This Is One of the Biggest Wall Street Frauds Ever

By Porter Stansberry

February 26 2010

One of the best lessons I’ve learned over my career as an investment analyst is the myth of excellent management or “great execution” is really just that – a myth.

When I see companies in troubled industries reporting quarter after quarter of great results, while all of their peers are getting killed, I know a fraud is going on. I remember in the early 2000s, WorldCom kept reporting profits when all of the other long-distance carriers were getting killed. I knew it couldn’t last. And it didn’t. WorldCom’s accounting was revealed to be a fraud – the company was counting its network access costs as capital expenses. Once the real numbers came out, the company collapsed in what was the largest bankruptcy in American history at that point.

About three years ago, I saw Goldman Sachs reporting quarter after quarter of unbelievable results when all of the other investment banks were hurting. I spent a lot of time looking at its numbers – which didn’t make any sense. It reminded me of Enron. It kept reporting bigger and bigger profits, but lost more money every year in cash. And its debt balances kept growing.

I wrote a lot about this in The Digest, but I never officially recommended shorting Goldman in my newsletter because I literally couldn’t figure out how Goldman Sachs was doing it. I couldn’t find the smoking gun… but I knew a giant fraud would be discovered there, eventually.

In October 2008, I figured out part of the big secret: Goldman had insured all of its subprime exposure via AIG. This allowed it to book huge profits on its subprime investments long before they were actually paid off because the bonds were insured. Of course, it was all a sham – AIG didn’t have nearly enough money to pay off any of the insurance. (See the October issue of PSIA for more details.) A source close to the company even told me how big the exposure to AIG really was – $20 billion. That’s roughly 100% of the profit Goldman claimed in 2006 and 2007, at the height of the credit bubble. Goldman completely denied my report and claimed it had zero exposure to AIG.

As was subsequently revealed in the spring of 2009, my report was right on the money. Goldman had roughly $20 billion in exposure to AIG and received roughly $14 billion of money the federal government used to bail out AIG.

But I completely missed one big part of the story… And once this fact becomes common knowledge, it will probably mean jail time for several leading Goldman executives and the end of the firm. What did I miss? The entire Goldman-AIG relationship was a complete sham. Let me explain…

Goldman eventually admitted it had insured roughly $20 billion worth of subprime CDOs with AIG and had major exposure to the firm. But the New York Federal Reserve and Goldman Sachs never revealed this critical fact: Goldman didn’t merely buy insurance on a bunch of random subprime CDOs. It actually bought insurance on special CDOs it had put together and sold to its own clients. In other words, Goldman knew more about these CDOs than anyone else. Goldman bought insurance on these CDOs because it knew they’d collapse.

This is tantamount to building a house, planting a bomb in it, selling it to an unsuspecting buyer, and buying $20 billion worth of life insurance on the homeowner – who you know is going to die!

These facts all came to light because of research done by the office of Darrell Issa, the ranking Republican on the House Committee on Oversight and Government Reform. These new documents will certainly lead to a full investigation of the Goldman-AIG dealings and the subsequent $180 billion bailout led by the New York Federal Reserve. My bet? Heads will roll. If you own Goldman Sachs, you’d better sell.
Source

No surprise there. Both AIG and Goldman Sachs rate right up there with all the bailed out companies.  They caused the Financial crisis and the taxpayer foots the bill and still no real investigation or audits have been done. Even the Fed refused to let auditors in.

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Published in: on February 28, 2010 at 5:39 am  Comments Off on This Is One of the Biggest Wall Street Frauds Ever  
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AIG giving “Cash Awards” (a new term for Bonus) to 130 managers

December 4 2008
Here is a copy of the letter that Rep. Elijah E. Cummings (D-Md.), a senior member of the House Committee on Oversight and Government Reform and a member of the Joint Economic Committee, sent Edward Liddy, President & CEO of AIG, yesterday.

December 1, 2008

Mr. Edward M. Liddy

Chief Executive Officer

American International Group, Inc.

