Hell Loses Its Guard Dog

/12 Comments/in , /by

cerberus.thumbnail.jpgAtrios baited me to weigh in on Cerberus’ imminent demise.

Investors in hedge funds run by Cerberus Capital Management LP, whose audacious multi-billion dollar bet on the U.S. auto industry went bust, are bolting for the door, clinching one of the highest-profile falls from grace of a superstar in the investment world.

Clients are withdrawing more than $5.5 billion, or nearly 71% of the hedge fund assets, in response to big investment losses and their own need for cash, according to people familiar with the matter.

"We have been surprised by this response," Cerberus chief Stephen Feinberg and co-founder William Richter wrote in a letter delivered to clients late Thursday.

And while I suggested I would keep my schadenfreude in check until such time as I got to see Cerberus’ Senate defender, Bob Corker, weep, I just couldn’t resist two points.

First, who the hell thought a financial institution in which John Snow, 43’s failed Treasury secretary, and Dan Quayle, 41’s laughable Vice President, had significant management roles would succeed? Sure, having Snow and Quayle on board promised that people like Corker would subvert the national interest in favor of his buddies at Cerberus. But even an institution wired into the best crony network must exhibit some basic competence.

And, too, I take some joy that this model of financialized predation has failed. Yeah, Cerberus is not singlehandedly responsible for Chrysler’s failure. But it is nice to see Cerberus pay for its efforts to suck some value out of a company by extracting its financial wing at the expense of its productive core.

It’s just a damned pity that so many real human beings have suffered in the interim.

(Photo credit: http://www.flickr.com/photos/puyo/ / CC BY-ND 2.0)

Share this entry

Greetings from Steel-Town

/55 Comments/in /by

I know I’m going to have a blast visiting with people here at Netroots Nation. But I’ve already done what will likely be the coolest thing I do: a tour of a local steel plant. There were about 30 of us who took a bus out into the Monongahela Valley and all dolled up in hard hats, Nomex suits, and safety glasses to see how they make steel (Jane will be posting a photo of us, but I’m sure it won’t give you the proper sense of just how gorgeous Jane looks in an industrial suit). 

The video doesn’t give you a full sense of the size and heat of the process. The ladle that appears in the early part of the video is maybe a story and a half high, all moved around on a giant pulley system.

There were a number of us who left saying, "next time I hear someone complaining about their job, I will tell them to shut up unless they’re a steelworker." It is hot, there are tons of steps everywhere. But the whole trip was a fascinating way to understand something about Pittsburgh–and about where our cars and stuff comes from. 

Share this entry

Madoff’s Finance Chief to Plead Guilty

/25 Comments/in /by

For those of you complaining that I’m not reporting on 3-year old Sibel Edmonds revelations, here’s some news that may offer fresh new insight into the sordid world of international crime and power.

Frank DiPascali, the finance chief at Bernard Madoff’s investment advisory business who agreed to plead guilty, could help prosecutors build criminal cases against other players in his boss’s $65 billion Ponzi scheme.

DiPascali, 52, is scheduled to enter his plea tomorrow in federal court in Manhattan, U.S. Attorney Lev Dassin told a judge in an Aug. 8 letter that didn’t specify the charges. DiPascali would waive indictment and plead guilty, which signals to lawyers that he is cooperating to lessen his prison term.

"I believe he’s cooperating," said John J. Fahy, a former federal prosecutor not involved in the case. "He would be very valuable to the government because he has been close to Madoff for so many years and had to have seen some of the fraudulent transactions that went on. From what we know of Madoff, he trusted very few people."

Madoff, of course, has gone off to prison without really telling anyone where the bodies are buried, where the money went, or even who on Wall Street knew and facilitated his scheme. 

We won’t know for some time how cooperative DiPascali will be, but if he is cooperative, and if he does know where even a few of the bodies are buried, his cooperation might free up information that is otherwise, thus far, successfully buried.

Here’s John Taplin, writing in January, about what cracking open the Madoff scandal might reveal.

The Wall Street Journal is very careful with the libel laws, but I am increasingly confident that their reporters are beginning to sense that organized crime sits somewhere in the Bernard Madoff Ponzi scheme. The tipoff come from their classic tabloid use of the “made man’s” street name in quotes (like Benjamin “Bugsy” Siegel). The main feeder fund to Madoff was Cohmad Securities.

Cohmad, a conjunction of the last names of investor Maurice “Sonny” Cohn and Mr. Madoff, carried especially tight ties. Cohmad was filled by employees with long-term or family relationships with the Madoffs, and its operations were enmeshed in the main Madoff businesses, interviews and records show.

