who has insured themselves against your house burning down now has a vested interest in the house burning. You can see why certain people would want to see this house burn.

The biggest company to abuse the bets against the mortgage market was, hands down, Goldman Sachs. Goldman, since heading off to the races to create as many CDOs and CMOs as possible, had sold as many mortgages as they could possible sell. They practically gave them away so they could create more securities to sell to investors. They knew the mortgages were basically crap. They also knew that the mortgages would default and the securities, consequentially, would go bad. But this market was making them tons of money. So they doubled down on it, working with lenders like Wakovia to make as many piece-of-crap financial products disguised as AAA investments as possible.

But Goldman Sachs took it one step further: they started buying MASSIVE amounts of Credit Default Swaps to insure themselves against the very financial products they were selling. They would sell thousands of mortgages, lump them into securities, and then buy CDSs on the securities as soon as they sold them to other customers. Is this making your head hurt yet? That’s exactly why it worked: because it’s literally too boring to pay too close attention to. But, as mentioned, the securitization chain is where all the bodies are buried in this story.

In 2006, George W Bush appointed the CEO of Goldman Sachs, Henry Paulson, to be the US Treasury Secretary. Paulson, along with Greenspan and Summers, is often known as one of the key players to the financial disaster. Paulson was a complex character: he was business savvy, but not a straight Gordon Gecko. Still, some of the policies he was the chief advocate of were directly related to the collapse. So his appointment to the treasury is crucial to the story and indeed history.

One of the policies he lobbied for was for the banks to be able to leverage their borrowed money in numbers much higher than the amount of reserve capital the banks actually had. So the bank could potentially loan $100 billion while it only had $15 billion in reserve. This obviously went against the golden rule of living within your means, but according to Paulson, these were deals negotiated by professionals. So they should be allowed to make risky bets.

The other was to leave the Credit Default Swap market unregulated. This was a market that should have been regulated from day one simply because of the volatile nature of the products. In typical insurance policies, you can only insure yourself for something you own. In the world of financial products, you don’t need to own a product to buy insurance. Not only that, but you can insure yourself for several times the amount of the actual financial product by buying multiple CDSs on your product. This was a VERY dangerous system because if anything went wrong, the blowback would be deadly.

AIG was the primary supplier of Credit Default Swaps. And since it was a largely unregulated market, Goldman Sachs went big with it. Their former CEO was now in one of the highest offices in the country and their piece-of-crap products were so heavily insured that if (or, more accurately, WHEN) the products defaulted, they would be owed a vast sum of money. The number was in the billions. Needless to say, Goldman Sachs had a very vested interest in blowing up the world.

Some other major mortgage lenders included Countrywide, who’s CEO at the time was Angelo Mozello. Angello became enormously wealthy during the bubble, and left the scene of the crime with over $200 million. Robert Steele, the CEO of Wakovia, got out of his failed company with millions as well, and eventually chaired the board of Wells Fargo bank. And Bank of America’s Ken Lewis went on to make over $9 million during the worst year of the bubble (2008). Eventually, we’ll talk about the key point that the reason this behavior continues to this day is because none of these people have gone to jail.

The time bomb was set. The players had already established their positions. Any day, enough mortgages will have gone bad that a full-blown atom bomb of fiscal carnage would unleash upon the world. Goldman Sachs had set their pieces. Lehman Brothers and Bear Stearns were busy creating their mortgage messes, but hadn’t counted on Goldman’s boldness. And AIG had an unexpected payday in it’s future, the magnitude of which would ultimately equal $85 billion (!!) It was the closest thing we’d get to seeing the apocalypse in our lifetime. And what’s strangest of all, some people still don’t even know that it happened.

Next week, we’ll go over this grand fireworks show that blew our economy to hell and back. And we’ll go over how the culprits who nearly destroyed the world were rewarded for their bad behavior. All this, next week on “Corporate Welfare.”

“My vote is priceless!:Wrong! it’s worth about 20 dollars”

Happy election day everybody!  Let us rejoice in this wonderful day by expressing our opinions and voting in today’s matchup between Governor Mitt Romney, and our current president Barrack Obama.  Now I will not tell you who I voted for but I can tell you that I still have the same feelings of excitement and anticipation as I did when I first took part in voting four years ago.  This election is important for many reasons, however I will talking about the financial part of voting as this wonderful article says that this election will cost an estimated six billion dollars...toppling 2008’s election by over 700 million dollars. 700 million dollars. Let that sink in for just a moment would ya?  My question is simple: “where, in these tough economic times did both respective candidates find the money to fund their campaigns?”  Political action committees (or PAC’s) play a large role in funding as each candidate spent over 500 million dollars trying to tell the public that the other person could not work well with others.  It’s not my position to say how to spend money that is practically given to you however, in a world where there is economic recession, unemployment rates are at an all-time high (including several swing states such as Ohio) and spent nearly six billion dollars on advertisements it seems as though we are in a better economic position that we thought.  Hooray for economic prosperity!