Transocean cites safety record in doling out bonuses despite 11 deaths and totally screwing up the Gulf

Even the slogan is ironicNever, ever, let it be said that mere facts will come between an executive and his or her bonus. Transocean which – along with BP – is responsible for 11 deaths while creating the worst environmental disaster in US history, used its safety record as the reason for giving out exec bonuses.

According to the company’s financial proxy:

"Notwithstanding the tragic loss of life in the Gulf of Mexico, we achieved an exemplary statistical safety record." Based on the total rate of incidents and their severity, "we recorded the best year in safety performance in our company’s history."

Transocean’s PR person (now there’s a job for you) said, "The statements of fact in the proxy speak for themselves” before adding the requisite comments about feeling bad for all the little people.

It is worth noting that the company’s execs did NOT get their bonuses the year before because of safety issues. It really isn’t reasonable to expect them to go two years without bonuses. That could lead to the departure of all the great talent that got the company to where it is today.

Let us not think that Transocean is alone. Our good friends in the banking industry have been doing the exact same thing even while they were destroying the economy.

The past few years have been very rewarding for bank employees. OK, maybe not the government rescues, stagnant loan books, layoffs and litigation. But none of these disasters hurt pay at banks.

A review of call reports filed with the Federal Deposit Insurance Corp., compiled by BankRegData.com, shows that average compensation in the last few years rose — and at the same rate as it did before the crisis. Employees of the largest banks realized the largest gains. The increases significantly outstripped inflation and can’t be attributed solely to shifts in pay schemes or recovering profitability. Banking in general shielded pay from its cost-cutting ax.

Ah, personal accountability in action.

As American Banker points out: “Over the last eight years, average compensation for a full-time bank employee has risen 35% to $83,050, twice the rate of inflation. In 2003, the banking industry’s 1.3 million full-time employees took home $78.3 billion. In 2010, its 2.1 million employees took home $168.1 billion.”

How much of that do you think went to the tellers and branch managers?

Oh and don’t forget: It’s all those millionaire public-sector employees’ fault.

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The Dukes of Moral Hazard: The Dangers of Quantitative Easing

 

This brilliant and terrifying column was originally published at ProPublica and is republished here under a Creative Commons license. cc

by Jesse Eisinger
ProPublica, Nov. 10, 2010, 2:40 p.m.

sinking_shipAcross the world, there are booms. Chinese Internet companies are flourishing. Energy companies are finding new sources of power. Commercial real estate is coming back.

Unfortunately, this isn’t happening in the real world, which is still crippled by sagging economies, but in the investing one.

If there’s a doggy stock, a dodgy loan or a slice of a complex credit security made to a questionable borrower — hedge funds want it now. Companies with junk bond ratings are flooding the markets with new issuance. If private equity firms bring a money-losing company saddled with debt to market, investors are eager to snap it up.

Thank the Federal Reserve. The central bank has embarked on its program of “quantitative easing,” a second round of experimental monetary policy in which the Fed buys up assets — like longer term government bonds — to bring down interest rates, which is supposed to spur lending and borrowing, thus reigniting the economy.

Nobody knows whether it will work to bring down the intractable rate of unemployment. But it has already worked in one significant way: the speculative juices of the markets are flowing.

What’s going on? As a Fed official explained it in a recent speech, one supposed benefit of the Fed policy is that it will add to “household wealth by keeping asset prices higher than they otherwise would be.”

So it’s levitation-by-decree. When the Fed moves, financial assets receive the opposite of collateral damage: universal blessing, deserved or not. Lower rates may or may not help more people find work. But there’s no doubt that the central bank has already helped the Henry Kravises and Lloyd Blankfeins of the world.

The Russell 2000 stock index, which is made up of smaller companies, has risen about 21 percent since September, when investors started to anticipate that the Fed would intervene in an aggressive fashion. A tiny Chinese Internet stock, China MediaExpress Holdings, is up more than 250 percent since mid-September. The private investors that own Harrah’s, the money-losing casino company, are bringing it public, and investors are going to gamble on it despite a crushing debt load.

Then there are something called B notes, bonds backed by commercial real estate loans. B-note holders are on the hook for the early losses if the loans go bad. They are as hot a commodity as everything else. Never mind that there’s a huge oversupply of commercial real estate in this country. Or that Wall Street just went through a disastrous episode for complex structured financial products of exactly this sort.

Without knowing a thing about finance, here’s how to tell it won’t work out well. Wall Street is the great master of the euphemism. The Street doesn’t call them junk bonds; they are “high yield.” Here, something isn’t just Triple A. It’s “Super Senior Triple A.” So when the best investment bankers can do is to dress something up with a lowly “B,” you know it’s trash.

Leverage, meanwhile, has made a glorious return. Interactive Brokers, a discount brokerage firm, has been running an advertising campaign that displays money spewing from printing presses. The firm will lend (for certain special customers)$566,000 for every $100,000. Ah, borrowing heavily for the purposes of trading in volatile markets. Maybe some Bear Stearns or Lehman Brothers bankers can explain the wisdom of this.

All of this is Finance 101. The cheaper money is to borrow, the more it makes sense to take a bigger risk with it.

