Waxman Request Details of AIG Spending & AIG Wants $10 Billion MORE! [An official WTF moment....]

10/17/2008 03:20:00 PM

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and100108.b1 In a press release today, it was announced that the Oversight Committee has requested a detailed listing of all conferences, events, or retreats paid for by AIG this year, as well as bonuses paid to AIG executives.  In the 3 page letter, which was addressed to Liddy, the current CEO of AIG, Chairman Waxman requests "additional information and documents as part of the Oversight Committee's investigation" into AIG.  AIG's response?  Well none yet, but they want another $10 billion dollars already on top of the $122.8 they have.

Waxman is asking AIG provide new information about its operations, including an explanation of how it has used money borrowed to date.

He also asks for AIG to "provide the Committee with a listing of all conferences, events, or retreats paid for by AIG, its subsidiaries, or affiliates from January 1, 2008 to present, along with documents sufficient to show the charges paid for each conference" and the same for any event for the next six months.

Waxman is  also basically asking for all payroll information for every employee of AIG, its subsidiaries or affiliates; all participants in the Partners Plan; all participants in the Senior Partners Plan; and all employees in the Financial Products Division. 

And finally Waxman is looking more into the actions of Joseph Cassano, William Kolbert, Pierre Micottis, and Doug Poling during a two year period including all emails, documents or other communications sent or reviewed by Cassano and some of his former colleagues over the last two years.

AIG's reponse?  Well, nothing yet however, according to Bloomberg, AIG may seek a third source of government cash by tapping a Federal Reserve program that buys commercial paper, according to a person familiar with the matter, stating AIG will probably borrow less than $10 billion through the commercial paper program.  AIG has already used two-thirds of its $122.8 billion credit line in the past month. 

AIG's stock fell 14 percent today, to $2.10.  AIG's stock has dropped by more than 95 percent this year.

Full text of the Letter to Edward Liddy  (PDF) can be found on the Oversight Committee website or most of it can be found below.

During the Committee's hearing on October 7, 2008, witnesses were asked about a week-long conference held at the St. Regis Monarch Beach Resort approximately one week after the Treasury Department agreed to spend $85 billion to save AIG from collapse.  Your predecessor, former CEO Robert Willumstand, told the Committee that the charges of $200,000 for rooms, $23,000 for spa services, and $7,000 on greens fees seemed "very inappropriate" and that he "absolutely" would not have approved them.  His predecessor, former CEO Martin Sullivan, testified that, "if I'd have seen bills like that, I can assure you as the CEO I would've been asking questions."  The next day, you sent a letter to Treasury Secretary Paulson explaining that although this retreat was "standard practice in our industry," you were "reevaluating the costs of all aspects of our operations in light of the new circumstances in which we are all operating."

Since then, there have been reports that AIG may have paid for other similar events held after receiving access to $85 billion in taxpayer funds, such as an event on September 20, 2008, at the Steven F. Udvar-Hazy Center in Washington, D.C., with over 800 people and a hunting trip in England for AIG executives that reportedly cost $85,000.  Yesterday, you and the New York Attorney General announced that AIG would be canceling over 160 conferences and events.

To assist the Committee in investigating this issue, I ask that AIG provide the Committee with a listing of all conferences, events, or retreats paid for by AIG, its subsidiaries, or affiliates from January 1, 2008, to the present, along with documents sufficient to show the charges paid for each conference, event, or retreat, including lodging, transportation, food, drink, and other charges.  I also ask that you provide a listing of any similar conferences, events, or retreats planned for the next six months.

In addition, I ask that you provide the Committee with additional information and documents relating to the actions taken by Joseph Cassano, the head of AIG's Financial Products Division; bonus payments made to AIG executives; and the use of funds provided by the federal government to date.  Specifically, I request that you provide to the Committee:

1.  All documents and communications, including e-mails, sent, received, or reviewed by Joseph Cassano, William Kolbert, Pierre Micottis, or Doug Poling during the two-year period ending on October 15, 2008;

2.  All documents relating to the weekly "Global Conference Calls" conducted by AIG's Financial Products Division, including presentations, transcripts, minutes, and audio recordings, for the two-year period ending on October 15, 2008;

3.  A listing of all compensation and perquisites provided to Mr. Cassano from 2000 to the present, other than salary and cash bonus information previously provided to the Committee;

4.  For each of the following groups, the number of employees in each group; the total amount of base salary paid to each group annually from January 1, 2006, to the present; and the total amount of non-base salary cash compensation (e.g., cash bonus or other incentive payments) paid to each group annually from January 1, 2006, to present:

  a.  All employees of AIG, its subsidiaries, and its affiliates;

  b.  Participants in AIG's Partners Plan;

  c.  Participants in AIG's Senior Partners Plan; and

  d.  Employees of the Financial Products Division;

5.  The total amount of funds received from the Federal Reserve through the $85 billion credit facility agreement announced on September 16, 2008, and the $37.2 billion securities lending agreement announced on October 8, 2008.

6.  A detailed description of the uses of the funds identified in response to question 5, including the identities of any counterparties to which funds were provided for collateral or other purposes, the date of funds were provided to the counterparties, and the amount of the funds involved.

Please provide these documents and information to the Committee by Friday, November 14, 2008.


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Round The World, Lehman Investigations and Lawsuits Are All The Rage.[Day of Reckoning Time]

10/17/2008 12:31:00 PM

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06-dick-fuld-furrow-brow-large Lehman is at the top of the news again.  Three U.S. Attorney Offices are subpoening at least a dozen people, there seems to be $8 million dollars missing, and Singapore and Hong Kong central banks are going after banks who "misled" investors to purchase in Lehman products.  Additionally, Securities Law Firm of Klayman & Toskes has begun a class action lawsuit against several investment institutions who sold Lehman Preferred Stock, Series J, claiming the underwriters should have found misstatements and omission in Lehman's Prospectus on the product.

I wonder how furrowed Fuld's brow is today.......  A round of Bridge anyone?

As I posted back on Oct. 8, Lehman was being investigated by at least three U.S. attorney offices to see whether Lehman Brothers Holdings, Inc. (LEHMQ), misled investors before its bankruptcy filing.  Those three were the U.S. Attorney's Office in New York's Southern District, New York's Eastern District and in New Jersey.

According to Bloomberg, Lehman bankruptcy lawyer Harvey Miller stated yesterday in a Manhattan federal court that "we are facing three grand jury investigations."    At the time Miller declined comment on whether Fuld was among those subpoenaed.

Today, Reuters and the New York Post is reporting that prosecutors have subpoenaed a dozen executives of Lehman Brothers Holdings Inc including CEO Dick Fuld, in connecting with three grand jury probes investigating the fall of Lehman Brothers.  Sources say the nature of the investigation is whether Lehman executives knowingly made false statements about the health of Lehman before its collapse.  More specifically, Lehman's role in the $330 billion auction rate securities market and possible crimes associated with the New York-based bank's $6 billion June stock issue, according to a person familiar with the case.

Additionally Bloomberg is reporting that investigators have subpoenaed Ernst& Young LLP, Lehman's auditor; U.K.-based Barclays Plc, which bought Lehman's North American brokerage; and the New Jersey Division of Investment, which runs a pension fund that lost $115.6 million on a $180 million investment in the June stock sale, according to people familiar with the case.  It's not clear whether these subpoenas are part of the 12 noted by Miller.

Yusill Scribner, a spokeswoman for U.S. Attorney Michael Garcia in Manhattan, declined comment on who the subpoenas are for.  Garcia, along with Brooklyn U.S. Attorney Benton Campbell, and Newark New Jersey U.S. Attorney Christopher Christie, have increased their resources for possible prosecutions associated with the credit crisis and subsequent bank failures.

Christie, the New Jersey attorney, has subpoenaed documents to determine whether Lehman failed to fully disclose its eroding financial condition at the time of the $6 billion stock offering, according to people familiar with the matter.

Campbell, the Brooklyn attorney, has opened inquiries into whether Lehman executives misled investors about the firm's financial health and whether Zurich-based UBS AG lied to investors about securities backed by subprime mortgages, according to a person familiar with the case.   UBS AG is the European bank with the biggest losses from the global credit crisis.  In a post I made on October 16, the Swiss Federal Banking Commission announced a rescue package for UBS agreeing to put $5.23 billion into UBS.  UBS had been forced to write down tens of billions on bad subprime contracts.

Also subpoenaed by federal prosecutors are Putnam Investments LLC, the Boston-based mutual fund firm that oversees about $163 billion and bought Lehman bonds and shares; New York-based fund manager BlackRock Inc., a Lehman creditor; and C.V. Starr & Co., which is run by ex-AIG CEO Maurice Greenberg, according to the same people familiar with the matter.