Maurice “Sonny” Cohn and his associate Alvin “Sonny” Delaire have both been accused of playing fast and loose with securities regulations. Read more →

Share this entry

SEC Charges Hank Greenberg on AIG Accounting Violations

/in /by

You mean we had to bail out AIG because Hank Greenberg was making misrepresentations about the company’s profits that enabled it to keep blowing up the bubble?

The Securities and Exchange Commission today charged former American International Group Chairman and CEO Maurice "Hank" Greenberg and former Vice Chairman and CFO Howard Smith for their involvement in numerous improper accounting transactions that inflated AIG’s reported financial results between 2000 and 2005. The SEC alleges that Greenberg and Smith are liable as control persons for AIG’s violations of the antifraud and other provisions of the securities laws. Smith also is charged with direct violations of the antifraud and other provisions of the securities laws.

The SEC alleges that Greenberg and Smith were responsible for material misstatements that enabled AIG to create the false impression that the company consistently met or exceeded key earnings and growth targets. According to the SEC’s complaint, Greenberg publicly described AIG as the leader in the insurance and financial services industry with a history of delivering consistent double-digit growth. However, AIG faced numerous financial challenges under Greenberg’s leadership that were disguised through improper accounting.

[snip]

The SEC’s complaint, filed in U.S. District Court for the Southern District of New York, charges the defendants with responsibility for the following improper accounting transactions:

  • Sham reinsurance transactions to make it appear that AIG had legitimately increased its general loss reserves.

  • A purported deal with an offshore shell entity to conceal multi-million dollar underwriting losses from AIG’s auto-warranty insurance business.

  • Economically senseless round-trip transactions to report improper gains in investment income.

  • The purported sale of tax exempt municipal bonds owned by AIG’s subsidiaries to trusts that AIG controlled in order to improperly recognize realized capital gains.

And do you want to guess how much a first-hand role in the bubble costs a gazillionaire? $15 million.

Greenberg and Smith agreed to settle the SEC’s charges and pay disgorgement and penalties totaling $15 million and $1.5 million, respectively.

Hmmm. Greenberg pays $15 million, taxpayers pay over a hundred billion, and Eliot Spitzer remains sidelined because he (admittedly, utterly hypocritically) slept with a high priced sex worker.

Share this entry

McCain Is A Clunker, Can I Trade Him In?

/in , , /by
graphic by twolf

graphic by twolf

John Sidney McCain III, the blue blooded husband of a beer heiress, has decided he will be the Republican face of opposition to continuance of the wildly successful Cash For Clunkers program. The man who cannot remember how many houses he owns is going to kill the program helping regular people put a decent and efficient new car in front of their humble middle class homes. From FOX News:

Fox has learned that Sen. John McCain, R-AZ, will oppose any move to take up the House bill. Around here, we call that a filibuster.

McCain told Fox earlier today, "I not only wouldn’t vote for the extra two billion, I was opposed to the initial billion. "

McCain, the 2008 GOP presidential nominee who ran as a deficit hawk, said, "Within a few weeks we will see that this process was abused by speculators and people who took advantage of what is basically a huge government subsidy of corporations that they already own. "I can’t imagine that any taxpayer of America would have thought that the TARP, the financial recovery money, would be used now to subsidize the sale of automobiles in America."

This is a pile of bunk; John McCain is not a deficit hawk, he is a narcissistic publicity hawk and he hasn’t had enough lately and saw an opening. What is really rotten, however, is he is trying to take down the one program that has demonstrated immediate and tangible systemic benefits. In other words, the precise stimulus the economy is dying for.

Wildly successful is almost an understatement for the Cash For Clunkers program as Marcy indicated in this post. Quoting from the official website:

According to www.CashForClunkersInformation.org, 79% of clunkers being traded in so far are SUVs, trucks and vans with over 100,000 miles and most are being replaced with new passenger vehicles. The average age of a trade-in model is almost 13 years old, and the average odometer reading is approximately 138,000 miles. The most popular clunker trades are Chevrolet, Ford and Dodge and 84 percent of the new vehicles purchased are passenger cars.

This is economic stimulus at its finest. Customers are flocking to dealerships, dealerships are selling cars, service bays are active, manufacturers are moving inventory, financing shops are making loans, accessories are being sold, manufacturing suppliers are being paid and kept in business – it is one heck of an economic spur to a major sector of the economy and a fantastic lead in to the critical opening of the traditional new model year that annually starts in Read more →

Share this entry

Speed Freak$: Wall Street’s Fast & Furious MOTUs

/in /by

Every day there is a new reminder that the only thing thing that changed on Wall Street as a result of the financial meltdown is that the "too big to fail" entities got bigger through consolidation and they now have all of the taxpayer’s wealth instead of just most of it. Booyah for progress.