But that doesn’t make it more palatable. It feels like an ominous replay of recent Federal Reserve emergency actions, which led to bigger and bigger bubbles. The Fed brokered the rescue of Long-Term Capital Management, bailing out the investment banks that had lent to the collapsing hedge fund. The Fed pumped money into the economy to save us from the Y2K computer bug. The Fed tried to rescue the economy from the bursting of the Nasdaq bubble, helping to create the housing bubble.

It’s like the exhausted “Saw” movie franchise; this isn’t just a sequel. It’s more like the third iteration of the second reboot — harder core, baser and for serious liquidity heads only.

Is this the price society has to pay for a better economy? Do we care if some hedge funders get rich as long as unemployment goes down, fewer people get thrown out of their homes and household debts are less crushing?

That would be a worthwhile tradeoff. But it’s far from clear that the Fed can get any real traction with its policies.

Over the past year, I’ve been investigating some of the more egregious conduct that occurred in the bubble years. In this column, I’ll be monitoring the financial markets to hold companies, executives and government officials accountable for their actions.

A main focus will be the spectacle of returning speculation. It’s commonplace to lament Wall Street’s lack of a historical memory. But there is something different at work. Professional investors have learned the lessons of the financial markets’ serial bubbles and learned them well.

The lesson is: When the next one comes, I’m going to get mine. I’ll just get out early this time.

You can contact Jesse Eisinger at jesse@propublica.org

Increase in foreclosure rate could mean banks knew they were seizing properties they didn’t actually own

In the 3rd quarter of this year banks repossessed a total of 288,345 properties – by far the largest quarterly total since the meltdown began. The 4th quarter of this year is likely to have the fewest repossessions of the meltdown because of “the decision by several of the largest lenders to halt filings after it was discovered that paperwork for many loans is missing or incorrect.” The increase is a sharp spike in the total number of repossessions. The 4th quarter numbers were a 7% increase over the previous quarter and a 22% increase over the same period of 2009. According to RealtyTrac: “A record total of 102,134 bank repossessions were reported in September, the first time bank repossessions have surpassed the 100,000 mark in a single month.

So, did the banks know what was coming and try to get as many properties safely in to their possession as they could before the hammer came down? If this is not the case then why the increase?

Now I am not a real estate lawyer – to put it mildly – so I don’t know the answer to the following: Is it legal for banks to foreclose if they know that they cannot substantiate ownership? My guess is no. I hope the 50 state attorneys general now looking into this hunt around for any signs of foreknowledge by the banks. If the banks were doing something they knew to be illegal – as opposed to just making more mistakes – then it raises the question of whether or not there was a conspiracy to commit fraud. Were any of this to be true it would worsen the already dubious condition of many banks’ balance sheets.

What makes this even more interesting that it was just yesterday that analysts were cooing over the better-than-expected earnings J.P. Morgan. This was one of the reasons the press gave for explaining the very odd fact that the Dow closed at or over 11,000 for a fourth straight day. It is worth noting that the Dow has risen more than 1,300 points since July 2, presumably on the basis of all the good economic news of late. Could someone please remind what that news was? Anyone? Bueller?

As long-time readers know I view the stock market as much more of a leading psychological indicator than an economic one. I am still hoping for evidence that will convince me otherwise.

THEN AGAIN IT COULD JUST BE A COINCIDENCE: Bill McBride, who writes Calculated Risk, says: The banks are still catching up on the earlier foreclosure moratoriums – and extended periods for trial modifications.  This surge in repossessions was expected and I think unrelated to “foreclosure-gate”

 

A guide for the perplexed to the economic mess

The problem with the economy is clear, but it’s been obfuscated out of most people’s minds. So, to put it simply: Financial institutions loaned out a huge amount of money against assets that are now worth far less and whose value is still falling. Somehow, someway, the difference between these two numbers has to reconciled. Simply put, money loaned (X) – current value of assets (Y) = amount of debt to be accounted for (Z). Solve the equation and you know exactly how solvent our economy is.

This week we have found out that Y equals even less of X than previously thought – and the previously thought numbers were already pretty bad. That is because banks screwed up the paperwork so badly they are having major problems proving they do indeed have a legal right to the homes they gave mortgages on. Short form: The banks effectively gave that money away. So the debit side of their ledgers just got a whole lot redder and Z just got a whole lot larger.

Bank_Failure_700_Billion Now Z was bad before this latest fiasco was discovered. How bad? Bad enough the banks and the government have gone out of their way to make to figure out what Z is worth. My theory is they believe – perhaps reasonably – disclosing Z will cause the world’s economy to go into freefall. Unfortunately Z is not going away. So because these groups cannot change the value of X and the value of Y keeps getting smaller, they have resorted to fiddling with the – and the =.

First, the government tried to purchase mortgage debt(X) from the banks. The problem with this is that selling X would mean declaring its value, i.e. providing a real number for Y. This would mean admitting what everyone knows – that a number of banks have debts well in excess of their assets.

Because this didn’t work, the government tried to alter the equation’s minus sign by giving banks enough funds to be able to withstand solving for Y. Under this plan we get X + $100s of billion – Y = Z. Given how hesitant banks were to take toxic asset relief payments (or whatever they’re calling it now) it is reasonable to conclude that Y = way more than hundreds of billions.