70 Pine Street

New York, NY 10270

Dear Mr. Liddy:

I write today to request that American International Group (AIG) fully disclose to the public the extent of the payments being made to senior company executives under your employee “retention program.” The limited information that is currently available to the public about this program is insufficient to constitute the level of disclosure that the American taxpayers, who have bailed out this firm repeatedly in recent weeks, have the right to expect.

In form 8-K dated September 22, 2008, and filed with the Securities and Exchange Commission (SEC), AIG disclosed the following: “On September 22, 2008, a retention program of American International Group, Inc. (“AIG”) became effective. The program applies to approximately 130 executives and consists of cash awards payable 60 percent in December 2008 and 40 percent in December 2009.”

AIG has recently indicated that it will not provide performance bonuses in 2008. However, in what appears to be a disingenuous “slight of hand,” AIG has announced its intention to continue to provide the retention program payments (commonly known as retention bonuses) previously announced in September – albeit some executives have apparently opted to delay receipt of these payments (but not to forgo them). Thus, in form 8-K dated November 24, 2008, and filed with the SEC, AIG disclosed the following: “On November 24, 2008, the Executive Officers of American International Group, Inc. (“AIG”) who participate in its previously disclosed retention program, including Chief Financial Officer David Herzog and Executive Vice President Jay Wintrob, volunteered to delay payments thereunder, with the first installment being delayed from December 2008 until April 2009 and the second installment being delayed from December 2009 until April 2010. Chairman and Chief Executive Officer Edward M. Liddy does not participate in this program.”

In September of this year (and several days prior to the SEC filing announcing the “retention program”), the U.S. taxpayers provided a bailout loan of $85 billion to keep AIG afloat; in return, the federal government received an ownership stake in the firm. Subsequent actions increased the total size of the bailout to more than $150 billion – and restructured some of the initial loans provided to the firm. Without taxpayer intervention, AIG would have ceased to exist and, to be blunt, all of its employees would have lost their jobs.

Against this background – and given the massive layoffs occurring at other major financial entities, such as Citibank – the American taxpayers have a right to know why senior executives at AIG, who are frankly lucky to still have jobs, need to receive additional bonus payments of any kind to retain them at AIG. To that end, I request that AIG disclose to the public the following information:

1. Which executives in which AIG divisions are receiving the retention payments – and how much is each executive receiving” What are the base salaries of the executives receiving the retention payments?

2. Are all executives delaying receipt of these payments until April 2009 – or, if any executive is not delaying receipt of the payments, which executive or executives is/are receiving payments in December 2008 and how much is each executive receiving?

3. Why is it necessary for any AIG executive to receive a retention payment – and why is it necessary that these be scheduled for April 2009 and April 2010?

4. What will be the source of the retention payments provided in 2009 and 2010?

AIG has previously claimed in correspondence to me that it is working “to create a transparent, accountable culture to regain the trust of the American people.” The disclosure of the information requested here will be a first step toward providing the kind of transparency that the American people have the right to expect from a private firm to which they have provided more than $150 billion in financial assistance.

Sincerely,

Elijah E. Cummings

Member of Congress

Source

AIG Should Name Staff Getting Payments, Cummings Says

December 2 2008

By Hugh Son

American International Group Inc., the insurer rescued from failure by the U.S., should name executives getting “retention” payments and explain why the awards are needed, said Representative Elijah Cummings.

AIG, which said in a September filing that 130 managers will get “cash awards” to stay through 2009, isn’t providing enough information, said Cummings, a Maryland Democrat on the House Committee on Oversight and Government Reform, in a letter to AIG dated yesterday.

“Taxpayers have a right to know why senior executives at AIG, who are frankly lucky to still have jobs, need to receive additional bonus payments,” Cummings said in the letter.

