To paraphrase our next Secretary of State, it takes a village to keep an investment scam going. It takes an entrepreneur who's hungry, amoral, and clever; investors eager to believe that what's too good to be true is real; auditors who get paid not to audit; politicians who take money to keep regulation away; and regulators who do what the politicians tell them to do.

All these factors were in play with the $50 billion Madoff Securities scandal. As I posted, Bernie Madoff was able to scam investors by creating false financial statements and using a tiny, unknown auditor to persuade investors hungry for membership in his club that they could get regular 10% annual returns in any market.

But Madoff's scam also benefited from a hands-off policy towards Wall Street thanks to help from politicians such as Chuck Schumer (D-NY) who raised millions from Wall Street to do its bidding. As head of the Democratic Senatorial Campaign Committee between 2004 and 2008, he raised $240 million while increasing donations from Wall Street by 50%. In return Wall Street got free-market, deregulatory policies that helped them cook up the scandals that have helped wipe out $30 trillion in global stock market value in the last year.

Continue reading It takes a village to pull off a $50 billion investment scam

It takes a village to pull off a $50 billion investment scam originally appeared on BloggingStocks on Sun, 14 Dec 2008 09:15:00 EST. Please see our terms for use of feeds.

Detroit can't sell cars. Perhaps it is because they are too expensive. Perhaps buyers can't get credit. Or, maybe autos made in Japan and Germany are simply better-built.

No matter. The Big Three are now looking at a program to stimulate car sales sponsored by the US government.

According to The Wall Street Journal, "On Monday, Sen. Charles Schumer (D., N.Y.) plans to send a letter urging the Federal Reserve to make financing available for the auto companies' lending arms, which would allow them to offer more auto loans."

Will that help? If the loans are attractive enough, certainly. They may have to be better than zero percent financing. The car companies have tried that. Perhaps the government can make the first year of payments for car buyers and leave the consumers to pay the last two years. That would be as good as 33% off the purchase price.

Why stop there? Home builders want a bailout. The government could make a 20% down payment for people who would like to buy a new house. That would leave a mortgage on 80% of the home. The government could make the balance of the mortgage interest free.

Every industry in America is going to make a grab at bailout funds. The Treasury will have to hire thousands of analysts just to sift through them

Douglas A. McIntyre is an editor at 24/7 Wall St.

Detroit's newest idea: Government should help sell cars originally appeared on BloggingStocks on Mon, 24 Nov 2008 09:42:00 EST. Please see our terms for use of feeds.

Sen. Charles Schumer predicts a huge Barack Obama win originally appeared on BloggingStocks on Tue, 21 Oct 2008 16:10:00 EST. Please see our terms for use of feeds.

Global markets are soaring on news of a plan to bailout Wall Street again -- this time by creating a government entity that will buy up all the toxic waste on Wall Street's books. Yesterday, the Dow closed up 410 points on the news and this morning, Asian and European markets are up between 4% and 9% in response to the news, according to the New York Times. So, what is this plan and why is the market so happy about it?

At this point there's nothing much to the plan. The Times reports that stocks started to climb 617 points from their low during the day when Sen. Charles Schumer (D-NY) introduced a proposal to create a new government agency that would buy up the toxic waste on banks' books. The White House's anti-bailout crowd has already spent $1.1 trillion rescuing Wall Street so far -- this includes the $800 billion Lou Dobbs mentioned on CNN Wednesday night plus the $300 billion that the Fed injected into the market yesterday, according to the Times.

There does not appear to be much clarity on some fundamental questions: What kind of toxic waste will this agency own? Will it buy the waste from around the world or will it just stick to buying the waste from U.S. banks? How much of this stuff is out there? How much will the agency buy? How much will the agency pay? How much will this cost the American taxpayers? How will the agency raise the cash to finance these purchases? How will the agency sell this toxic waste to recoup the cost to taxpayers?

Continue reading Five hundred billion bank bailout plan boosts global markets

Five hundred billion bank bailout plan boosts global markets originally appeared on BloggingStocks on Fri, 19 Sep 2008 09:00:00 EST. Please see our terms for use of feeds.

Having spent a summer 26 years ago working with the FDIC, I fear that that will be the case. What we worked on back then was a system to help the FDIC handle the assets that it acquired when it took over a failed bank. The FDIC's role is to sell those assets and get as much money as possible as quickly as it can so that it can pay people to whom the failed bank owes money.

Bloomberg reported that IndyMac failed due to a run by depositors who left the California mortgage lender with insufficient cash. Fortunately for depositors, customers will have access to funds this weekend via ATMs. IndyMac trails only the former Continental Illinois -- which was the biggest financial institution to close -- back in 1984.

A great book about the failure of its business partner, Penn Square Bank, Belly Up, reveals the important role of syndication -- originating a loan and then selling it to someone else -- in the failure of financial institutions.