But wait, you say! Many of these financial institutions have already repaid the bailout money! Yes, that is true. However keep in mind, they repaid it with money borrowed from the government. This is robbing Peter to pay Paul as imagined by M.C. Escher. Those staircases are never going to meet up but it allows both the banks and the government to say that they do while hoping that no one reads the fine print.

So being unable to either 1) increase X enough to do any good or 2) stop the actual value of Y from declining, the government tried letting financial institutions play lets pretend with the book value of Y. Recent changes in accounting rules let institutions can the value of a property at what they think it would go for in an “orderly” sale, as opposed to a forced or distressed one. Or, to quote the head of the central bank of Wonderland: “When I use a word,” Humpty Dumpty said, in rather a scornful tone, “it means just what I choose it to mean—neither more nor less.”

What all those measures did was to allow the economy to continue to operate because we all pretended the problem would somehow go away. This is an attempt to put off the day of reconciliation until some time in the far distant future when someone will have figured out a solution that won’t hurt. However, this is impossible. The solution will hurt, and it will hurt a lot.

All talk of growing our way out of the recession is absurd. It is based on the belief that we can continue to increase the size of the economy as was done earlier in this decade. Let’s make one thing clear: The last decade’s worth of growth was funded by loans against assets that were never worth those loans in the first place. Trying to go back to that means continuing to believe in the fiction that it was ever sustainable in the first place.

The healthy economy of our future won’t resemble this in anyway. We will have to accept far more modest growth and lower our expectations about always having the newest stuff. We may have to pay our farm workers enough that those jobs, and others like them, because financially appealing to American citizens. That will mean paying a lot more for food and other things.The US has to become home to manufacturing again. This will mean enacting things – like tariffs – that a lot of powerful corporations don’t want. NAFTA and other free trade agreements are going to have to change drastically.

Of course, we don’t have to do these things. Regardless of what we do, though, the economic equation will be resolved and that debt will somehow be accounted for.

But hey, the Dow’s over 11K so no worries, right?

Weekly round-up of business and idiocy news

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Who could possibly have seen the banking disaster coming?

What was the theory behind the Glass-Steagall Act? Foremost, it was meant to restore a certain sobriety to American finance. In the 1920s, the banker had gone from a person of sober rectitude to a huckster who encouraged people to gamble on risky stocks and bonds. As [chief congressional counsel Ferdinand] Pecora noted, small investors identified banks with security, so that National City salesmen “came to them clothed with all the authority and prestige of the magic name ‘National City.’” It was also argued that the union of deposit and securities banking created potential conflicts of interest. Banks could take bad loans, repackage them as bonds, and fob them off on investors as National City had done with Latin American loans. They could even lend the investors money to buy the bonds. A final problem with the banks’ brokerage affiliates was that they forced the Federal Reserve System to stand behind both depositors and speculators. If a securities bank failed, the Fed might need to rescue it to protect the parent bank. In other words, the government might have to protect speculators to save depositors.

Ron Chernow, The House of Morgan, 1990, pg. 375. (Emphasis added)

 

The repeal of Glass-Steagall was passed by Congress and signed into law by President Clinton in 1999.

The arguments made to repeal the act were primarily

  1. Depository institutions will now operate in “deregulated” financial markets in which distinctions between loans, securities, and deposits are not well drawn. They are losing market shares to securities firms that are not so strictly regulated, and to foreign financial institutions operating without much restriction from the Act.
  2. Conflicts of interest can be prevented by enforcing legislation against them, and by separating the lending and credit functions through forming distinctly separate subsidiaries of financial firms.
  3. The securities activities that depository institutions are seeking are both low-risk by their very nature, and would reduce the total risk of organizations offering them – by diversification.
  4. In much of the rest of the world, depository institutions operate simultaneously and successfully in both banking and securities markets. Lessons learned from their experience can be applied to our national financial structure and regulation

Emphasis added

10 Worst Marketing Blunders of 2009

1) NBC GOES ALL LENO ALL THE TIME

Edsel … New Coke … Lenovision.

NBC has joined the immortals of marketing stupidity. This year the molting peacock network and president Jeff “Have They Fired Me Yet?” Zucker decided to turn five of the primest pieces of prime-time real estate — the hour between 10 and 11 PM from Monday through Friday — into the Jay Leno hour.

The result? A 28% drop in viewership (through mid-November). This has not only killed network revenues but done in affiliates who have no lead-in for their late news casts.

Despite this, Jeff “10% Of Americans Are Unemployed and I’m Not?” Zucker recently said that all is going according to plan. “Right now, in terms of its performance on the television network, at NBC, in terms of ratings it’s doing exactly what we thought it would do.” Comcast recently bought NBC in what must have been an attempt to copy the government’s cash for clunkers program. Comcast shareholders can now only hope they are being lied to. The worst case scenario is that Mr. Z believes what he is saying.

On the plus side:

  1. It is now possible to buy every ad slot during the Leno show for less than the cost of a house in Detroit.
  2. The federal witness protection program is using guest slots to hide people.

2) TIGER, TIGER BURNING BRIGHT

(Originally #9 — Who knew?)

