Tag Archives: financial crisis

Credit Rater S&P to Be Banned for a Year From Biggest Part of Commercial-Bond Market – Bloomberg

I wonder why they waited to deal with ratings from after the subprime period.

Will S&P crumble?  Are there other models of ratings production in other countries?  Does anyone have a more autonomous system (instead of fee for ratings)?

 

Standard & Poor’s will be suspended for a year from rating bonds in one of its most lucrative businesses in a $60 million settlement with the U.S. Securities and Exchange Commission, according to a person with knowledge of the matter.

The deal, which the person said may be announced as soon as tomorrow, is the agency’s toughest action yet in an industry blamed for fueling the 2008 financial crisis by assigning inflated grades to risky mortgage debt.

via Credit Rater S&P to Be Banned for a Year From Biggest Part of Commercial-Bond Market – Bloomberg.

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Filed under Banking, Great Recession

Where Did they Learn This Stuff?

Economic Meltdown Bankers – Harvard MBA, Stern School of Business – Business School | wowOwow
Which schools are the Academies of the Apocalypse, and who and how many went to each?

Is how Deborah Barrow launches into her list.  Harvard is on top.  THis si amusing, but not a very systematic pool of candidates.

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What is wrong here

X-posted at my class blog.

“Retention bonuses” would seem to be bonuses by any other name.  Obviously, public and political scrutiny is at super high levels as we reel from the financial crisis.

This little nugget caught my eye about a joint venture between Citigroup and Morgan Stanley:

According to the newspaper [The WSJ], not all of the joint venture’s 20,000 brokers would get retention payments. It said a broker who brought in $1 million in revenue last year might expect to get $500,000 to $1 million, depending on how much he continues to produce.

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Filed under Banking, corporate governance, corruption, economics, Government, Political Economy

Headlines turning my world upside down

This is headline at Huffingtonpost.com

SENIOR REPUBLICANS: NATIONALIZATION OF BANKS MUST BE AN OPTION


What?  Why are Republicans in favor of nationalization?  Is this the path to Fascism?  Do they mean more of the same.. i.e. Socialized risk and privatized benefit?

My head is spinning.  I suppose I should read the article.

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Filed under Political Economy, Politics, Power, Activism

Da** you, Krugman!!!!! Scooped me again.

A friend from Dads night  can attest to the fact that on Wednesday I told him I think that Madoff’s Ponzi scheme and so-called “normal” investing in high finance, speculative vehicles is probably very similar in terms of how investors act and gather information.

Paul Krugman’s column in today’s NY Times starts off:

The revelation that Bernard Madoff — brilliant investor (or so almost everyone thought), philanthropist, pillar of the community — was a phony has shocked the world, and understandably so. The scale of his alleged $50 billion Ponzi scheme is hard to comprehend.

Yet surely I’m not the only person to ask the obvious question: How different, really, is Mr. Madoff’s tale from the story of the investment industry as a whole?

Sigh.  I guess there are worse people to be scooped by.

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Filed under economics, writing

Through the looking glass: Putting a Value on a C.E.O.

January 28- Update:

Maureen Dowd Agrees with me:

“If you don’t pay your best people, you will destroy your franchise” and they’ll go elsewhere, he said.

Hello? They destroyed the franchise. Let’s call their bluff. Let’s see what a great job market it is for the geniuses of capitalism who lost $15 billion in three months and helped usher in socialism.”

My father in law sent me this article from two weeks ago int the NY Times.

Dealbook – Putting a Value on a C.E.O. – NYTimes.com
“By itself, more share and retention-based compensation is not the magic bullet, because it certainly didn’t stop us from running up very large losses,” Mr. Bischoff said.

This ranks up there with all time statements lacking any humility or self-awareness.  If you look at the explosion in financial sector profitability (much of it inflated) and bonuses and other stock-based payments, and then at the continued pay out of bonuses even as the financial sector sank, then the premise of this statement by the Chairman of Citigroup, which is that more of the same compensation schemes _may_, (may!) not help avoid large losses is weirdly up-is-down through-the-looking-glass logic that can only make sense to the world of Wall Street and high finance.  If you are the CEO, of, say, I don’t know, a car manufacturer, and your firm looses more than half of its value in one year, than you d not get a bonus.  You probably lose your job.

