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Showing posts from September, 2008

Cash for Trash (Revised)

President George W. Bush last week laid out a $700 billion Wall Street rescue plan ostensibly aiming at preserving the nation’s overall economy. Dubbed "Cash for Trash,” the plan has sparked a sharp debate. The House Financial Services Committee held a public hearing titled, “The Future of Financial Services: Exploring Solutions for the Market Crisis” on Wednesday, September 24th at Rayburn House Office Building. This was a legislative hearing to examine the Bush Administration’s financial services proposal. Secretary of the Treasury Henry Paulson and Federal Reserve Chairman Ben Bernanke explained the proposal at the hearing.

The hearing started at noon and included two parts. At the beginning, members of the Committee were given an opportunity to note their concerns and to comment on the bailout plan. Most did not endorse the plan: they thought it would be a mistake to rush such a huge expenditure, one that would boost the national debt to over 70% of GDP.

Committee members addre…

Stunned...

We are stunned to learn that banking and financial market regulators are considering using taxpayer funds to finance the creation of a separate entity to hold "toxic" financial instruments. This is a dangerous suggestion that will not solve the problem. At best, this is akin to moving a fire from, say, your living room to your dining room. At either location, the fire will continue to grow. The proposed separate entity simply provides more oxygen to the fire, wherever it is.

We will be spending all of our reserves:
1. to purchase a set of financial instruments with limited information on what, exactly, we are buying,
2. to purchase a set of financial instruments with limited value,
3. to purchase a set of financial instruments with unlimited risk,
4. to purchase a set of financial instruments with virtually no information on how long we will have to hold them to "turn a profit." (Note that these contracts will never turn a profit. They are not designed to...) and,
5.…

Christopher Cox

Christopher Cox is still, without a doubt, the best financial regulator appointed thus far by the Bush Administration. We base this on performance. Mr. Cox knew the situation. He came in at a time of unprecedented corporate and market institution fraud and malfeasance. Things got worse, of course, but it was bad when he walked in the door. As soon as he took over, he increased staff and started investigating Wall Street broker/dealers, something many did not believe he would do, given his close ties to the Street. His Office of Interactive Disclosure is a masterpiece, and shows he understands the role technology will play in preventing future crises. The Office created an online tool that enables investors to easily and instantly compare what 500 of the largest American companies are paying their top executives, an Internet Web page that enables investors to more easily read, analyze, and compare the information provided by mutual funds related to fund cost, risk, and past performance

Money market fund breaks a buck

Forget everything else you have heard about the financial crisis. Focus on this. According to USA Today,

"The share price of the Reserve Primary fund, a money market mutual fund, has fallen below the sacred $1 mark, thanks to the Lehman Bros. meltdown.

Money market funds have been the fund industry's haven for more than three decades, and investors often view them the same way they do bank checking accounts. The funds' safety record has attracted more than $3.5 trillion in assets.

Until now, no money fund open to the general public has ever allowed its share price to dip below a dollar — "breaking the buck," as it's called. (A small institutional money fund, Community Bankers Money fund, broke the buck in 1994.)

Money market funds have long feared that if they broke the buck, thereby shrinking investors' principal, people would shift their money into bank money market accounts or ultrasafe Treasury securities. The question now is whether other money funds wi…

10th Annual Endowment and Foundation Forum

The 10th Annual Endowment & Foundation Forum will cover the issues that are most relevant to endowments and charitable foundations today and will provide participants with opportunities to network with investors and fund managers in a relaxed setting.

Topics Covered Will Include:
• Trends in Asset Allocation for Endowments and Foundations
• Portfolio Construction and Implementation, Developments and Advances
• Challenges facing Endowments and Foundations, past, present and future
• Socially Responsible Investing
• Incorporating Alternatives and Emerging Asset Classes into a Smaller Plan
• Manager Selection

Sponsorship and Exhibiting Opportunities are Available!
Please contact jlane@opalgroup.net or call 212-532-9898, ext. 275.

Register!
Register by visiting us online here! Registrations for representatives of endowments and foundations are complimentary.

Fannie and Freddie

Of course, the US Treasury forced Freddie and Fannie into "Conservatorship."

According to FHFA Director James B. Lockhart and the Treasury, "Conservatorship is a statutory process designed to stabilize a troubled institution with the objective of returning the entities to normal business operations. FHFA will act as the conservator to operate (Fannie and Freddie) until they are stabilized.

There are several key components of this conservatorship:

First, Monday morning the businesses will open as normal, only with stronger backing for the holders of MBS, senior debt and subordinated debt.

Second, the Enterprises will be allowed to grow their guarantee MBS books without limits and continue to purchase replacement securities for their portfolios, about $20 billion per month without capital constraints.

Third, as the conservator, FHFA will assume the power of the Board and management.

Fourth, the present CEOs will be leaving, but we have asked them to stay on to help with the tr…

Chief of Adams National Resigns Bank Faces Rising Real Estate Losses

According to Washington Post,

"The chief executive of District-based Adams National Bank (Woman owned) resigned on the eve of a meeting scheduled for today with federal banking regulators to review the company's financial condition. Jeanne Delaney Hubbard also stepped down as chairwoman and chief executive of the bank's parent company, Abigail Adams National Bancorp.

Adams National faces mounting losses on real estate loans and this summer disclosed that it had been classified as "troubled" by its regulator, the Office of the Comptroller of the Currency, subjecting the bank to greater scrutiny. Last week, the Abigail Adams board voted to suspend quarterly dividend payments to shareholders."

SEC Charges Two Wall Street Brokers in $1 Billion Subprime-Related Auction Rate Securities Fraud

According to the SEC:

"Washington, D.C., Sept. 3, 2008 — The Securities and Exchange Commission today charged two Wall Street brokers with defrauding their customers when making more than $1 billion in unauthorized purchases of subprime-related auction rate securities. The SEC's Division of Enforcement in 2007 formed a subprime working group, which is aggressively investigating possible fraud, market manipulation, and breaches of fiduciary duty that may have contributed to the recent turmoil in the credit markets.

The SEC's complaint, filed in federal court in Manhattan, alleges that Tzolov and Butler, while employed at Credit Suisse Securities (USA) LLC in New York, deceived foreign corporate customers in short-term cash management accounts by sending or directing their sales assistants to send e-mail confirmations in which the terms 'St. Loan' or 'Education' were added to the names of non-student loan securities purchased for the customers. Tzolov and Butl…

SEC Charges Former CEO of Kellogg, Brown & Root, Inc. with Foreign Bribery

According to the SEC:

"Washington, D.C., Sept. 3, 2008 — The Securities and Exchange Commission today charged former Kellogg, Brown & Root, Inc. (KBR) executive Albert Jackson Stanley with violating the anti-bribery provisions of the Foreign Corrupt Practices Act (FCPA) and related provisions of the federal securities laws. The Commission alleges that over a 10-year period, Stanley and others participated in a scheme to bribe Nigerian government officials in order to obtain construction contracts worth more than $6 billion. The contracts were awarded to a four-company joint venture of which The M.W. Kellogg Company, and later KBR, was a member."