Financial firms bailed out by the U.S. Treasury’s $700 billion rescue fund are under pressure to curb executive pay and perks. AIG Chief Executive Officer Edward Liddy said Nov. 25 that the insurer will freeze pay and forgo bonuses for seven top leaders. The next day, AIG disclosed that retirement services chief Jay Wintrob will still get a previously announced retention payment of $3 million.

Wintrob, 51, will get the payment in two installments, the first in April 2009 and the rest a year later, AIG said in a regulatory filing. Chief Financial Officer David Herzog, 48, will also get the payments, which will be given four months later than previously planned, AIG said. The company didn’t name any other recipients, or the size of payments apart from Wintrob’s.

Nicholas Ashooh, a spokesman for New York-based AIG, didn’t immediately return a call today. He said Nov. 26 that the retention awards are different from annual bonuses. Cummings responded in a letter the same day that called on Liddy to quit, saying that the CEO rewarded failure and misled the public.

Rescue Package

“AIG made some grand pronouncements about how they were going to change their bonus structure, but they found ways to give their people the same things,” Cummings said today in a phone interview. It’s unclear why retention pay is needed “when thousands of people would line up to take their jobs,” he said.

Finance and insurance positions in New York declined by 16,900 in the year through October, the state Labor Department said last month, as firms posting profit declines or losses seek to trim expenses.

AIG climbed 22 cents to $1.87 at 4:09 p.m. in New York Stock Exchange composite trading. The stock has plunged by 97 percent this year.

The company got an expanded government rescue package last month worth more than $150 billion after being overwhelmed by bad bets on U.S. housing that led to $43 billion in losses over four straight quarters.

AIG is selling businesses, including the retirement services unit Wintrob heads, to repay a $60 billion U.S. loan. The firm also got a $40 billion capital infusion from the Treasury and more than $50 billion for two funds that will buy securities tied to mortgages.

Source

So they changed the name from “Bonues” to “Cash Award”.

How pathetic. There is no real difference. What BS. Now I have heard it all.

What a bunch of bums.

They never should not have bailed them out in the first place.

AIG Already Running Through Government Loans

Using bailout funds for bonuses, dividends and acquisitions illegal

Guess What AIG did after the Bailout? Party Time?

Published in: on December 4, 2008 at 5:05 am  Comments Off on AIG giving “Cash Awards” (a new term for Bonus) to 130 managers  
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The Financial System Implodes: The 10 Worst Corporations of 2008

November 22 2008

The System Implodes: The 10 Worst Corporations of 2008

by Robert Weissman

2008 marks the 20th anniversary of Multinational Monitor’s annual list of the 10 Worst Corporations of the year.

In the 20 years that we’ve published our annual list, we’ve covered corporate villains, scoundrels, criminals and miscreants. We’ve reported on some really bad stuff — from Exxon’s Valdez spill to Union Carbide and Dow’s effort to avoid responsibility for the Bhopal disaster; from oil companies coddling dictators (including Chevron and CNPC, both profiled this year) to a bank (Riggs) providing financial services for Chilean dictator Augusto Pinochet; from oil and auto companies threatening the future of the planet by blocking efforts to address climate change to duplicitous tobacco companies marketing cigarettes around the world by associating their product with images of freedom, sports, youthful energy and good health.

But we’ve never had a year like 2008.

The financial crisis first gripping Wall Street and now spreading rapidly throughout the world is, in many ways, emblematic of the worst of the corporate-dominated political and economic system that we aim to expose with our annual 10 Worst list. Here is how.

Improper political influence: Corporations dominate the policy-making process, from city councils to global institutions like the World Trade Organization. Over the last 30 years, and especially in the last decade, Wall Street interests leveraged their political power to remove many of the regulations that had restricted their activities. There are at least a dozen separate and significant examples of this, including the Financial Services Modernization Act of 1999, which permitted the merger of banks and investment banks. In a form of corporate civil disobedience, Citibank and Travelers Group merged in 1998 — a move that was illegal at the time, but for which they were given a two-year forbearance — on the assumption that they would be able to force a change in the relevant law. They did, with the help of just-retired (at the time) Treasury Secretary Robert Rubin, who went on to an executive position at the newly created Citigroup.