While prosecutors were looking through Lehman's books, they found the U.S. unit of Lehman owes the European unit of Lehman $2 billion to $3 billion and the European unit owes the U.S. unit more than $8 billion, according to Reuters.  Oddly enough there is a disputed claim from the administrator of Lehman's European unit that $8 billion was transferred from Lehman Brothers European unit to the U.S. unit on the eve of Lehman's bankruptcy filing.

Many of the transactions were credit derivative transactions.  Alvarez & Marsal, a restructuring firm, is unwinding 1.5 million derivative transactions involving about 8,000 counterparties, according to Reuters.  The firm is still trying to locate data related to those trades.  The task is so complex that the restructuring firm is requesting the number of employees be increased from 100 to 400.


The Securities Law Firm of Klayman & Toskes has filed several class action lawsuits for customers who purchased Lehman Brothers Preferred Stock, Series J.  The firms included are Citigroup Global Markets, Inc; Banc of America Securities, LLC; Wachovia Capital Markets, LLC; Merrill Lynch, UBS Securities and Morgan Stanley.

According to the Complaint, the Prospectus for the Lehman Preferred Stock J contains material misstatements and omissions.  Specifically, it is alleged that the representations made in Lehman's Prospectus were materially false and misleading because at the time of the Offering, Lehman was already laboring under several negative factors that were not properly disclosed in the Prospectus, including the failure to set aside adequate allowances to cover Lehman's steadily increasing portfolio of underperforming subprime related product, and to adequately write-down residential and commercial mortgage and real estate assets.

The Complaint further alleges that the Defendants could have, and should have, discovered the misstatements and omissions in Lehman's Prospectus prior to filing with the SEC and distribution tot he investing public.  As a result of inadequate due diligence investigation on the part of Defendants, the underwrites failed to discover the misstatements and omission in Lehman's Prospectus on the Preferred Stock J.

For more information visit Klayman and Toskes Lehman page.


Feature Singapore's central bank according to a Forbes article, said Friday its investigating allegations of misconduct by commercial bank officials in connection with the sale of about 640 million Singapore dollars ($432 million) of bonds linked to Lehman Bros.

"MAS [Monetary Authority of Singapore] confirms that we have been conducting formal inquiries into allegations of breaches of the law, inadequate or poor sales practices by their representatives," Managing Director Heng Swee Keat said during a news conference in Singapore.

The country's central bank will focus on cases of mis-selling products to "vulnerable" customers, meaning the elderly and those who are not well-educated, Keat additionally stated.  MAS has said that about 10,000 people in Singapore invested in products linked to Lehman Brothers and other institutions hit by a crisis in the US.  The Singapore investors, a large portion of them retirees who stand to lose their life savings, have said they were told they were buying into a product with low risk.  Investors interviewed by AFP said they felt "cheated" and "betrayed" because the banks did not fully inform them of the risks when they were offered the financial products.

According to an AFP article, the investments include "Lehman Minibonds" and "Merrill Lynch Jubilee Notes".  There were also those who invested in "high notes" with Singapore's DBS Bank and Morgan Stanley "pinnacle notes."

According to Reuters, these investors stand to lose over S$500 million ($339 million) in total, according to data provided by the MAS, which said it will make an announcement on action when its investigation is complete.

MAS has added that while it can impose fines and suspend the licenses of financial institutions found to be in breach of its rules, it does not have the power to order banks to compensate investors.

In a rare protest in Singapore, hundreds of investors gathered at a park on Saturday to express their anguish at potential losses from the structured notes that many say were sold to them by banks as safe investments.

Picture Source:  AFP, Irate investors in Singapore.


PH2008101700299 In an AP article, two banks on Friday, who weren't identified, were referred for possible sanctions in Hong Kong as part of an investigation into misleading sales tactics in connection with Lehman Brothers investment whose values are in doubt, authorities said.  More than 40,000 Hong Kongers had bought Lehman-related investment products through banks, with the total outstanding value of the products estimated at HK$20.2 billion ($2.6 billion), according to the Hong Kong Monetary Authority.

The Hong Kong Monetary Authority sent securities regulators 24 cases involving allegations of misconduct and "mis-selling" against the lenders, the agency said in a statement.

Also in Hong Kong, thousands who bought Lehman-related products have staged street protests and pressured lawmakers in an effort to protect their investments.

"They were misleading investors on the risk.  They said the minibonds were highly stable," said W.H. Chiu, a 66-year-old retiree according to Reuters.  Chiu said he purchased about US$20,000 worth of minibonds from a branch of the Hong Kong subsidiary of Industrial and Commercial Bank of China (ICBC).  He said he was still fighting to get information on the fate of his investment and feared it would end up as "rubbish."

539w "The government should step in.  If the government don't pay, they should force the bank to pay," said Marty Chou, the managing director of an import firm in the same Reuters article.  He said he'd invested US$1 million in Lehman-linked products.

Also in the Reuters article, Yau stated that Lehman stated to her father, "They told him 'It's very safe.  It's just right for you.  I just found out that it's a credit-linked derivative," she said.  "He never thought he would suffer any loss."  "Right now, I don't know how long they will have to postpone their retirement.  It's very sad," she said.  "It's a very emotional event for them.  They just don't trust banks anymore."  She said her elderly father had lost US$250,000.

Regulators could impose fines and revoke the banks' license, among other penalties.

Bloomberg and the Washington Post has just published an article that states Hong Kong banks will buy back soured investment products guaranteed by Lehman Brothers Holdings Inc, after investors accused them of misrepresenting the risks involved in the securities.  The Hong Kong Association of Banks, which includes HSBC Holdings Inc. and BOC Hong Kong Ltd, agreed to a government plan to buy back at market prices so-called minibonds that were sold to the public and guaranteed by Lehman.  The banks are working on a formula for the buybacks.

Picture Source: 
  - Washington Post.  Lehman investors  protest in Hong Kong.
  - Reuters.  Investors bought financial products relating to Lehman Brothers march to the government headquarters in Hong Kong.



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AIG Turns From Wicked Ways, Just Like Paris Hilton... [Yeah Right]

10/17/2008 06:42:00 AM

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v2-cnnmoney-chart1.mkwOne day after New York State Attorney General Cuomo assailed AIG for making "unwarranted and outrageous expenditures" that he said violated New York law, AIG has agreed to cooperate with the New York State Attorney Generals' Office, and states they will institute more stringent policies, a denial of a severance agreement, and monitor frivolous expenses, including canceling upcoming events.  However, this "deal" still allows for justified extravagant retention and severance arrangements, and events "justified" for business, just like a luxury suite at Madison Square Garden.

Last week AIG announced after the press learned of the $440K retreat to St. Regis in California, and then learning of the Half Moon Bay "Convention", that it would stop "all non-essential conferences, meetings and activities that do not clearly maximize value and service given the current conditions."

After that, it was learned about a golfing outing to Las Vegas at the Mandalay Bay (either $500K or $50K depending on who you are talking to) that AIG called a "sales and training event".  ABC News learned of a team of AIG executives accompanied by they wives, flew on private jets to Las Vegas for an insurance convention on October 3rd.  This is probably the same event.

Then learned was a hunting trip to England to the tune of $86K plus $17K in airfare which AIG called "an annual event for customers of the AIG property casualty insurance companies".

On Wednesday of this week, NY State AG Cuomo, sent a letter to AIG's board of directors, demanding the company stop "extravagant" expenditures and recover millions of dollars in unreasonable payments, or face legal action stating such expenditures and payments violated a New York state debtor-creditor law.

In a statement released by the attorney general's office, Edward M. Liddy, AIG's chairman and chief executive, said, "We know that the attorney general shares our commitment to rebuild AIG's business and paying back the U.S. taxpayer, and we will address the attorney general's concerns expeditiously."

AIG has agreed to immediately cancel all junkets or perks not justified by "legitimate business needs" and will be canceling more than 160 conferences and events, some exceeding more than $750,000 per event, according to NY State AG Cuomo.

"The taxpayers of this country don't need to fund luxury expenses for business executive," said Cuomo.  "After my meeting with Mr. Liddy, he understands the need for reform, and understands the new culture that must be brought to AIG."

Among the events that AIG has agreed to cancel are a $750K "best operator" event in Las Vegas and a $500K risk management conference scheduled for October at the Ritz Carlton in Half Moon Bay.  The company will also cancel a $350K sales conference in November at Sea Island, GA, and a $190K meeting scheduled for Scottsdale, AZ in January, 2008.