From the New York Times, here is today’s installment of hyper-greed:

It is the hot new thing on Wall Street, a way for a handful of traders to master the stock market, peek at investors’ orders and, critics say, even subtly manipulate share prices.

It is called high-frequency trading — and it is suddenly one of the most talked-about and mysterious forces in the markets.

Powerful computers, some housed right next to the machines that drive marketplaces like the New York Stock Exchange, enable high-frequency traders to transmit millions of orders at lightning speed and, their detractors contend, reap billions at everyone else’s expense.

These systems are so fast they can outsmart or outrun other investors, humans and computers alike. And after growing in the shadows for years, they are generating lots of talk.

Nearly everyone on Wall Street is wondering how hedge funds and large banks like Goldman Sachs are making so much money so soon after the financial system nearly collapsed. High-frequency trading is one answer.

Kevin Drum has more on this. So does Masaccio.

I guess that is how Goldman Sachs is set to pay out mega-billions in bonuses to the very narcissistic pricks who took us down the economic sinkhole to start with. All while their fellow Masters Of The Universe crank up the same big shitpile that led to the crash.

The cliche is to say our economy is built on a house of cards. Not sure that is right anymore; a house of cards would at least have, you know, cards. Heck air may be too substantive, we are down to Goldman Sachs’ electrons and vapor.

Share this entry

Ponzi Nation: Sports Talk “Webio” Edition

/7 Comments/in /by

I’ve been remiss in my tracking Ponzi schemes of late, failing to note this scheme whereby a guy created a Ponzi to fund his Chicago-based sports talk "webio."

The Securities and Exchange Commission today obtained a court order halting an $11 million Ponzi scheme in which a Chicago-based promoter who is a convicted felon promised investors unusually high returns from purported investments in payday advance stores.

The SEC alleges that David J. Hernandez, who was convicted in 1998 for wire fraud arising from his previous employment at a bank, sold "guaranteed investment contracts" through his company that, unbeknownst to investors, was actually out of business. Hernandez promised returns of 10 percent to 16 percent per month and made false and misleading statements about his background, the use of investor proceeds, and the safety of the investment. Among Hernandez’s illicit uses of investor funds was to start up a Chicago sports-talk Web site called "Chicago Sports Webio" featuring Chicago-area sports figures and reporters.

"Hernandez bilked investors out of funds that he led them to believe were being invested properly and safely," said Merri Jo Gillette, Director of the SEC’s Chicago Regional Office. "Instead, he was paying investors in Ponzi-like fashion to keep his scheme afloat while he used their money for personal expenses and to start an online sports talk venture."

 But with two more Ponzis shut down today, I felt I owed you an update.

Michael Regan’s fake MBA:

The SEC alleges that Michael C. Regan and his firm, Regan & Company, fraudulently obtained at least $15.9 million from dozens of investors nationwide by selling securities in his now defunct River Stream Fund. Regan provided fake account statements and tax forms to investors showing artificially inflated account balances and concealing that he did no securities trading at all for several years and suffered substantial losses on investments that he did make. Regan falsely claimed that he earned an MBA from a major New York university and promoted a phony track record of successful securities trading and investment expertise. Regan is not registered as an investment adviser with the SEC or any other securities regulator.

Advanced Money Management:

The SEC alleges that Moises Pacheco, Advanced Money Management, Inc. (AMM), and Business Development & Consulting Co. (BD&C) raised $14.7 million from more than 200 investors over a 3½-year period, acting as investment advisers to the five self-described hedge funds — AP Premium Value Funds I through IV and Capital Read more →

Share this entry

Auto Decline Not Bringing Local Media Down–as Much as It Could Have

/20 Comments/in , , /by

Since I elaborated on my auto industry/news industry analogy the other day, I wanted to point to this article describing how the auto industry’s woes haven’t brought down local media as much as it might have. As I’ve been pointing out for some time, auto advertising accounts for a huge chunk of local advertising.

Local traditional media — television, radio and newspapers — are more reliant on automotive advertising than any other medium. In 2008, TV stations got 23 percent of their total advertising from auto, followed by local newspapers at 17 percent and radio stations at 14 percent, according to a Sanford C. Bernstein & Company report released this month.

And the amount of advertising manufacturers, co-op, and individual dealers are buying has declined by numbers that almost match the decline in auto sales.

Local automotive ads come from three sources: Companies like Ford and Toyota take out some ads on local television to promote their new models, in addition to their nationwide ads. Local dealers also pool money, helped out by the corporation, to promote their brand of cars regionally. Then, each dealership takes out television, radio and newspaper ads to list its autos for sale or special discounts.