Deregulation and non-enforcement: Non-enforcement of rules against predatory lending helped the housing bubble balloon. While some regulators had sought to exert authority over financial derivatives, they were stopped by finance-friendly figures in the Clinton administration and Congress — enabling the creation of the credit default swap market. Even Alan Greenspan concedes that that market — worth $55 trillion in what is called notional value — is imploding in significant part because it was not regulated.

Short-term thinking: It was obvious to anyone who cared to look at historical trends that the United States was experiencing a housing bubble. Many in the financial sector seemed to have convinced themselves that there was no bubble. But others must have been more clear-eyed. In any case, all the Wall Street players had an incentive not to pay attention to the bubble. They were making stratospheric annual bonuses based on annual results. Even if they were certain the bubble would pop sometime in the future, they had every incentive to keep making money on the upside.

Financialization: Profits in the financial sector were more than 35 percent of overall U.S. corporate profits in each year from 2005 to 2007, according to data from the Bureau of Economic Analysis. Instead of serving the real economy, the financial sector was taking over the real economy.

Profit over social use: Relatedly, the corporate-driven economy was being driven by what could make a profit, rather than what would serve a social purpose. Although Wall Street hucksters offered elaborate rationalizations for why exotic financial derivatives, private equity takeovers of firms, securitization and other so-called financial innovations helped improve economic efficiency, by and large these financial schemes served no socially useful purpose.

Externalized costs: Worse, the financial schemes didn’t just create money for Wall Street movers and shakers and their investors. They made money at the expense of others. The costs of these schemes were foisted onto workers who lost jobs at firms gutted by private equity operators, unpayable loans acquired by homeowners who bought into a bubble market (often made worse by unconscionable lending terms), and now the public.

What is most revealing about the financial meltdown and economic crisis, however, is that it illustrates that corporations — if left to their own worst instincts — will destroy themselves and the system that nurtures them. It is rare that this lesson is so graphically illustrated. It is one the world must quickly learn, if we are to avoid the most serious existential threat we have yet faced: climate change.

Of course, the rest of the corporate sector was not on good behavior during 2008 either, and we do not want them to escape justified scrutiny. In keeping with our tradition of highlighting diverse forms of corporate wrongdoing, we include only one financial company on the 10 Worst list. Here, presented in alphabetical order, are the 10 Worst Corporations of 2008.

AIG: Money for Nothing

There’s surely no one party responsible for the ongoing global financial crisis.

But if you had to pick a single responsible corporation, there’s a very strong case to make for American International Group (AIG).

In September, the Federal Reserve poured $85 billion into the distressed global financial services company. It followed up with $38 billion in October.

The government drove a hard bargain for its support. It allocated its billions to the company as high-interest loans; it demanded just short of an 80 percent share of the company in exchange for the loans; and it insisted on the firing of the company’s CEO (even though he had only been on the job for three months).

Why did AIG — primarily an insurance company powerhouse, with more than 100,000 employees around the world and $1 trillion in assets — require more than $100 billion ($100 billion!) in government funds? The company’s traditional insurance business continues to go strong, but its gigantic exposure to the world of “credit default swaps” left it teetering on the edge of bankruptcy. Government officials then intervened, because they feared that an AIG bankruptcy would crash the world’s financial system.

Credit default swaps are effectively a kind of insurance policy on debt securities. Companies contracted with AIG to provide insurance on a wide range of securities. The insurance policy provided that, if a bond didn’t pay, AIG would make up the loss.

AIG’s eventual problem was rooted in its entering a very risky business but treating it as safe. First, AIG Financial Products, the small London-based unit handling credit default swaps, decided to insure “collateralized debt obligations” (CDOs). CDOs are pools of mortgage loans, but often only a portion of the underlying loans — perhaps involving the most risky part of each loan. Ratings agencies graded many of these CDOs as highest quality, though subsequent events would show these ratings to have been profoundly flawed. Based on the blue-chip ratings, AIG treated its insurance on the CDOs as low risk. Then, because AIG was highly rated, it did not have to post collateral.