The company also will institute new expense management controls, Cuomo added, to prevent any other unwarranted expenditures, creating a governance committee to set new expense management control and will issue a new guidebook on its expense policy.  These controls are suppose to be designed at the Board level to prevent any future unwarranted expenditures, such as salaries, bonuses, stock options, severance payments, gratuities, benefits, junkets and perks.  The new controls include direct supervision by AIG Chief Administrative Officer Richard Booth.

"We're reviewing everything and making an effort to identify activities that aren't critical and reviewing executive compensation," said AIG spokesman Ashooh, declining any further comment.


Additionally AIG has decided to not honor a $10 million severance agreement with outgoing Chief Financial Officer Steven Bensinger.

In the meeting today between Cuomo and AIG's new Chairman and Chief Executive Officer Edward Liddy today, Liddy agreed to provide an accounting of all compensation paid to AIG's senior executives and assist in recovering any illegal expenditures, Cuomo said.  The payments include those made to ex-CEO Martin Sullivan and Joseph Cassano, former head of the financial products unit for the New York-based insurer.  [Hmm.. I wonder which set of "books" they are going to show....]

"The contracts will be illegal if we find that it is unjust compensation paid to an employee, severance package, bonus, stock options of a undercapitalized company," Cuomo said.

"You had senior management who were rewarded with multimillion bonuses for good performances.  How can you pay someone for good performance when their performance was anything but?" Cuomo said in a conference call with reporters.  "If unjust compensation was paid and the company was undercapitalized, we believe we have reasonable grounds to capture funds."

Cuomo said he had not yet determined the employment contracts were illegal or, to the extent they were, how much he will seek in terms of recovery.  AIG agreed not to make payments pursuant to Bensinger's employment agreement in light of Cuomo's review. 

"These actions are not intended to jeopardize the hard-earned compensation of the vast majority of AIG's employees, including retention and severance arrangements, who are essential to rebuilding AIG and the economy of New York."

David Herzog, who was AIG's comptroller for three years, was promoted to replace Bensinger, AIG announced today.


ABC News reported Thursday evening that AIG was still paying hundreds of thousands of dollars for a luxury suite at Madison Square Garden, the home of the New York Knicks and Rangers.  An AIG spokesman told ABC News that the contract for the suite was signed in February and that it had been used by its brokers and clients.

"We have a number of sponsorships and commitments that are all being reviewed right now," said AIG spokesperson Peter Tulupman.

While Tulupman would not confirm how much AIG is paying for the MSG suite, a year-long contract for a "Club Suite" ranges from $225,000 to $500,000.  Although AIG is stuck with paying for the suite, Tulupman said it will no longer be used by the company.


On Thursday, the Federal Reserve reported that its loans to AIG totaled $82.9 billion as of Wednesday of this week, up from $70.3 billion a week earlier.  In September, the Feds authorized a bridge loan of up to $85 billion.  This month, the central bank agreed to extend an additional $37.8 billion to the company.

"We're very grateful for the guidance of Attorney General Cuomo," said Edward Liddy.  "We know that the Attorney General shares our commitment to rebuilding AIG's business and paying back the U.S. taxpayer, and we will address the Attorney General's concerns expeditiously."


Cuomo told reporters that he did not promise AIG his office would not go to court but no formal court action had been taken. 

When Cuomo was asked if his office was investigating other firms' executive compensation, Cuomo said "Yes" but added, "I can't say at this time" which companies.

"The signal to corporate America is, it's a different day," Cuomo said, adding that the changes put in place by AIG should serve as a model for other companies.  "When you're receiving taxpayer funds, the rules of the game change," he said.

"It sends a message to all of Wall Street," Cuomo said.  "The party is over."


The executives will go about their merrily way on "justified" million dollar(s) salaries, bonuses and expenses with their lives intact, maybe minus a new Jag every year.  But what about all the average American people, who now have basically no retirement accounts (401ks) thanks to people like these companies.  Their lives, their futures, their life savings put in investment, and their retirements are changed or gone forever.

Personally, I think half of AIG's loan should be called in, in one year or AIG taken over fully by the Feds.


U.S. Representative Paul E. Kanjorski Wants AIG To Reimburse Money (10/16)

New York Attorney General Cuomo Warns AIG On Spending Taxpayers Dollars (10/16)

Wanna Know Why AIG Went Bankrupt?  (10/10)

AIG Cancels Corporate "Convention" in Half Moon Bay and Paulson fires AIG consultant and Other AIG News.  (10/10)

AIG's $440K "retreat" is "normal" and they are having another one.  (10/08)

AIG Execs use $440,000 of taxpayers money to take retreat after bailout.  (10/07)


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You Can't Afford A Loan, But You Can Still Have It, And I Get A Bonus. [Class Action Lawsuit, Feds Investigate WaMu]

10/17/2008 05:18:00 AM

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2004351599 "We're going to have terrific days ahead of us.  I just want people to calm down, have a little faith."  - Washington Mutual Chief Executive Kerry Killinger's statement to shareholders in April, 2008.

"None of this would have occurred if Wall Street hadn't found a way to take bad loans and make them look good, and sell them to people who didn't know any better,"  Lee Lannoye, retired [1998] chief credit officer and executive vice president at WaMu.

Federal investigators are looking into the decline and fall of Washington Mutual Bank, and it seems they won't have to go far for a wealth of allegations as to the causes, or source material on those accusations.

Three class-action lawsuits, consolidated into one, are pending against WaMu, and former employees are speaking out about how they were told to "lay off" about warnings of the risks of ARMs, including being terminated because of just doing their job.  And in April, 2008, stockholders were demanding that the high level executives step down from their positions.


Three class-action lawsuits -- each a consolidation of similar lawsuits filed against the company, directors, executives (and in some cases accountants and securities underwriters) -- now pending in federal court detail the sorts of conduct that a task force may be looking into as part of its investigations.

One of those suits in particular filed August 05, 2008 (PDF) -- a securities class-action suit 470 pages long representing investors who bought WaMu stock between Oct. 19, 2005 and July 23, 2008 -- uses interviews with former employees (many identified as "confidential witnesses" followed by a number) to describe what actually was going on inside the Seattle-based consumer bank and mortgage company.  The lawsuit alleges that "WaMu's concerted efforts to transform itself from a sleepy savings and loan into a high-margin bank began to include highly questionable and unlawful practices"  taking into consideration that for the years 2006 and 2007, just under 70% of WaMu's net interest income was generated by residential real estate loans and related products and over 60% of WaMu's overall average assets were generated by residential real estate loans and related products.

One of those questionable practices, the suit says, was the heavy use of option ARM's, a type of adjustable-rate mortgage on which the borrower sets the monthly payment, even if the result is that the balance owed actually increases.  WaMu's stock fell from $37.90 a share to $4.65 in that period.

"WaMu loan production personnel were compensated based on loan volume without any regard to loan quality, and were paid even more for originating riskier loans, including option ARM loans," the suit alleges.  "WaMu's employees, accordingly, targeted more and more borrowers who were less able to afford the loan payments they would have to make, and many of whom had no realistic ability to meet the obligations incident tot he loans they were sold."

Former employees, according to the suit, said that they emphasis was "always quantity rather than quality," and that borrowers weren't informed as to the structure of the loans, in which a low teaser rate would jump to a much higher rate in the loan, or that low payments would cause the balance to increase.

Some of the bank's lenders and underwriters, who sold mortgages directly to home owners, said they felt pressure to sell as many loans as possible and push risky, but lucrative, loans onto all borrowers, according to an ABC News article.

The suit adds that WaMu deliberately weakened underwriting standards on both subprime and prime mortgages to generate volume.  Loans were labeled fully documented even when they had little or no documentation of income of assets of the borrower.  Appraisers were pressured to deliver home values that would justify making loans, and warnings from risk-assessment executives, the "gatekeepers" who were suppose to protect the bank from taking undue risks, were ignored, marginalized and, in some cases, fired.


Dale George, a former senior risk manager at WaMu, who spoke to ABC News, likened his job to the brakes on a car.  But George claims WaMu executives "took the brakes off and drove over a cliff."  As the housing bubble swelled and high-risk mortgage lending became more lucrative, the bank changed, according to George.  WaMu began approving as many loans as it could.  "Everything we refocused on loan volume, loan volume, loan volume," he told ABC News.  George said risk managers were told to "lay off" about warnings of the risks involved in mortgage loans.