The article goes on to repeat the logic of more of these compensation ideologues several times that if firms do not continue to pay out huge bonuses tied to stock options, than they will lose the top management talent they need to compete.  ha ha, ho ho!  I am drying my eyes.

Let’s list some accomplishments of this great management talent (all are sarcastic, BTW)

Because they have done such a great job so far.

Because they did not create the conditions for this financial mess by advocating deregulation and obfuscation of financial systems under the guise of free market theory.

Because they designed and staunchly defend as in the general interest stock option compensation that creates clear and perverse incentives to smooth earnings, game financial accounting, and other malfeasance (whether deliberate or convenient).

Because they have not hijacked the very governance mechanisms meant to curb the abuses of greed in a free market- corporate boards and regulatory agencies.

Finally, is there a labor economist in the house?

The argument is that if not, as a group, paid super premiums over all other types of organizational leaders, from medicine, higher education, the frickin’ president, manufacturing, and every other sector of American economic activity, then oh no! there will be a mass exodus of CEO and top management.  Really?  And where in the hell where they go work?  Boeing?  Chrysler?  Schering Plough? Best Buy?  Given the vast pool of educated and experienced mangers and even financial managers in the world, you don’t think we could possibly find people willing to work for $2,$4,$6 million in total compensation? Especially if that is twice what they ear now (or more) and not any better than what they could get elsewhere.

The notion somehow massive bonuses and total compensation are the only way to keep people performing as the CEOs and top leaders of banks, brokerages, investment banks, and so on just seems laughable.

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Filed under Banking, economics, management

Network Liabilities- Citigroup Pays for a Rush to Risk

The Reckoning – Citigroup Pays for a Rush to Risk – Series – NYTimes.com
But many Citigroup insiders say the bank’s risk managers never investigated deeply enough. Because of longstanding ties that clouded their judgment, the very people charged with overseeing deal makers eager to increase short-term earnings — and executives’ multimillion-dollar bonuses — failed to rein them in, these insiders say. [my emphasis]

This NY Times article points out that the normal risk management controls at Citigroup that should have reined in exposure to CDOs [collateralized debt…] were thrwarted.

By?

“ties that clouded judgment.”

I suppose that is a network liability.  Every organization is cris-crossed  with network ties.  The question is why these had such an impact.  Org Culture?  Greed?  Something structural in the network?  The technology of communication?

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Filed under Banking, Business, Social Networks

Paid to Destroy their Companies

The Wall Street Journal Online – Interactive Graphics

What is wrong with this picture?  What reasonable justification is there for thes ekinds of compensation packages?

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The Reckoning – Agency’s ’04 Rule Let Banks Pile Up New Debt, and Risk – Series – NYTimes.com

The Reckoning – Agency’s ’04 Rule Let Banks Pile Up New Debt, and Risk – Series – NYTimes.com
In loosening the capital rules, which are supposed to provide a buffer in turbulent times, the agency also decided to rely on the firms’ own computer models for determining the riskiness of investments, essentially outsourcing the job of monitoring risk to the banks themselves.

I am glad the NYT is talking about this.  Why did the SEC rely on the banks’ models?  Ideological blindness or simply the complacency of being amongst familiar faces?  Or perhaps simply ignorance in the face of complexity leading decision-makers to rely on proxies of sound choice.

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Filed under Banking, Business, Government, Orgs Stuff (theory, science, studies)

0% almost never appears in public polls

The National Economy
No Americans say that the national economy is getting better, 13% say it is staying the same, and 82% say the national economy is getting worse.

National economy

Getting better

Staying the same

Getting worse

Undecided

Sep 2008 13% 82% 5%
Aug 2008 18% 19% 60% 3%
Jul 2008 3% 20% 76% 1%

You almost never see 0% in public polls. They must not have any BOA executives, gold stock holders, or other speculators who bet the right way in their poll.  Or maybe those folks see that their immediate gain comes with the risk of financial downturn for all?

And Bush’s approval is down to 19% among RVs in the same poll.  That has to be some kind of record?

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Filed under economic sociology, economics, macroeconomics