Through credit default swaps, AIG was basically collecting insurance premiums and assuming it would never pay out on a failure — let alone a collapse of the entire market it was insuring. It was a scheme that couldn’t be beat: money for nothing.

In September, the New York Times’ Gretchen Morgenson reported on the operations of AIG’s small London unit, and the profile of its former chief, Joseph Cassano. In 2007, the Times reported, Cassano “described the credit default swaps as almost a sure thing.” “It is hard to get this message across, but these are very much handpicked,” he said in a call with analysts.

“It is hard for us, without being flippant, to even see a scenario within any kind of realm of reason that would see us losing one dollar in any of those transactions,” he said.

Cassano assured investors that AIG’s operations were nearly fail safe. Following earlier accounting problems, the company’s risk management was stellar, he said: “That’s a committee that I sit on, along with many of the senior managers at AIG, and we look at a whole variety of transactions that come in to make sure that they are maintaining the quality that we need to. And so I think the things that have been put in at our level and the things that have been put in at the parent level will ensure that there won’t be any of those kinds of mistakes again.”

Cassano turned out to be spectacularly wrong. The credit default swaps were not a sure thing. AIG somehow did not notice that the United States was experiencing a housing bubble, and that it was essentially insuring that the bubble would not pop. It made an ill-formed judgment that positive credit ratings meant CDOs were high quality — even when the underlying mortgages were of poor quality.

But before the bubble popped, Cassano’s operation was minting money. It wasn’t hard work, since AIG Financial Products was taking in premiums in exchange for nothing. In 2005, the unit’s profit margin was 83 percent, according to the Times. By 2007, its credit default swap portfolio was more than $500 billion.

Then things started to go bad. Suddenly, AIG had to start paying out on some of the securities it had insured. As it started recording losses, its credit default swap contracts require that it begin putting up more and more collateral. AIG found it couldn’t raise enough money fast enough — over the course of a weekend in September, the amount of money AIG owed shot up from $20 billion to more than $80 billion.

With no private creditors stepping forward, it fell to the government to provide the needed capital or let AIG enter bankruptcy. Top federal officials deemed bankruptcy too high a risk to the overall financial system.

After the bailout, it emerged that AIG did not even know all of the CDOs it had ensured.

In September, less than a week after the bailout was announced, the Orange County Register reported on a posh retreat for company executives and insurance agents at the exclusive St. Regis Resort in Monarch Beach, California. Rooms at the resort can cost over $1,000 per night.

After the House of Representatives Oversight and Government Reform Committee highlighted the retreat, AIG explained that the retreat was primarily for well-performing independent insurance agents. Only 10 of the 100 participants were from AIG (and they from a successful AIG subsidiary), the company said, and the event was planned long in advance of the federal bailout. In an apology letter to Treasury Secretary Henry Paulson, CEO Edward Liddy wrote that AIG now faces very different challenges, and “that we owe our employees and the American public new standards and approaches.”

New standards and approaches, indeed.

Cargill: Food Profiteers

The world’s food system is broken.
Or, more accurately, the giant food companies and their allies in the U.S. and other rich country governments, and at the International Monetary Fund and World Bank, broke it.

Thirty years ago, most developing countries produced enough food to feed themselves [CHECK]. Now, 70 percent are net food importers.

Thirty years ago, most developing countries had in place mechanisms aimed at maintaining a relatively constant price for food commodities. Tariffs on imports protected local farmers from fluctuations in global food prices. Government-run grain purchasing boards paid above-market prices for farm goods when prices were low, and required farmers to sell below-market when prices were high. The idea was to give farmers some certainty over price, and to keep food affordable for consumers. Governments also provided a wide set of support services for farmers, giving them advice on new crop and growing technologies and, in some countries, helping set up cooperative structures.