The ads from automakers — running nationally and locally — fell 19 percent in the first quarter of 2009, compared with a year earlier, according to research firm TNS Media Intelligence. Ads from dealer associations fell 62 percent, while ads from the individual local dealers declined almost 40 percent.

[snip]

Auto advertising in local media declined more than twice as fast as it did in national media in 2008 compared with 2007, according to Bernstein. But it has been so bad already this year that local media managers say they believe they have absorbed much of the pullback in auto advertising.

But the recent further cutbacks associated with the Chrysler and GM bankruptcy have not hit local media still further, largely because the dealers that got closed really weren’t selling that many cars, and because the ones that are left are increasing their advertising. Plus the dealers that shifted into used sales are re-introducing themselves to consumers.

Obviously, the auto industry is so big that it’s linked with everything. That’s particularly true, however, of the auto industry and media. This is an interesting snapshot of how that’s working out.

Share this entry

American Heroes, American Union Members

/27 Comments/in /by

Remember the US Airways crew that pulled of an amazing landing in the Hudson and safely evacuated the plane?

And remember that ship crew that successfully fought off pirates?

Yesterday, three members of the International Union, Security, Police and Fire Professionals of America joined these men and women as union members whose training prepared them to perform heroically when it mattered most.

ThinkProgress spoke to SPFPA Organizing Director Steve Maritas, who said that the officers working at the museum worked for Wackenhut Services, Inc. He stressed that because of the intense security environment in Washington, DC, these men and women go through extensive training:

These guys are security police professionals, which is a whole different level of training compared to security guards. … We represent approximately 5,000 officers around the area, including the Pentagon and the Ronald Reagan Building. It’s a tragedy, what happened. […]

Because of the high-profile buildings that they represent, they would continuously provide training to these officers. … When they train these guys, they’re trained on more of a terrorism level.

Tragically, Stephen T. Johns gave his life while protecting the visitors and employees of the Holocaust Museum. And he might not have died had union demands that these guards receive company-issued protective vests been heeded; Johns took a bullet in his torso.

This is our third reminder this year that unions do more than fight for middle class wages. They fight for the training that prepares men and women to do their jobs well. They help to ensure the safety of these men and women–and through their work, the safety of all of us.

We got another reminder yesterday of the real dangers presented by home grown right wing terrorism. But we also got another reminder that a lot of the heroes of these stories are union members, working to keep us all safe.

Share this entry

Chamber of Commerce Bids “Campaign for Free Enterprise” to Attack the Bailouts It Doesn’t Like

/12 Comments/in /by

Josh is right–Jeanne Cummings’ report that the Chamber of Commerce is launching a "Campaign for Free Enterprise" seems to have regurgitated the Chamber’s press release uncritically:

The Politico has a report on a proposed plan from the US Chamber of Commerce to spend up to $100 million on opposing President Obama’s various economic, energy and health care reforms. But it’s a bit hard to distinguish the Politico article from a Chamber press release. Here are some nuggets from the article itself …

As the Obama administration encroaches deeper into the private sector and Congress contemplates more regulations, the U.S. Chamber of Commerce is launching a multimillion-dollar campaign to defend the free market system.

…

Taken together, the government could soon determine who gets a mortgage, which cars
consumers can buy, the type of treatments patients will get and how many credit cards a person can carry.

The government won’t let me buy a Toyota? Do I have to buy a GM car? Really?

 I’m guessing this claim came right from the press release, too:

The administration’s aggressive action on so many fronts has put the business community on defense in a way not seen in more than a decade — and it’s losing more often than it’s winning.

But in addition to questioning whether the business community is losing more than it’s winning–and whether we’ll still be able to buy Toyotas–I’d have liked Cummings to ask one more critical question: about timing. The Chamber of Commerce did not launch this campaign when Bush took an even bigger stake in AIG. It did not launch this campaign when the Federal Government dumped billions of TARP dollars to keep the banking system afloat. In fact, the Chamber’s Tom Donohue all but admits he’s happy that the bankers got to suck at the federal teat for the last nine months.

“Dire economic circumstances have certainly justified some out-of-the-ordinary remedial actions by government,” said Chamber President Tom Donohue, referring to the bank bailouts and the $787 billion economic stimulus program.

What bugs Donohue, apparently, is not the possibility that corporations can be massive recipients of federal welfare. What appears to bother him is that the federal government would ask something else in exchange or–shockers!!–compete with the private sector in something like health care (buzz me when Donohue starts complaining that FedEx has to compete against the postal service). 

Read more →

Share this entry