And according to ABC News, they obtained an email where one WaMu executive told risk managers about a "cultural change" at the bank, and urged them to "lead the charge in modifying the perception of compliance and risk oversight from a regulatory burden to a competitive advantage."  George said this had a chilling effect:  It told risk managers that they "could not raise meaningful issues" and "really had to sweep negative findings under the carpet."  George continued with that he refused to sweep away his findings, claiming "there was a number of instances where I was pressured to fix a certain rating or upgrade the rating."

In one case, he said he refused to improve the risk rating on a $50 million commercial loan, an improvement that would have allowed the bank to significantly increase that loan.  For that, he said he was taken off the project, reprimanded by senior management, and eventually fired when he raised his concerns to top executives.  WaMu denied any wrongdoing and said the firing wasn't retaliatory.


Another WaMu employee, former senior underwriter Dorothea Larkin, said she, too, was uncomfortable with the sift in lending standards. "It was all about making the numbers, closing all the loans that came through the door," loans like higher risk option ARMs and subprime loans, she said.

According to the ABC News report, WaMu's underwriters were told not to question whether or not a home loan should have been approved, but just to ensure certain lending procedures were followed, according to Larkin.  She called this hands-off underwriting approach "unusual."

Larkin described a bank eager to loan money at any long-term cost.  For example, she said WaMu lent millions to a borrower even after he defaulted on a multimillion dollar home construction project.  "We just kept giving him money," she said, "and I'm sure that's one of the foreclosures WaMu is still sitting on."

"The executives are the ones who made the decision to take WaMu in this direction," she said.  "Too many of the middle folks like myself said this is wrong, we're making loans we shouldn't be making, we're qualifying borrowers who we know are going to struggle to pay the loan back."


At a stockholders meeting in April, 2008, a man who identified himself as a WaMu employee and shareholder laid the blame for the company's troubles squarely on Stephen Rotella, president and chief operating officer since 2005.

The man, whose name could not be made out clearly, said that under Rotella's leadership, WaMu loan consultants were paid more for writing subprime mortgages and so-called "option ARMs" with ultra-low teaser rates than for writing safer, fixed-rate loans.

"This man [Rotella] has driven the company to the edge of bankruptcy and he should be fired, and his bonuses should be taken back from him," the man said.


Lannoye, 70, retired at the end of 1998 after a decade as chief credit officer and executive vice president at WaMu.    In April, 2008 he wanted WaMu's current execs to take responsibility for leading the bank down the path to losses.  "It obviously has not been very well managed the last four or five years," he said.  "They made some pretty stupid decisions." 

"...they are losing $8 billion, $12 billion [in total projected credit losses].  An not one person has been let go," he said.  "They closed down construction lending, the closed home-loan centers, but non of the people who made the strategic decisions to lower the credit standard ... they're all still there, including the board."

"None of this would have occurred if Wall Street hadn't found a way to take bad loans and make them look good, and sell them to people who didn't know any better,"  Lannoye stated.  "That doesn't excuse WaMu management for changing their risk profile and making loans to people who didn't qualify."


According to the lawsuit:  "Defendants' efforts to rig the real property appraisal process relating to WaMu's loans were designed to artificially increase loan origination volume and therefore increase growth and revenue related to WaMu's core business -- residential lending -- and thereby make WaMu's financial condition appear healthier than it actually was," the suit says.

The net effect, it adds, was that "management at the highest levels (was able) to increase the level of risk assumed by the company without informing investors of this critical fact."  The amount of money that the company should have been setting aside in reserves to cover possible loan losses was inadequate, it adds, often by hundreds of millions of dollars, which further inflated earnings.   All the while, in press releases, presentations to investors and SEC filings, the company was assuring the public that it was in good shape and managing risk.

"WaMu was saying, consistently, up to the end, that they were conservative, prudent, rigorous," but in reality, "it was run in a way that was irresponsible, reckless, dangerous," contends Chad Johnson of Bernstein Litowitz Berger & Grossmann LLP, one of the attorneys representing the shareholders who filed the lawsuit.


The suit also questions sale of stock by Chief Executive Kerry Killinger even as the bank's financial condition was deteriorating, especially pertaining to insider stock sales by Killinger during the time stating they were "highly unusual and suspicious."  That Killinger's stock sales increased during the time in question, and there was an increase in stock sales at the same time as WaMu initiated major stock buybacks.


In April, 2008 investors were angry with Killinger, and he pleaded with the shareholders at a meeting.  "I know it's tough," Killinger said at the meeting.  "Nobody likes a penny dividend.  Nobody likes the stock price where it is.  Nobody likes to raise capital now.  I'd never do any of that, except we have to."  Killinger continued with "[WaMu] has the capital, the passion, the commitment to ... get through this.  We're going to have terrific days ahead of us.  I just want people to calm down, have a little faith."

At that same meeting, shareholders demanded that he, other executives and directors quit to take responsibility for WaMu's troubles. 

Additionally, WaMu's 2008 executive bonus plan was roundly denounced for minimizing the impact of sound real-estate loans and foreclosure expenses.  Many observers saw that as an attempt to shield executive bonuses from the impact of the mortgage meltdown.

Alan Henry, a stockholder, accused Killinger of opting for the investment led by TPG, rather than a reported buyout offer from J.P. Morgan Chase, simply to preserve his job.  "What you've got to do is what some real men do - real men.  When you face a situation like this, you stand down.  I ask you, out of good judgement, to stand down" Henry said to Killinger.


The following defendants in the lawsuit;  Kerry K Killinger, Thomas W. Casey, Stephen J. Rotella, Ronald J. Catheart, David C Schneider,  John F. Woods, Melissa J. Ballenger, Anne V. Farrell, Stephen E. Frank, Thomas C. Leppert, Charles M. Lillis, Phillip D. Matthews, Regina Montoya, Michael K. Murphy, Margaret Osmer-McQuade, Mary E. Pugh, William G. Reed Jr., and Orin C. Smith.  The defendants in the case haven't filed responses to the suits, other than motions to dismiss a derivative lawsuit (in which an investor sues defendants on behalf of the company) and a second class-action lawsuit representing employees who had participated in a company saving plan that bought WaMu stock.

A motion to dismiss the securities lawsuit was due earlier this month.  But the proceedings in all three suits have been complicated and delayed by the Sept. 25 action of federal regulators to seize Washington Mutual Inc.'s banking operations, subsequently sold to J. P. Morgan Chase.

Directors and former executives haven't commented publicly about what happened at WaMu.


US authorities have opened a wide-ranging probe into the collapse of WaMu.  A statement issued Wednesday by US Attorney Jeffrey Sullivan in Seattle, Washington said investigators were looking for information on potentially illegal activity related to the thrift's failure. 

Due to the intense public interest in the failure of Washington Mutual, I want to assure our community that federal law enforcement is examining activities at the bank to determine if any federal laws were violated.  The FBI, Federal Deposit Insurance Corporation Office of Inspector General (FDIC-OIG), Securities and Exchange Commission (SEC) and the Internal Revenue Service Criminal Investigations (IRS-CI) have all provided investigators to our task force.  We are asking that anyone with information for the task force contact this number:  1-866-915-8299; or this email address:  fbise@leo.gov.

For more than 100 years Washington Mutual was a highly regarded financial institution headquartered in Seattle.  Given the significant losses to investors, employees, and our community, it is fully appropriate that we scrutinize the activities of the bank, it's leaders, and others to determine if any federal laws were violated.

Press contact:  Emily Langlie, Public Affairs Officer, U.S. Attorney's Office, at (205) 553-4110.

U.S. Attorney's Office, Press Release

Neither the statement nor a spokeswoman for the U.S. Attorney's Office elaborated on what areas the task force might be looking at. 


In a bankruptcy court filing Tuesday, Washington Mutual said it had reached agreement with J. P. Morgan Chase granting it access to $4.4 billion it had on deposit at its subsidiary bank before the seizure and sale.  Washington Mutual said the settlement will help "maximize recovery for the debtor's creditors," calling the deposits "the largest asset of the estate available for distribution" to those creditors.

On Wednesday of this week, J.P. Morgan Chase reported it took a $640 million after-tax loss in the third quarter as a result of its purchase of WaMu, which it owned for only three business day before the end of the reporting period on Sept. 30.  Because J.P. Morgan only purchased WaMu's banking assets, it is not required to report the bank's third-quarter earnings.

J.P. Morgan Chase stock dropped $2.22 a share in trading on Wednesday to $38.49; a year ago it closed at $46.27.

WaMu stock has been delisted and now trades in the pink sheets, at about 10 cents a share.  A year ago it closed at $34.27.