This was not a perfect system by any means, but it looks pretty good in retrospect.

Over the last three decades, the system was completely abandoned, in country after country. It was replaced by a multinational-dominated, globally integrated food system, in which the World Bank and other institutions coerced countries into opening their markets to cheap food imports from rich countries and re-orienting their agricultural systems to grow food for rich consumers abroad. Proponents said the new system was a “free market” approach, but in reality it traded one set of government interventions for another — a new set of rules that gave enhanced power to a handful of global grain trading companies like Cargill and Archer Daniels Midland, as well as to seed and fertilizer corporations.

“For this food regime to work,” Raj Patel, author of Stuffed and Starved, told the U.S. House Financial Services Committee at a May hearing, “existing marketing boards and support structures needed to be dismantled. In a range of countries, this meant that the state bodies that had been supported and built by the World Bank were dismantled by the World Bank. The rationale behind the dismantling of these institutions was to clear the path for private sector involvement in these sectors, on the understanding that the private sector would be more efficient and less wasteful than the public sector.”

“The result of these interventions and conditions,” explained Patel, “was to accelerate the decline of developing country agriculture. One of the most striking consequences of liberalization has been the phenomenon of ‘import surges.’ These happen when tariffs on cheaper, and often subsidized, agricultural products are lowered, and a host country is then flooded with those goods. There is often a corresponding decline in domestic production. In Senegal, for example, tariff reduction led to an import surge in tomato paste, with a 15-fold increase in imports, and a halving of domestic production. Similar stories might be told of Chile, which saw a three-fold surge in imports of vegetable oil, and a halving of domestic production. In Ghana in 1998, local rice production accounted for over 80 percent of domestic consumption. By 2003, that figure was less than 20 percent.”

The decline of developing country agriculture means that developing countries are dependent on the vagaries of the global market. When prices spike — as they did in late 2007 and through the beginning of 2008 — countries and poor consumers are at the mercy of the global market and the giant trading companies that dominate it. In the first quarter of 2008, the price of rice in Asia doubled, and commodity prices overall rose 40 percent. People in rich countries felt this pinch, but the problem was much more severe in the developing world. Not only do consumers in poor countries have less money, they spend a much higher proportion of their household budget on food — often half or more — and they buy much less processed food, so commodity increases affect them much more directly. In poor countries, higher prices don’t just pinch, they mean people go hungry. Food riots broke out around the world in early 2008.

But not everyone was feeling pain. For Cargill, spiking prices was an opportunity to get rich. In the second quarter of 2008, the company reported profits of more than $1 billion, with profits from continuing operations soaring 18 percent from the previous year. Cargill’s 2007 profits totaled more than $2.3 billion, up more than a third from 2006.

In a competitive market, would a grain-trading middleman make super-profits? Or would rising prices crimp the middleman’s profit margin?

Well, the global grain trade is not competitive.

In an August speech, Cargill CEO Greg Page posed the question, “So, isn’t Cargill exploiting the food situation to make money?” Here is how he responded:

“I would give you four pieces of information about why our earnings have gone up dramatically.

  1. The demand for food has gone up. The demand for our facilities has gone up, and we are running virtually all of our facilities worldwide at total capacity. As we utilize our capacity more effectively, clearly we do better.
  2. Fertilizer prices rose, and we are owners of a large fertilizer company. That has been the single largest factor in Cargill’s earnings.
  3. The volatility in the grain industry — much of it created by governments — was an opportunity for a trading company like Cargill to make money.
  4. Finally, in this era of high prices, Cargill over the last two years has invested $15.5 billion additional dollars into the world food system. Some was to carry all these high-priced inventories. We also wanted to be sure that we were there for farmers who needed the working capital to operate in this much more expensive environment. Clearly, our owners expected some return on that $15.5 billion. Cargill had an opportunity to make more money in this environment, and I think that is something that we need to be very forthright about.”