Continue reading FDIC closes IndyMac: Second biggest bank failure in history

FDIC closes IndyMac: Second biggest bank failure in history originally appeared on BloggingStocks on Fri, 11 Jul 2008 19:52:00 EST. Please see our terms for use of feeds.

Countrywide (NYSE: CFC) CEO Angelo Mozilo, perhaps the most reviled executive in corporate America, will get $10 million as part of a Bank of America (NYSE: BAC) takeover of the mortgage broker. Investors and members of Congress are incensed. The "bonus" is described in SEC filing as "performance based." Countrywide shares are down from $42.24 to $5.63 over the past year.

One powerful senator may go after the payment. "It's perverse for Bank of America to reward the principal architects of the bad business practices that caused this housing crisis,'' said Sen. Charles Schumer, D-NY, said in a statement, according to the AP. Perhaps shareholders will get lucky and Schumer will fight the pay-out of the money.

It is a shame that Bank of America would hurt its own reputation by doing this. Countrywide was available for sale because it was in such deep trouble. BAC did not need to "pay off" Mozilo to get a deal done.

Douglas A. McIntyre is an editor at 247wallst.com.

Countrywide CEO to get $10 milion on way out originally appeared on BloggingStocks on Sun, 30 Mar 2008 13:10:00 EST. Please see our terms for use of feeds.

MAJOR PAPERS:

• The Wall Street Journal reported that private loans under the Federal Family Education Loan, or FEEL, program have begun to give way to the federal direct loan program, as private lenders run into subsidy cuts and problems raising capital. To date about 60 colleges and universities have made the switch.
• Carl Icahn, a 6.3% Motorola Inc (NYSE: MOT) shareholder, has sued the company to get board of director documents, turning away offers of two board seats, the Wall Street Journal reported. Icahn wants information about the company's unprofitable handset business.
• Ford Motor Company (NYSE: F) is expected Wednesday to announce an agreement to sell its Jaguar and Land Rover units to India's Tata Motors Limited (NYSE: TTM) for about $2B, the Financial Times reported.

• According to the Business Review, New York State Senator Charles Schumer is planning to 'reveal details' of a conversation he had with the CEO of Advanced Micro Devices Inc (NYSE: AMD) on March 21 about the company's plans to build a $3.2B computer chip plant in Saratoga County.

Newspaper wrap-up: Schumer to speak about conversation with AMD CEO originally appeared on BloggingStocks on Tue, 25 Mar 2008 08:05:00 EST. Please see our terms for use of feeds.

Senator Schumer says SEC should investigate Countrywide Financial originally appeared on BloggingStocks on Fri, 19 Oct 2007 19:33:00 EST. Please see our terms for use of feeds.

Will Ben Bernanke's speech tomorrow at the Fed's syposium in Jackson Hole, Wyoming, be as important as the pundits expect? Maybe not.

There are many, many worrying signs. The commercial paper market is a mess. Jobless claims rose higher than expected. The housing market remains horrible.

H&R Block (NYSE: HRB) Chief Executive Mark Ernst said today the "mortgage origination market is in the midst of the most severe dislocation it has seen in years, maybe the most severe since the 1930s." Housing prices had their smallest gain in 10 years, according to the Office of Federal Housing Enterprise Oversight.

But this Fed chairman has a dramatically different view of his job than did his predecessor, Alan Greenspan, who regularly used interest rate cuts during financial crises, as The Wall Street Journal (subscription required) points out. Plus, Bernanke seems to hold the view that the job of the Federal Reserve ISN'T to rescue people who took stupid risks, such as the ones that lead to the subprime mortgage crisis.

Continue reading Will Ben Bernanke's speech live up to the hype?

Will Ben Bernanke's speech live up to the hype? originally appeared on BloggingStocks on Thu, 30 Aug 2007 12:05:00 EST. Please see our terms for use of feeds.

It's been giddy times on Wall Street. Might this be the prelude to a big fall?

That's the take from a recent report from Senator Charles E. Schumer and Mayor Michael R. Bloomberg. The research is based on the work of the management consulting firm McKinsey, which conducted 50 extensive interviews of business leaders.

Basically, unless certain changes are made, NY may lose anywhere from 4% to 7% of its global share of the financial services market within the next five years.

It should be no surprise, since among other problems the US has too much litigation.

What's more, the new regulations of Sarbanes-Oxley (SOX) make it unfavorable for companies to go public in the US. As a result, overseas markets look more attractive.

The good news is that these are things that can be fixed. For example, it looks like the SEC is already making moves to lessen the impact of SOX.

But as usual, such issues are complex and can be crowded out by other political issues -- after all, how many Americans really know what SOX is? So it is likely to take a while for change to take place.

In the meantime, other major overseas financial centers will, of course, not wait.

Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.

New York City: A financial rust belt? originally appeared on BloggingStocks on Mon, 22 Jan 2007 14:02:00 EST. Please see our terms for use of feeds.