Because I have a really limited imagination I thought the big celeb marketing mishap story of the year would be Michael Vick’s failed attempt to become a spokesperson for PETA. Then along came Tiger who prefers women with bad nose jobs to the Swedish bikini model he is actually married to. The story broke on Nov. 27th, when Mrs. Woods apparently decided to prove her own golfing expertise. This was unfortunate for Accenture which two days earlier had kicked off its annual Tiger campaign. A print ad which ran in the Nov. 30th Wall Street Journal featured Tiger Woods walking in the rough under the headline: “The road to high performance isn’t always paved.” And watch out for the trees and fire hydrants. Accenture has since declawed its Tiger connection.

UPDATE: File this under “Pull the other one, it’s made of wood.”

“We decided several months ago to discontinue Gatorade Tiger Focus, along with some other products to make room for our planned series of innovative products in 2010,” Gatorade spokeswoman Jennifer Schmit said in an e-mailed statement.

3) BANKERS CUT BONUSES, INCREASE SALARY & BLAME JESUS

First the banking industry made a big show of cutting the obscene bonuses it was paying itself for going on the dole. Meanwhile they hoped no one would notice the allegedly eliminated bonuses were now being paid as plain old salary.

But wait … that’s not all!

Apparently still feeling that their efforts to destroys the economy were still underappreciated, bankers started claiming Jesus wanted them to do it.

“The injunc­tion of Jesus to love others as our­selves is an endorse­ment of self-​interest,” Goldman’s [inter­na­tional adviser Brian] Grif­fiths said Oct. 20, his voice echo­ing around the gold-​mosaic walls of St. Paul’s Cathe­dral, whose 365-feet-high dome towers over the City, London’s finan­cial dis­trict. “We have to tol­er­ate the inequal­ity as a way to achiev­ing greater pros­per­ity and oppor­tu­nity for all.”

How much LSD do you have to take to interpret Scripture this way? However much it is, it is certainly being passed out at all the best financial institutions. Two weeks later, Barclays CEO John Varley spoke at the venerable St. Martin-in-the-Fields and tried to wrap the Bible around his bonus.

“There is no conflict between doing business in an ethical and responsible way and making money. We make our biggest contribution to society by being good at what we do. Profit is not satanic.”

I guess it all depends on who gets to determine how we define ethical and responsible. Perhaps Varley could have gotten away with this specious argument had he not added this gloss to the text after the service: “Is Christianity and banking compatible? Yes. And is Christianity and fair reward compatible? Yes.” (Not a good sign when a banker can’t even get his verb and subject numbers to add up.) Hey John, can we parse the word “fair” for a moment?

I believe the renowned 20th century theologian Ray Price put it best when he asked, “Would Jesus wear a Rolex on His television show?”

4: GM EXPLAINS AWAY ITS “LITTLE PROBLEM”

In the face of the greatest single corporate collapse in the history of the world, GM rolled out an ad that inadvertently explains the company’s failure.

It is a veritable symphony of weasel words.

Let’s be completely honest, no company wants to go through this.

By the end of that first sentence it is clear this ad has no intention whatsoever of living up to that initial clause. You can tell because the final pronoun is never made specific. That “this” covers billions of sins. It implies we all know what has happened without saying what that was. It is everything to everyone and thus means nothing. Is “this” an utter failure of leadership? Or is it an inability to have even the vaguest understanding of the needs of the marketplace? Sadly, I suspect “this” is “an economic calamity no one could have foreseen” – the preferred phrase of everyone from Alan Greenspan to, well, the Detroit-based car makers. There is no taking responsibility anywhere in this ad just as there has been no taking responsibility at GM for decades. (Read more here)

5) VOGUE: BLACKFACE IS THE NEW BLACK

Vogue The October issue of French Vogue had a photo spread of the very Caucasian Lara Stone painted head to toe in dark make-up. Vogue went with the old “I’m sorry if you found my words insulting” defense and told the Daily Mail “it was unaware it had caused offence, but said it could not give any further comment.” (Worth noting: Italian Vogue’s issue for the same month was filled with actual Black women.) In a keeping up with the KKK move inflight magazine EasyJet ran a photo spread featuring brooding generic models dressed in black POSING IN FRONT OF BERLIN’S HOLOCAUST MONUMENT.

Fortunately for me marketers just can’t seem to figure out that Nazi = Bad. This years examples:

LATE BREAKING STUPIDITY UPDATE: NYT runs gift guide with special section devoted to:

“Somali fashion, do-it-yourself henna kits, children’s books that draw inspiration from the lives of Barack Obama and Sonia Sotomayor: it’s not hard to find gifts created for and by people of color this holiday season.” (emphasis added)

Why it’s almost like they’re real people!

6) CHOCOLATES SHAPED LIKE PRESIDENT OBAMA & MORE

CandyExpress said its commemorative Barack Obama heads would only be available for a limited time, unfortunately it wasn’t limited enough. Off the top of my head I would say there are three things Mr. Obama should not be used to advertise: Chocolate, fried chicken (a German company did it), watermelon (that’s a yet). However, the Russians came up with a bunch of things I’d never thought of. They used our President to advertise a tanning salon, a dental clinic and pre-packaged ice cream with the slogan “Everyone’s talking about it: dark inside white!” The bars have a chocolate-flavored center embedded in a layer of vanilla.