A spokesman for J.P. Morgan Chase, Tom Kelly, declined to comment on the Feds investigation.


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U.S. Representative Paul E. Kanjorski Wants AIG To Reimburse Money

10/16/2008 03:29:00 AM

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070905_kanjorski6 Seems the Attorney General of NY isn't the only one who's after AIG these days.  U.S. Rep Paul E. Kanjorksi (D- said AIG executives who spent lavishly on a junket at St. Regis Resort in California should be forced to reimburse the company.

"You've got all of America scared to death, thinking do we have enough money to give to these organizations, should we bail them out?," he said.  "We're trying to build faith. ... And here these clowns go out and do something like this.  It's just unbelievable.  It is appalling to me.  Why aren't they sensitive enough to say, 'Damn, we just took $85 billion of taxpayers money; let's cancel everything that's wasteful at all' and be as stringent until they pay the money back."

Kanjorski sent a letter Thursday  (October 6th) to Federal Reserve Board Chairman Ben Bernanke asking him what steps he would take to recover the $443,000 recently spent by AIG executives on spa treatments, golf, ocean-view rooms and surfing lessons at the St. Regis Monarch Beach Resort.  Kanjorski called the junket "appalling."

In the letter Kanjorski states:

"The Federal Reserve must therefore take immediate action to reclaim every penny spent by AIG at the St. Regis Monarch Beach Resort.

"To think that AIG could turn to the Federal government in a "desperate need" for funds to continue its very existence and then turn around a few short days later and spend $443,343.71 on spa treatments, golf rounds, ocean view rooms, and surfing lessons is simply appalling.  It defies logic, and it demonstrates a lack of common sense.

"The facts regarding the event at Monarch Beach as presented by AIG's Chairman and Chief Executive Officer Edward M. Liddy in a recent letter to Treasury Secretary Paulson that "not a single corproate executive from AIG headquarters attended" and that the event was held by "one of AIG's insurance subsidiaries" for "independent life insurance agents - not for AIG employees" and that such trips are "standard practice" are all irrelevant.  The only relevant facts are that AIG sought government help for its very survival, received this help under extraordinary conditions, and still decided it was appropriate to send some of its key money-makers and their friends and family on an all-expense paid vacation at a lavish resort. [...]

"Like the hard-working middle class American families now postponing, delaying, and canceling their dream vacations to Disney Land as a result of the current economic crisis, AIG's executives, workers, representatives, brokers, and agents must also learn to sacrifice.  AIG must cut back on its extravagant junkets to ocean-side hangouts, desert spas, mountain ski resort, gambling casinos, and exclusive golf courses. [...]

"While the small businesses and towns around the country suffer from a lack of credit, the corporations receiving government assistance cannot be allowed to squander hundreds of thousands of dollars at the beach, in a cocktail lounge or out on the green.


Kanjorski asked Bernanke to impose the reforms on executive pay at AIG, which were included in the bailout bill last week, and to prevent repeats of the junket. 

Kanjorkski additionally said he is "troubled about further reports in the media that AIG plans to go ahead with similar exclusive holiday excursions at places like the Ritz-Carlton in Half Moon Bay, Calif., [which was canceled last week], and the Atlanta Marriott Marquis in the weeks ahead."

Kanjorski posed the following questions to the Fed, and asked for answers to the questions no later than October 16.

  • What actions does the Federal Reserve plan to take to investigate these matters and reprimand officials at AIG for the decision to proceed with the Monarch Beach event?
  • How will the Federal Reserve seek reimbursement from AIG, its executives, and other appropriate parties to compensate the American people for the Monarch Beach trip?
  • How does the Federal Reserve plan to prevent AIG and similarly situated companies from hosting extravagant junkets and profligate parties in the future?
  • Will the Federal Reserve apply the same standards to AIG regarding executive pay, golden parachutes, and faulty bonuses as provided for in the new Troubled Assets Relief Program administered by the Treasury Department?  If so, when?

The entire text of the letter can be found on Congressman Kanjorski's website.


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New York Attorney General Cuomo Warns AIG On Spending Taxpayers Dollars.

10/16/2008 02:29:00 AM

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aig_AndrewCuomo_081015_mn Andrew Cuomo, the New York Attorney-General, on Wednesday said he was investigating "unwarrented and outrageous expenditures" by AIG.  Cuomo accused the company of making "extraordinary" expenditures on compensation, junkets and executive perks, both in the months before its near collapse and after the government extended the loan to stave off bankruptcy.

Cuomo sent a letter [PDF] to AIG's board of directors, demanding the company immediately stop any further such expenditures and recover all past "unreasonable" ones, or face legal action.  "The board should immediately cease and desist these improper and extravagant expenditures, which exploit the taxpayers," said the letter.  "Immediate cooperation is expected, or we will commence legal action."

Cuomo said such expenditures and payments violated a New York state law.  Cuomo said in his letter that expenditures violated the state's debtor-creditor law and demanded an accounting of AIG's executive compensation and benefits since January 2007.  He said the government's financial rescue of AIG made the expenditures "even more irresponsible."

"The party is over," Cuomo said at a press conference on Wednesday.  "No more hunting trips.  No more luxury resorts.  AIG's belief is that they have had the party and the taxpayer has the hangover.  That is not going to happen."

"Moreover, even after the taxpayer-funded bail-out of AIG, the company paid hundreds of thousands of dollars for luxurious retreats for its executives, including an overseas hunting party and a golf outing," he wrote.

In the letter, Cuomo cited several examples of expenditures, including a cash bonus of more than $5 million and a golden parachute worth $15 million awarded to its chief executives in March.  Martin Sullivan was AIG's chief executive at the time.  Cuomo noted in the letter that an unnamed top-ranking executive [who is actually Joseph Cassano], "who was largely responsible for AIG's collapse" and was fired in February, 2008, was allowed to keep $34 million in bonuses.  Cuomo said the executive also apparently continued to receive a $1 million a month from the company until recently.

Additionally, Cuomo will "review, rescind, and recover all past unreasonable expenditures" since January 2007.  Robert Willumstand, who replaced Sullivan as AIG CEO until the government takeover ended his three-month tenure, said today it would be "pretty tough" to recover compensation from former employees.  "They got paid based on an agreement between the company," Willumstad said on CNBC.  "It's pretty hard to go back and ask them to give back money they presumably earned at the time."

The hunting trip to the English countryside, an annual event for customers and executives, cost $86,000 the Associated Press reported.  "This was an annual event for customers of the AIG property casualty insurance companies in UK and Europe, and planned months before the Federal Reserve Bank of New York's loan to AIG," company spokesman Peter Tulupman said Tuesday.  This trip involved a trip to Plumber Manor in Dorset to shoot birds last week, with several executives using a private plane to travel from Germany.  The New York Times reported that the use of the plane cost about $17,000, according to a person familiar with Cuomo's investigation.

Cuomo's letter "will be brought to the immediate attention" of AIG directors, said Nicholas Ashooh, spokesman for the insurer on Tuesday.  "The events referred to should have been canceled, it's regrettable they weren't, but we've issued a policy canceling all such events and reviewing all expenses going forward," Ashooh said in a phone interview. 

AIG said in a statement on Wednesday that it would "fully cooperate" with the attorney-general's office, adding that the company issued a clear directive ending all activities not essential to the conduct of its business on October 10.  "AIG's priority is to continue focusing on actions necessary to repay the Federal Reserve loan and emerge as a vital, ongoing business."

A Cuomo case against former AIG chief executive Maurice "Hank" Greenberg, over an alleged multibillion fraud at the company, is pending in New York state court.  Greenberg, invoking his Fifth Amendment right against self-incrimination, refused to answer Cuomo's questions on Oct. 11, Fortune reported today.  Greenberg did warn this week however, that AIG could struggle to come up with sufficient money, and that it runs the risk of eventual liquidation.

Two questions remain on my mind however, does this include sponsorship and advertising that you see at sporting events?

And didn't AIG state last week that it would stop "all non-essential conferences, meetings and activities that do not clearly maximize value and service given the current conditions."


Wanna Know Why AIG Went Bankrupt?  (10/10)

AIG Cancels Corporate "Convention" in Half Moon Bay and Paulson fires AIG consultant and Other AIG News.  (10/10)

AIG's $440K "retreat" is "normal" and they are having another one.  (10/08)

AIG Execs use $440,000 of taxpayers money to take retreat after bailout.  (10/07)



ABC News

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Even The Infamous Swiss UBS Is Not Immune To Economy.