Obama Daughters DollsHowever these are just idiocy, the sheer stupidity award goes to Beanie Baby maker Ty. First they decided to sell two new dolls named Sweet Sasha and Marvelous Malia. Then they tried to deny they were named after America’s First Kids.

“[We] chose the dolls’ names because “they are beautiful names,” not because of any resemblance to President Obama’s daughters, said spokeswoman Tania Lundeen. “There’s nothing on the dolls that refers to the Obama girls,” Lundeen said. “It would not be fair to say they are exact replications of these girls. They are not.”

Sorry dear, but in order to get away with a lie like that you have to be a bank.

7) STUPIDITY? THERE’S AN APP FOR THAT

The word of the year really should have been app. The ubiquitous iPhone has spawned an industry of companies trying to market their wares by providing allegedly useful and/or humorous apps. To paraphrase Pogo, this confronted Pepsi with an insurmountable opportunity. The company released an app called Before You Score for its Mountain Dew AMP brand. The app gives you 24 different types of women (sorority girl, etc.) and offers “appropriate” pick-up lines for each type and other similar information.

Not to be outdone, LawFirms.com, a legal referral site, decided to get attention with a campaign featuring the (fictitious) app iCoyote. It “packs all of the features of a real immigrant smuggler into the iPhone. Using GPS, navigate through the patrol packed desert without worrying about that pesky Border Patrol.”

The app included a variety of features such as:

  • iWife. It “will take care of finding marriage prospects for you. Aggregating and analyzing data from a variety of online sources [to] match you up with only the most promising US Citizen candidates.”
  • iLawyer. “Homeland Security is Cracking down. Not to worry. With iLawyer, you can find an attorney to convince the immigration court to grant Asylum Protection. A Green Card is a finger swipe away.”
  • Weather Monitors. “The desert can get hot, and trying to cross it when it’s 120 degrees is not fun. Get up-to-date weather forecasts to pick the right time and ensure your trip to the US is comfortable and fun-packed.”
  • City Statistics. “San Antonio? Albuquerque? Tucson? San Diego? Not sure which is best? Get unemployment statistics, current average wages, cost of living expenses and more. Get the job you want, at the right wage, tax free!”

8 AMERICAN GIRL SELLS “HOMELESS GIRL” DOLL

Your child can learn that the homeless are just like real people once you spend $95 to buy her a “less fortunate” playmate for her other American Girl doll(s). The latest addition to the American Girl line of how-do-you-justify-it-ly expensive dolls is Gwen Thompson. Ms. Thompson

wheelchair and her mother Janine fell on hard times when her father lost his job; they later lost the house as they were unable to keep up payments. Soon after, Gwen’s father left them and they became homeless the fall before the start of the book’s events. Initially, Gwen’s mother has them live in their car until the winter comes; she then takes them to Sunrise House, a place for homeless women and children. Sunrise House helps them get on their feet and eventually get a new apartment.

And should you also want to teach the kid that the disabled are people too, American Girl also sells a wheelchair for $30.

9) KFC UNDERESTIMATES OPRAH’S POPULARITY

Why would you pay to have Oprah endorse your product if you didn’t know what the result be? In May the chain formerly known as Kentucky Fried Chicken paid Ms. Winfrey to discuss its new grilled chicken on her show. (This is part of an ongoing effort to rebrand KFC as someplace that serves something besides FC. By the time it’s over KFC will be Rhode Island Clam Shack. But I digress.) In addition to giving product to her audience — and how pissed were they? Other folks got a new car and they get a food experiment – viewers could go to a website and download a coupon for up to four free two-piece chicken meals with two sides and a biscuit. If there’s one thing the US loves more than Oprah, it’s Oprah and free food.

You’ll never guess what happened. OK, so maybe you will.

Several bajillion people downloaded the coupon and sprinted to the nearest KFC. Well, the food disappeared faster than a dollar bill on the floor of the Senate. As a result somefranchisees started refusing to accept the coupon, some told people the promotion was over for the day, some quickly pointed to the “while supplies last” clause, the more creative said that coupons with barcode numbers ending in “1234” are not valid. Look closely at the barcode below to see what that meant.

All this brought new meaning to the chain’s horrible new tagline: “Unthink What You Thought About KFC.”

Another chain, El Pollo Loco, moved smart and fast and sent out a twitter saying they’d accept the coupons on Mother’s Day. Soon Oprah was having to apologize for the stupidity and KFC issued rain checks to the disgruntled.

All of which goes to prove that whatever you have to pay Oprah, the ROI is REAL!

10) (tie) BLACKWATER, NIGERIA & SWINE INDUSTRY LAUNCH REBRANDING EFFORTS

  • In an attempt to change all the nasty connotations that go along with being mercenaries, Blackwater Worldwide changed its name to Xe. That’s pronounced zee, as in “zee idiots in marketing thought of it.”

Blackwater president Gary Jackson said in a memo to employees the new name reflects the change in company focus away from the business of providing private security. “The volume of changes over the past half-year have taken the company to an exciting place and we are now ready for two of the final, and most obvious changes,” Jackson said in the note.

That exciting place seems to include a lot of lawsuits.

“At international airports, in trains, in shopping malls, and almost everywhere, every Nigerian is a marked person,” Dora Akunyili, information minister and self-styled chief image maker said at the launch of the re-branding campaign this week. “We are pulled aside for questioning. We are seen as potential drug pushers or fraudsters. We are unfortunately denied the benefit of the doubt.”

  • Swine flu is no laughing matter. Especially if you’re the American Pork Association. They went into overdrive screaming about how it was hurting their sales and enlisted Iowa Sen. Tom Harkin who constantly referred to the “so-called swine flu.” Unfortunately humor trumps branding every time. Thus we got headlines like:

“We will call it Mexico flu. We won’t call it swine flu,” Deputy Health Minister Yakov Litzman, a black-garbed Orthodox Jew, told a news conference Monday, assuring the Israeli public that authorities were prepared to handle any cases.

CIO writer and friend Al Sacco came up with this: Swine flu isn’t a scary enough name. It needs a slogan, too: “Pork Plague, the (Other) White Death,” for example.

DISHONORABLE MENTIONS

AMAZON DELISTS GAY AND LESBIAN BOOKS

The online retailer blamed an “employee in France” for a “software glitch” which oddly delisted gay and lesbian themed books from its search listings. (Example: Annie Proulx’s Brokeback Mountain vanished, but not her book The Shipping News in which all the sex is hetero.)

Amazon managers found that an employee who happened to work in France had filled out a field incorrectly and more than 50,000 items got flipped over to be flagged as “adult,” the source said.

CRAIGSLIST CEO SAYS SITE HAS NO SEX RELATED ADS

“I would not describe any section of our site as ’sex related,’ ” [Craigslist CEO Jim] Buckmaster wrote in response to a series of e-mailed questions from the Globe. He acknowledged that Craigslist offers an “erotic services” section that should not include more than “legitimate escort services, sensual massage, exotic dancers, etc.,” but said that offers to exchange sexual favors for money are “strictly prohibited” and removed from the site.

SPECIAL PENGUIN OF IRONY CITATION:

THE WISCONSIN TOURISM FOUNDATION
had to change its name to the Tourism Federation of Wisconsin

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BONUS: A few other totally wrong products from the year

New reg lets banks ignore actual value of “underperforming” loans

It is only fitting that on Halloween the Federal government is increasing the number of zombies among us.

Federal bank regulators issued guidelines allowing banks to keep loans on their books as "performing" even if the value of the underlying properties have fallen below the loan amount.

Blog_Zombie_BankThe rationale?

While CRE (commercial real estate) borrowers may experience deterioration in their financial condition, many continue to be creditworthy customers who have the willingness and capacity to repay their debts. In such cases, financial institutions and borrowers may find it mutually beneficial to work constructively together.

Nothing inspires confience in me like the phrase “financial institutions and borrowers may find it mutually beneficial.” Especially since banks are not required to only apply this rule to “creditworthy customers who have the willingness and capacity to repay their debts.”

I really can’t top what Doug McIntyre wrote at DailyFinance.com:

The FDIC appears simply to be taking losses that would be incurred in the normal course of business and pushing the true accounting for them into the future. It is to the political benefit of Washington to make it appear that the banking sector is getting better. It also probably helps the FDIC, which is essentially insolvent, from having to come up with billions of dollars to insure deposits at failing banks.

Some can argue that this regulation just does for commercial real estate what had already been done for home mortgages. In April, the Financial Accounting Standards Board approved a new set of rules allowing financial firms to fiddle with how big their real-estate losses are. (New accounting rules let bankers set the value of their own toxic assets)

When I use a word," Humpty Dumpty said in rather a scornful tone, "it means just what I choose it to mean – neither more nor less.”

Bank fails after taking “Jesus saves” literally

JC savesRiverview Community Bank of Ostego, MN, whose founder said God told him that He “would take care of the bottom line,” was closed by the FDIC last Friday.

Chuck Ripka, one of the bank’s founders, once told the Star Tribune that God spoke to him and said, "Chuck, if you pastor the bank, I’ll take care of the bottom line." Ripka and his staff would pray with customers in the bank’s Otsego branch and even at the drive-up window. (A story I once heard about not mixing money lenders and temples suddenly comes to mind.)

Seems the Good Lord didn’t tip Mr. Ripka to the fact that home prices do not always head toward Heaven. The bank was an aggressive real estate lender and at one point had the fourth-highest concentration of real estate loans-to-capital of any community bank in the Minnesota. Riverview’s mistakes weren’t limited to bad loans it seems. Earlier this month it had reached an agreement with the Fed to cease paying dividends and correct violations of law spelled out in a May letter from the Fed. The order didn’t identify what laws were broken.

 

(And speaking of banks in need of divine intercession, check out: Citigroup’s "Hail Mary Pass": How To Know Citigroup Is In Serious Trouble)

Despite the meltdown too many still think money = brains

bank-zombie-3 Turn a profit and you must be a genius, despite two successive bubbles that is still the essential view of too many.

Yesterday Goldman Sachs reported record earnings mostly because they are profiting from a government system they (or their former-for-now employees) helped create.

In the wake of Countrywide, Madoff, Bear Stearns, Enron, AIG, etc., etc., it would be nice to think a we had acquired even a slight sense of skepticism. But even many of our supposedly cynical reporters rushed to gush over Goldman winning a rigged game.