10/16/2008 12:41:00 AM

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UBS2 According to "Swissinfo.ch" the Swiss National Bank (SNB) and the Swiss Federal Banking Commission has announced a rescue package for the country's financial system that will inject cash into its biggest bank, UBS.  UBS has a reputation of being the bank for the world's wealthiest.

The Swiss National Bank has agreed to put SFr6 billion ($5.23 billion) into UBS, in a move that aims to strengthen the bank's capital base and reduce its balance sheet.  Based on the agreement with the SNB, UBS will transfer up to $60 billion of assets to a newly created fund entity and will capitalize the fund with equity of up to $6 billion.  The SNB will finance the fund with a loan of up to $54 billion, secured on the assets of the fund, taking over control and ownership of the entity.

A joint statement from the banks said every Monday beginning October 20, the ECB and the SNB will conduct euro and franc foreign exchange swaps, providing Swiss francs against euros with a term of seven days at a fixed price - especially to euro zone banks that wouldn't otherwise have access to liquidity from the SNB.  The arrangement will go on as long as needed and at least until January 2009.  The two banks said the fixed price and the maximum amounts allotted by the ECB and the SNB will be announced before the operation.

In the swap, the euro system and the SNB will buy euros against francs at the start of the transaction, and simultaneously sell euros against francs in the far leg.  The price will be calculated by using the rate in the main refinancing operation of the ECB, currently 3.75 percent, and the SNB one week repo rate plus 25 basis points.

UBS CEO Marcel Rogner said:  "This transaction gives us comfort."  Rogner continued with, "The extremely difficult market environment led us to accelerate our risk reduction with a definite move.  Our aim is to protect our clients form the impact of crisis to the fullest extent possible and to provide our shareholders an opportunity to renew confidence in the bank."

Teodoro Cocca, a professor of asset management at the Johannes Kepler Institute in Linz, Austria, and formerly of Zurich University's Swiss Banking Institute, says conservative practices have kept the country's banks out of deep trouble.

Swiss banks relied less heavily on intra-bank loans than their international competitors and were less susceptible to credit drying up when banks stop lending to each other, according to Cocca.  "This funding is less volatile than any other financial source.  If there is mistrust between banks it does not affect credit supply as sharply in Switzerland as in other European or US markets," he said.

With the exception of UBS, Switzerland's largest bank, most institutions have lost comparably little.  But even UBS, which was forced to write down tens of billions on bad subprime contracts, extricated itself well enough and sought the shelter of rich backers.  "UBS acted quickly and decisively enough to get itself out of the mess.  US banks in particular tried to hide their problems and bluff their way out of trouble," Cocca explained.  "UBS was more transparent about the depth of its difficulty and raised enough money quickly enough from Singapore, the Middle East and by distributing more shares."

On the announcement of UBS advising selling the stock on concerns about a weak won and slower sales growth, Kia Motors Corp, South Korea's second-largest carmaker, saw its stock plunge.  The stock fell as much as 13 percent.


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Enjoy Your Dominoes Pizza While You Can.

10/15/2008 03:57:00 AM

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2175210226_4a7c98e19d_oDomino's Pizza Inc (DPZ), who had 8,726 stores worldwide at the end of the 3rd quarter, posted a weaker-than-expected profit due to a sharp drop in U.S. sales, sending shares of the biggest independent U.S. pizza chain down 32 percent to an all-time low.  In the fiscal third quarter that ended Sept. 7, Domino's net profit fell 8 percent to $10.1 million from $11 million a year earlier.

Domino's said it was looking for alternative sources of funding after Lehman Brothers filed for bankruptcy.  It's ability to draw upon its variable funding notes diminished after Lehman Brothers declared bankruptcy, adding that it has no borrowings under its available variable funding notes as of Sept. 7.   Lehman was the primary lender of the pizza chain's revolving-credit facility, providing $90 million of a $150 million revolving credit line.  Should the existing agreement with Lehman become void, or if the chain cannot raise additional capital, the credit facility would fall to $60 million, with $38.3 million already committed.

Domino's additionally said it will save its cash and potentially make loans directly to its franchises.   And although the pizza company doesn't need access to that cash for day-to-day operations, the fact that it's likely no longer available could hamper long term plans such as stock buybacks.

Like other pizza sellers, Domino's has faced weak domestic demand and higher costs for items like cheese and wheat.  At the same time, U.S. consumers are more likely to make meals at home to save money due to unemployment, and higher food and fuel costs.

Revenues fell 4 percent to $323.6 million.  Sales at U.S. restaurants open at least one year fell 6.1 percent, overshadowing international same-store sales, which rose 5.4 percent.

Domino's said the company may not be able to meet its 2008 growth plans for 200 to 250 stores, and that Domino's expects to close more than the 50 to 75 U.S. stores it had originally planned to shutter this year.

Earlier this year, Domino's assigned 'F' grades to 247 operators, who were put on notice to improve sales or have their operations taken over.  Since then, 111 are trying to improve their stores, while 75 are in the midst of selling their operations.  Some 47 have already been removed from the system and 14 more are still weighing their options.

On Tuesday, shares of Domino's sank 26%, or $2.55 to finish at $7.45.

Of course maybe it would help Dominoes business in the U.S. if they wouldn't resort to calling the phone number you give when you order pizza to tell you specials [The Consumerist], or leaving specials in Ziploc bags weighted down with rocks [The Consumerist], or maybe actually honoring their coupons [The Consumerist].+

I miss the Noid.




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The New Improved Bank Bailout, And It Will Probably Need More Money.

10/15/2008 02:50:00 AM

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ist2_3416170_money_tree BTW, Congress is anticipating that the Treasury will need more money than the $700 billion, just FYI.

In case you weren't paying attention yesterday, President Bush made an announcement yesterday from the Rose Garden, at what's being called a historic investment in the nation's banks.  The Treasury Department will invest $250-billion of the $700-billion economic rescue plan in financial institutions.  The full text of the announcement is available on The White House's website.

"This is an essential short-term measure to assure the viability of America's banking system," Bush said.  "These measures are not designed to take over the free market but to preserve it."

Shortly afterwards, there was a joint statement released by the Treasury, Federal Reserve and the FDIC about the "voluntary" Capital Purchase Program.  This program will be available to qualifying U.S. controlled banks, savings associations, and certain bank and saving and loan holding companies engaged only in financial activities that elect to participate before 5:00 p.m. (EDT) on November 14, 2008.

The full text of that announcement is available on the Federal Reserve's website.

The TARP Capital Purchase Program


Basically the Feds are using most of the $700-billion to inject capital into banks by purchasing equity shares.  The minimum investment will be 1 percent of risk-weighted assets with the maximum up to $25 billion or 3 percent of risk-weighted assets, whichever is less.  The Treasury will receive preferred shares that pay a 5 percent dividend, rising to 9 percent after five years with a minimum of a three year investment.  After three years, the stock may be paid back at face value.

It will get warrants to purchase common shares, equivalent to 15 percent of its initial investment.  Dividends will be payable quarterly in arrears on February 15, May 15, August 15, and November 15 of each year and dividends on other still  can not be paid until dividends have been paid to the government.  But the Treasury said it would not exercise its right to vote those common shares.  For more explicit details, see a press released on the Treasury's website.

What is also in that part are restrictions on executive compensation of the top five executives at banks that receive the capital injections.  These include a ban on the payment of golden parachutes, repayment of any bonus based on earnings that prove to be inaccurate, and a limit of $500,000 on the tax deductibility of salaries.  You can read more about this on the Treasury's website in the above press release or on a Public Term Sheet (PDF), also available from the Treasury's website.


The FDIC will temporarily guarantee most new debt issued by insured banks as a part of the FDIC Act that it insures through June 30, 2009.


Third, the FDIC will immediately and temporarily expand government insurance to cover all non-interest bearing transaction accounts through December 31, 2009, also as a part of the FDIC Act.  These accounts are primarily used by businesses to meet payroll and other continuing expenses.


And finally, the Federal Reserve will soon finalize work on a new program to serve as a buyer of last resort for commercial paper or the Commercial Paper Funding Facility (CPFF) program.  Beginning October 27, the CPFF will fund purchases of commercial paper of 3 month maturity from high-quality issuers, who have investment-grade credit ratings.