Here’s NPR’s Yuki Noguchi on All Things Considered: “Dick Bove is senior vice president of research at Rochdale Securities. He says Goldman suffered during the crisis. It shed 16 percent of its workforce in the last year. But what revived Goldman, Bove said, is the diversity of its business and its superior internal systems. So while some aspects of its business falter, the rest goes gangbusters.”

“Superior internal systems”? Is that a euphemism for no competition left standing? Nor is she alone in using effusive praise in the place of actual facts. Reuters quotes Michael Holland as saying:

What they have continued to do during the worst financial crisis in 25 years shows that they are the smartest guys in the room and, therefore, it doesn’t necessarily translate to the other people who are in the room.

“The smartest guys in the room.” Mr. Holland uses the old Enron catchphrase without a trace of irony. Here is a view from Australia:

The fact Goldman Sachs made as much money in the second quarter as it did for all of 2008 is undeniably good news. It shows markets are open for business, and given that many of its peers are dead or recovering the investment bank demonstrates the benefits of well judged risks.

The markets are open for business? Doesn’t the second half of that sentence beg a few questions of the first half?

No surprise that our elected officials are only too happy to jump on board the bandwagon. Richard Shelby, the top Republican on the Senate Banking Committee: "I’m not surprised. Goldman Sachs has a history of being well run and sometimes ahead of the others."

All this happy talk leads to a rise in the markets which is used as further evidence of the brilliance of Goldman, et al. It was only two and half years ago when Countrywide was considered one of the most esteemed companies in the US.

Anyone remember that?

Anyone?

Bueller?

Thankfully not everyone is falling for it. Over at the Washington Post, Binyamin Appelbaum even put some skepticism in the lead: “… as the decimation of its Wall Street rivals allowed the investment bank to romp across the financial landscape, buying low and selling high.” While Goldman has repaid its $10 billion government loan, Applebaum (and a few others) had the temerity to point out that the company “has not disclosed to what extent it continues to rely on other federal rescue programs, such as borrowing from the Federal Reserve.”

Even with funny money banks refuse to take California IOUs

The name of Disney’s California Adventure park seems to have taken on ironic overtones of late. The WSJ reports:

iou A group of the biggest U.S. banks said they would stop accepting California’s IOUs on Friday … if California continues to issue the IOUs, creditors will be forced to hold on to them until they mature on Oct. 2, or find other banks to honor them. … The group of banks included Bank of America Corp., Citigroup Inc., Wells Fargo & Co. and J.P. Morgan Chase & Co., among others.

(Hat tip to the fine blog CalculatedRisk)

C’mon guys! It’s not like you’d be putting up your own cash. BofA, Citi and Wells Fargo have received $65 billion in fed funds. (JPMorgan has already paid back it’s $25B. It was either that or cut its CEO’s pay.)

You know things are bad when the banks won’t use their free money to buy something.

Here’s a fund raising idea: Maybe California should hold the mother of all Michael Jackson memorials and charge admission?

Why is Citi still in business?

Last week saw some quite impressive accomplishments, even by Citi’s august standards. In just a few days it tried to come up with a new way to overpay its investment bankers and traders, then it had to remind its staff NOT to accept undocumented mortgages and finally its Japan operations were shut down because of money laundering.

Woot!

Last Tuesday, Citigroup walked into a feces storm entirely of its own making by announcing it would raise salaries by 50% to offset cuts in bonuses.

To be fair to Citi, they are taking (well-deserved) crap for the entire industry on the salary issue. BofA, Morgan Stanley, UBS and others are also trying to dodge the bad PR when huge bonuses are awarded following huge losses. So now instead of bonuses for bad performance execs will just get a huge salary for bad performance. It’s all about retention – or so Citi would like us to believe. Quote from the NYT: “Citigroup executives are so eager to keep employees from fleeing, that in some cases, they are offering them guaranteed pay contracts.” Well, given that those contracts are being paid for with $45 billion of US taxpayer debt who can blame them. Citi is once again free to play with someone else’s money and are being just as responsible as they were the last time. BTW, the idea that these raises are going to the rank-and-file is absolute hogwash. As Alphaville notes, “the biggest increases will go to investment bankers and traders.”

Also on Tuesday, Citi temporarily stopped buying new loans after “discovering” it was missing property appraisals and documents showing borrowers’ incomes.

The discovery came in Citi’s correspondent division, which buys loans from banks and independent mortgage firms, and was responsible for about half of the bank’s $115 billion in mortgages last year. Two great quotes about this:

“There remain key areas that fall short of our quality- control process. We ask you to review your processes and join us in this effort to collectively address these areas of concern.”  — Brad Brunts, a managing director at the bank’s CitiMortgage division.

And this from an analyst

“It is better to pull people off the line, and have a thorough re-education of what goes into a loan, so they can come back and do this the right way.”

Not a good sign when you have to re-train people processing mortgages on the most basic elements of how to do their jobs. Are these some of the folks being offered those guaranteed contracts?

This really takes the idea of not verifying income to a new level.

RealityFrame’s comment about the raises could really be applied to pretty much everything the bank touches: Anybody want to dispute that those banksters aren’t indeed the "best and the brightest"?

Bank robber says bank bailouts justify abrupt withdrawal

San Francisco police investigators are seeking the public’s help in tracking down a suspect who walked into a downtown bank, explained that he was fed up with corporate bailouts and threatened to detonate a bomb.

The manager escorted the man to a private room, where the suspect explained that he was employed by an organization that is concerned about U.S. government bailouts of corporations. … The money, the suspect explained, "would go to people who deserve it."

Can you steal your own money? Can a legal defense be built around the idea that it wasn’t a bank robbery but actually as "taxpayer repossession"?

Chances are someone will try it soon – bank robberies are definitely on the rise. They jumped 19.5% during the fourth quarter of 2008 over the previous quarter.

A brilliant and simple guide to how we are being lied to about the meltdown

First appeared at BlownMortgage.com

There has been a deliberately high signal-to-noise-ratio ("the ratio of a signal power to the noise power corrupting the signal") around the financial fiasco. The reason for this is the same reason that a magician does patter — to divert your attention from the sleight-of-hand.

We have heard long explanations about how no one could have seen this coming and how we can’t fire the people who got us into this mess to get us out of it and how we are going to borrow our way out of a debt crisis and how the value of loans shouldn’t reflect actual market conditions when the market is a mess. All of which can be translated to, "pay no attention to the man behind the curtain."

I am not sure if this rises to the exact level of a conspiracy or if it just coinciding self-interest by people who stand to lose a lot of money if that curtain is pulled back. I am sure that the effect is the same as a conspiracy.

However, Bill Black thinks it’s a conspiracy and that’s good enough for me. In an interview on Bill Moyer’s show Mr. Black — the senior regulator during the S&L crisis & now a prof of economy and law at U. of Missouri — applies a brilliantly sharp Occam’s Razor to the entire fiasco. In less than half-an-hour he explains what went wrong, why and why what we’re doing won’t work. This is a truly bipartisan dissection. Watch it and learn.

My favorite part is his conclusion (transcript here):

So stop that current system. We’re hiding the losses, instead of trying to find out the real losses. Stop that, because you need good information to make good decisions, right? Follow what works instead of what’s failed. Start appointing people who have records of success, instead of records of failure. That would be another nice place to start. There are lots of things we can do. Even today, as late as it is. Even though they’ve had a terrible start to the administration. They could change, and they could change within weeks. And by the way, the folks who are the better regulators, they paid their taxes. So, you can get them through the vetting process a lot quicker.

(Hat tip to Infectious Greed, Financial Armageddon, and Washington’s Blog)

Here’s part 1 of the interview, go here for part 2 and here for part 3.

"The tragedy of this crisis is that it didn’t have to happen at all." — William Black

New accounting rules let bankers set the value of their own toxic assets

My latest from over at BlownMortgage:

The Financial Accounting Standards Board (FASB) has approved a new set of rules allowing financial firms to fiddle with how big their real-estate losses are.

The change is in mark-to-market accounting rules, which say companies must value assets at prices reflecting current market conditions. But now the phrase “current market conditions” will have a big asterisk next to them. Now the assets will be valued at what they would go for in an “orderly” sale, as opposed to a forced or distressed sale. Smoke-and-mirrors has nothing on ink-and-paper.

The changes … allow companies to use ’significant’ judgment when gauging the price of some investments on their books, including mortgage-backed securities.

Or, as Lewis Carrol put it in the aptly titled Through The Looking Glass:

“When I use a word,” Humpty Dumpty said, in rather a scornful tone, “it means just what I choose it to mean — neither more nor less.”
“The question is”‘ said Alice, “whether you can make words mean so many different things.”

Those in favor of the rule change include Citigroup, Wells Fargo, members of The House and the American Bankers Association. (What a list! It is difficult to think of a group more dedicated to playing “let’s pretend” when it comes to accounting.) They argue forcing banks to mark assets to firesale prices when the markets have gone dormant has fueled the financial crisis through the writedowns, big earnings hits, damage to capital ratios, and a reduced ability to lend. In other words, if you don’t like the reality of the situation just ignore it. Ah, there’s nothing like seeing capitalism in action — the invisible hand of the marketplace being chopped off before it can distribute goods and services at the prices they would actually sell for.

Why is it that we needed strict accounting measures when these assets were inflating the banks’ balance sheets but now that they are deflating those same numbers it is time to change them?

FDIC head Sheila “The Voice of Reason” Bair seems to have her doubts as well: “Banks need to have flexibility” in valuing assets but the fair market rule shouldn’t be scrapped, [she] told a gathering of bank executives Wednesday. “There needs to be integrity in those bank balance sheets.” Wasn’t theeir lack of integrity how this all started?

Here’s my favorite line in the AP story: “Critics say the rule mandates onerous write-downs and saps investor confidence in banks.” There is no confidence left to sap, guys. Coming up with new ways to officially approve your guestimates just proves how justified the lack of confidence is.

While I am unimpressed by the FASB’s lack of a spinal cord, the true blame lies elsewhere for this one:

At a hearing last month, a House panel wrung a pledge from FASB Chairman Robert Herz to try to issue guidelines in three weeks that would relax the mark-to-market rule. The head of the House Financial Services subcommittee, Rep. Paul Kanjorski, D-Pa., had held out the threat of legislation to pressure the standard-setting board to take the steps.

The inmates are now officially in charge of the asylum.