"We are pleased to announce that nine major financial institutions have already agreed to participate in both the capital purchase program and the FDIC guarantee program.  We appreciate that these healthy institutions are taking these steps to strengthen their own positions and to enhance the overall performance of the U.S. economy." - Joint Statement by Treasury, Federal Reserve, and FDIC Oct 14, 2008


A U.S. Treasury official declined to confirm the names of the nine banks that agreed to this program.  The Wall Street Journal however, reported Monday the following banks and amounts:

  • Bank of America (BAC), $25 billion
  • Merrill Lynch & Co. Inc (MER), $25 billion
  • JPMorgan Chase & Co. (JPM), $25 billion
  • Citigroup Inc. (C), $25 billion
  • Wells Fargo Corp (WFC), between $20 and $25 billion
  • Goldman Sachs Group (GS), $10 billion
  • Morgan Stanley (MS), $10 billion
  • Bank of New York Mellon Corp. (BK), $3 billion
  • State Street Corp. (STT), $2 billion


According to a CNN Money article, Bush towards the end of yesterday, was mulling over whether to tap the second installment of its $700 billion authority to rescue the financial system as it looks set to burn quickly through the first $250 billion with its new bank recapitalization plan.

Treasury Secretary Paulson and other Bush administration officials were in discussions about whether they will need to access the next $100 billion, a Treasury official said Tuesday.  Doing this would require "merely a transmittal letter from the president to Congress," the official said.

While the Treasury received $250 billion up front, the administration must notify Congress to access the next $100 billion.  The final $350 billion, which also requires such notification, can be blocked by Congress.

President Bush sent a letter to House Speaker Nancy Pelosi, on Tuesday to certify that it's "necessary" for the Treasury secretary to use his authority to "purchase, or commit to purchase, troubled assets up to the limit of $350 billion outstanding at any one time."

House Financial Services Chairman Barney Frank said Congress might need to give the Treasury more money if its multi-pronged approach does not sufficiently quell the financial crisis.  "If it's being well-used and more is needed, then yes," Frank said when asked if the Treasury Department coudl need more than $700 billion.  


What the above doesn't state about the nine major financial institutions is that they weren't given a choice by the Feds.  The New York Times in an article dated October 14th states:

The chief executives of the nine largest banks in the United States trooped into a gilded conference room at the Treasury Department at 3 p.m. on Monday.  To their astonishment, they were each handed a one-page document that said they agreed to sell shares to the government, then Treasury Secretary Paulson said they must sign it before they left.

The chairman of JPMorgan Chase, Jamie Dimon, was receptive, saying he thought the deal looked pretty good once he ran the numbers through his head.  The chairman of Wells Fargo, Richard M. Kovacevich, protested strongly that, unlike his New York rivals, his bank was not in trouble because of investments in exotic mortgages, and did not need a bailout, according to people briefed on the meeting.

But by 6:20, all nine chief executives had signed...

What happened during those three and a half hours is a story of high drama and brief conflict, followed by acquiescence by the bankers, who felt they had little choice but to go along with the Treasury plan to inject $250 billion of capital into thousands of banks - starting with theirs. [...]

"It was a take it or take it offer," said one person who was briefed on the meeting, speaking on a condition of anonymity because the discussions were private.  "Everyone knew there was only one answer."


On Monday of this week the Down gained 936.42 points, more than 11 percent, its biggest one-day rally since 1933.  The S&P advanced 104.13, 11.58 percent.  It was the biggest percentage gain for the index since March 15, 1933, when it surged 16.6 percent.  The Nasdaq rose 194.71, or 11.81 percent, its 10th biggest point gain.

On Tuesday of this week the Dow dropped 76.62, or 0.82 percent.  S&P dropped 65.24 or 3.54 percent.  Nasdaq dropped 65.24 or 3.54 percent.

Today, the foreign markets are dropping like flies again and as of this posting, the Dow has not opened.

Does this look normal or good to you? 

Return as of October 15, 2008

1 Month -18.48%
6 Month -24.31%
YTD -29.81%
1 Year -33.93%
3 Year -9.49%
5 Year -5.12%


Steven Pearlstein, who won a 2008 Pultzer Prize for Commentary, wrote yesterday in the Washington Post:

"Do not confuse this moment of calm with a stock market bottom or a sign that a serious recession has been avoided.

"We are in a bear market and will be for some time.  That doesn't mea that you can't have good days or even long strings of good days -- what traders refer to as bear market rallies.  But for a bear market to become a bull market, there needs to be some evidence that corporate profits have bottomed out and are about to take off again in response to a pickup from the economy -- and at this point we're a long way from that." [..]

"Put it another way, we didn't just have a housing bubble and a corporate takeover bubble and a consumer credit bubble and a commodities bubble.  In time, those asset bubbles led to the creation of a bubble economy, with too many airplanes and restaurant seats and hotel rooms, too many office buildings and shopping centers, too many investment banks and media outlets dependent on advertising revenue from car companies producing too many cars and home builders producing too many houses.  Shrinking all that back to the right size is what the coming recession is all about.

"Nobody really knows how long or how deep this recession will be.  What we do know is that recessions that follow the collapse of asset bubbles tend to last longer than average -- and that this was the mother of all bubbles.  So it's a fair assumption that this recession will last through 2009 and well into 2010. [..]

"This thing ain't going away any time soon."


Time will tell, I suppose however, there are still issues that have not been addressed.

It does not address he systemic problem underlying all of these problems.  Unsustainable mortgages written on artificially high housing prices.  Without household debt relief, this will do nothing except transfer money from Main Street to Wall Street.

It does not force the financial institutions to be financially responsible.  This program takes huge risks in hopes that the banks can bail themselves out, if they can't, then the taxpayers lose.  If they can, then the Federal Government wins.

It does not address that people borrowed more than they can repay, and when the foreclose, who is the winner and loser in all of this?

It does not provide the fiscal stimulus that is necessary to get the economy going again.  Unemployment continues to rise.  Foreclosure rates continue to rise.  Inflation continues to rise.

It does not provide the change in corporate governance to prevent a repeat of the problems that caused this crisis.

It does not address the criminal behavior of some financial institutions.

It does not address any auditors on this deal.


Again, welcome to Socialism however, is it a lesser evil or a greater evil than letting the banks run free?

What American's keep screaming is why are they getting help?  Why are they losing their jobs and their homes?  It's become brutally obvious that our Government's priorities are focused solely on the financial institutions of this country, and nothing else, selling it under the guise that this will fix everything. 

Which brings up the question.  Which is the Government more responsible to?  Fixing the banks and Wall Street, bailing them out, paying their bills, ensuring they continue on intact in hopes that this will 'fix' everything.  Or helping the taxpayers to find jobs, so they don't lose their homes, to stop inflation, to help with medical bills, and to simply put food on the table.

Bankers, although the top five executives income will drop but no one else, and there are ways around that, will still have their jobs, their homes and food on the table.  They will still have their limo rides, and helicopter rides to work.  They will still have all their little corporate benefits.  They will still have their vacation homes.  They will still have their yachts, mansions, cocktail parties, art collections, etc.  What will you have when this is all over?

I give it until the end of the year until it all comes crashing down, and that's the best case scenario.

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Lehman's Bonus To High Level Exes Days Before Bankruptcy.

10/14/2008 05:28:00 PM

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money-bag There's a big article today at the Times Online, about Lehman Brothers giving bonuses to high level execs just days before the bailout.  I however, blogged about this on October 8th in a posting.  Here's the excerpt from the post.


Waxman cited a memo (PDF), among 24 pages of internal emails from Lehman Bros., showing Lehman recommending four days before the bankruptcy filing that three departing executives received more than $20 million in "special payments."  On September 11, Lehman planned to approve "special payments" worth $18.2 million for two executives who were terminated involuntarily, and another $5 million for one who was leaving on his own.

"In other words, even as Mr. Fuld was pleading with (US Treasury) Secretary Paulson for a federal rescue, Lehman continued to squander millions on executive compensation," Waxman stated.

Andrew J. Morton was the head of fixed income who was involuntarily terminated.  According to the document, his last day worked was "Week of September 8" with a termination date of "December 1, 2008 (after 12 week notice period, per UK policy)".  His "Special Payment" was $2 million, plus one year's base salary of $200,000 as standard severance.  Fuld stated this was deemed "appropriate for his years of service."  The document states that Morton received $14 million in 2006 compensation, and $12.5 million in 2007 compensation.  Morton had worked for Lehman for 15 years.

Benoit Savoret, the chief operating officer for Europe and the Middle east was also involuntarily terminated.  According to the document, his last day worked was "Week of September 8" with a terminate date of "December 1, 2008 (after 12 week notice period, per UK policy".  His "Special Payment" was $16.2 million.  The document states that Savoret received $12 million in 2006 compensation, and $18 million in 2007 compensation.  Savoret had worked for Lehman for 11 years.

Jeremy Isaacs, who voluntarily terminated was going to be working through year end until December 2008.  His terminate date was listed as March 2009 under the same UK policy.  Isaacs "Special Payment" was $5 million "described as a minimum amount in his agreement letter.  There was an additional term that stated "Any additional amount may be paid, as determined by year end 2008 at the discretion of the Firm and as approved by the Compensation Committee."  His 2006 compensation was $21 million, and 2007 was $22.0 million.  Isaacs had worked for Lehman for 12 years.

Within the document, there was a compensation arrangement for Gerald Donini, the Global Head of Equities, to "facilitate his retention with the Firm".  He was guaranteed a minimum of $20 million in total compensation for 2008 and 2009.

There was also a compensation arrangement for Eric Felder, the recently appointed Global Co-Head of Fixed Income, that he would receive a 2008 cash advance on his 2009 compensation, in the amount of $8.5 million, leaving him to receive $16.4 million (minimum) in 2009.

Rep. Elijah Cummings (D-MD) said, "I don't know how he sleeps at night."

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Financial Problems Are Motivating People to Violence.

10/14/2008 02:08:00 PM

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foreclosure-map-may-2008 More people are resorting to violence to solve their problems.  And law enforcement doesn't seem to be helping the situation in some situations.

Read stories of lives changed forever about Pamela Ross, Addie Polk, Carlene Baldermana, Karthik Rajaram, and the Padilla's due to financial problems.

Left, are foreclosure rates for May 2008.




In Tennessee, a woman fatally shot herself last week as sheriff's deputies went to evict her from her foreclosed home.  Pamela Ross, 57, and her husband were fighting foreclosure on their home when sheriff's deputies in Sevierville came to serve an eviction notice.  Jimmy D. Ross was in court on a matter related to a foreclosure on her home, while Pamela was home and had spoken to officers outside her home Monday morning.  While Jimmy was in court, he did receive a 10 day appeal, and the deputies did not, nor did they ever have a "Writ of Possession" to seize the home.

While officers were across the street from the home, they heard a gunshot and found Pameal dead from a wound to the chest.  Reporters attempting to get a statement from Sheriff Ron Seals on the matter have been unsuccessful.  The family's attorney has stated that deputies should not have been at the house, since they did not have the writ in hand.

In an update, it was learned that Pamela had spoken to officers outside her home Monday morning while her husband, Jimmy D. Ross, was in court on a matter related to a foreclosure on their home.  Jimmy doesn't believe the account the officers are telling.

"It doesn't add up," he said in an interview with The Mountain Press on Tuesday. 

He said he told officers Monday that he believed they were responsible for her death.

"One way or another, I said, whether you pulled the trigger or not, you killed my wife."

A friend, he said, talked to Pamela Ross by phone five minutes before her death.

She also left a message with a Galveston, Texas man whom Ross describes as a private attorney general that they had been advising him during the foreclosure and eviction procedure.  "She... said, scared to death, "They're at my front door and my back door, Odell, what should I do?'  And then the phone went dead," Ross said.

Sheriff Ron Seals said officers were sent to the house before the writ evicting the family was issued because they were concerned about what Jimme Ross might do if he were evicted.    Authorities say Ross has made threats against law enforcement and court personnel, and they were aware that he had guns in the home.

"Under normal circumstances, we would not do that (level of force), but we went out there knowing there were weapons in the house and there had been threats," Seals said.  Deputies had seen firearms at the house when they assisted IRS agents who searched the house in relation to a separate case several months ago.  Knowing that and of the alleged threats Ross had made, they decided to send officers there ahead of time. 

They also asked for Sevierville police to assist.  One officer was there as backup before Pamela Ross spoke to the officers and went back inside, Bob Stahlke, a spokesman for the Sevierville PD stated.  Many others converged on the house, however, after officers reporting hearing a shot from inside the house, Stahlke said.

Ross said he doesn't believe his wife would have walked out and spoken to authorities.  She spent most of her time in bed due to a chronic, terminal illness, he said.  "The whole thing was a scam to get me out of my home.  I'll put the bottom line to you," he said.

He denies ever threatening a judge or police officer.  "I don't make threats against anybody," he said.  "I don't have to make threats.  If I'm going to do something, I'll do it."  "We are private people, we don't bother anybody and I don't want anybody bothering us."

... As he left court on Monday, a deputy escorted him to the car and chatted with him as they walked.  When they reached his car, however, he said that the deputy informed him his wife had been in an accident and was being taken to a hospital by ambulance.  He decided to go home to change his clothes before being taken to the hospital.

As he neared his home, law enforcement officers were all around his home and swarmed his car, demanding that he get out.  Ross said he first refused to comply.  "This guy with this big Uzi or whatever it is jumped on the hood of the car there and pointed that gun at me, and they were screaming at me," he said.

He said he was handcuffed and held several hours before being told what had happened to his wife.



A 90-year-old Ohio widow, Addie Polk, shoots herself in the chest as authorities arrive to evict her from house she has called home for 38 years.  A neighbor used a ladder to enter a second-story bathroom window of Polk's home after he and the deputies heard loud noises inside.  He found her lying on a bed, and he could see she was breathing, but also noticed a long-barreled handgun on the bed, she had shot herself two times.  Downstairs they found Polk's car keys, pocketbook and a life insurance policy laid out neatly where they could be found.

A congressman told Addie Polk's story on the House floor before lawmakers voted to approve the bailout package.  Mortgage finance company Fannie Mae dropped the foreclosure, forgave her mortgage and said she could stay in the home.





John Balderman had filed for Chapter 13 bankruptcy three times from 2004 to 2006, but the courts had dismissed the petitions.  Under Chapter 13 debtors can usually keep their homes while paying off their debts.

In July, 2008 in Taunton, Massachusetts, Carlene Balderrama, a housewife who had hidden her family's mounting financial crisis from her husband, by intercepting letters from the mortgage company and shredding them before her husband saw them shot herself.  She tried to refinance but was declined.  On the day the house was to be auctioned, she faxed a note to PHH Mortgage Corporation of New Jersey around 2:30 pm warning:  "By the time you foreclose on my house, I'll be dead."  The suicide note also had another line, which was not initially released at the time of the news flash.  It read, "I hope you're more compassionate with my husband and son that you were with me."

Then the 52-year-old walked outside, shot her three cats and then herself with her husband's rifle.  The mortgage company notified police, who found her body at 3:30 pm.  The foreclosure auction was scheduled to start at 5 pm.  Notes left on the table revealed months of planning.  She'd picked out her funeral home, laid out the insurance policy, and left a note saying, "pay off the house with the insurance money." 

The husband, John Balderrama, didn't even know of the foreclosure, as Carlene handled all the home finances.  "She put in her suicide note that it got overwhelming for her," said her husband, John Balderrama.  "Apparently she didn't have anyone to talk to.  She didn't come to me.  I don't know why.  There's gotta be some help out there for people that are hurting, than to see somebody lose a life over a stupid house." 

PHH canceled the foreclosure auction that was scheduled to be held that day but it is not clear whether it was done before or after receiving the fax.  Buyers did however, begin to show up for the auction, but learned it had been canceled.




Rajaram, despondent over his own financial problems, shot and killed his wife, three children, mother-in-law and then himself in California.  I recently blogged about this incident.



Jessica Padilla, 22, Seward Padilla, 42, and Lori Padilla, 45 were found dead in their home with all three being shot.  Jessica's 2-year-old daughter was found unharmed outside the home.  A man called 911 from the Padilla residence to report a fire in the basement before hanging up, authorities said.  When police officer and firefighters arrived, there were shots originating from the second floor, toward the fire equipment.  Police said that gasoline was used to ignite the fire and that rounds fired from the house hit a fire truck and a house across the street.  The case is still under investigation.

The family was under severe financial strain, according to court documents.  Their home was in foreclosure, and owed nearly $30,000 to credit card companies and had declared bankruptcy, but investigators said they were not sure what role their finances played in the shootings or fire at this point.

There was a history of domestic violence in the family and Seward and Lori had taken out protective orders out against  each other.  Court documents also showed Seaward and Lori had filed twice for divorce.   Police do not know how Jessica, who was five months pregnant, became involved in the dispute.


"Housing Crisis", the plight of a community of foreclosures told through the stories of three families . 
8 Minutes, 49 Seconds.



In an AP article that was released today it states that in Ocala, Florida, Roland Gore shot his wife and dog, set fire to the couple's home, which had been in foreclosure, called 911 and then killed himself.  That incident is from 2003 and not 2008 according to the date of a post on the Firehouse Forums.


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