OK, Mr. Page, that’s all very interesting. The question was, “So, isn’t Cargill exploiting the food situation to make money?” It sounds like your answer is, “yes.”

Chevron: “We can’t let little countries screw around with big companies”

The world has witnessed a stunning consolidation of the multinational oil companies over the last decade.

One of the big winners was Chevron. It swallowed up Texaco and Unocal, among others. It was happy to absorb their revenue streams. It has been less willing to take responsibility for ecological and human rights abuses perpetrated by these companies.

One of the inherited legacies from Chevron’s 2001 acquisition of Texaco is litigation in Ecuador over the company’s alleged decimation of the Ecuadorian Amazon over a 20-year period of operation. In 1993, 30,000 indigenous Ecuadorians filed a class action suit in U.S. courts, alleging that Texaco had poisoned the land where they live and the waterways on which they rely, allowing billions of gallons of oil to spill and leaving hundreds of waste pits unlined and uncovered. They sought billions in compensation for the harm to their land and livelihood, and for alleged health harms. The Ecuadorians and their lawyers filed the case in U.S. courts because U.S. courts have more capacity to handle complex litigation, and procedures (including jury trials) that offer plaintiffs a better chance to challenge big corporations. Texaco, and later Chevron, deployed massive legal resources to defeat the lawsuit. Ultimately, a Chevron legal maneuver prevailed: At Chevron’s instigation, U.S. courts held that the case should be litigated in Ecuador, closer to where the alleged harms occurred.

Having argued vociferously that Ecuadorian courts were fair and impartial, Chevron is now unhappy with how the litigation has proceeded in that country. So unhappy, in fact, that it is lobbying the Office of the U.S. Trade Representative to impose trade sanctions on Ecuador if the Ecuadorian government does not make the case go away.

“We can’t let little countries screw around with big companies like this — companies that have made big investments around the world,” a Chevron lobbyist said to Newsweek in August. (Chevron subsequently stated that “the comments attributed to an unnamed lobbyist working for Chevron do not reflect our company’s views regarding the Ecuador case. They were not approved by the company and will not be tolerated.”)

Chevron is worried because a court-appointed special master found in March that the company was liable to plaintiffs for between $7 billion and $16 billion. The special master has made other findings that Chevron’s clean-up operations in Ecuador have been inadequate.

Another of Chevron’s inherited legacies is the Yadana natural gas pipeline in Burma, operated by a consortium in which Unocal was one of the lead partners. Human rights organizations have documented that the Yadana pipeline was constructed with forced labor, and associated with brutal human rights abuses by the Burmese military.

EarthRights International, a human rights group with offices in Washington, D.C. and Bangkok, has carefully tracked human rights abuses connected to the Yadana pipeline, and led a successful lawsuit against Unocal/Chevron. In an April 2008 report, the group states that “Chevron and its consortium partners continue to rely on the Burmese army for pipeline security, and those forces continue to conscript thousands of villagers for forced labor, and to commit torture, rape, murder and other serious abuses in the course of their operations.”

Money from the Yadana pipeline plays a crucial role in enabling the Burmese junta to maintain its grip on power. EarthRights International estimates the pipeline funneled roughly $1 billion to the military regime in 2007. The group also notes that, in late 2007, when the Burmese military violently suppressed political protests led by Buddhist monks, Chevron sat idly by.

Chevron has trouble in the United States, as well. In September, Earl Devaney, the inspector general for the Department of Interior, released an explosive report documenting “a culture of ethical failure” and a “culture of substance abuse and promiscuity” in the U.S. government program handling oil lease contracts on U.S. government lands and property. Government employees, Devaney found, accepted a stream of small gifts and favors from oil company representatives, and maintained sexual relations with them. (In one memorable passage, the inspector general report states that “sexual relationships with prohibited sources cannot, by definition, be arms-length.”) The report showed that Chevron had conferred the largest number of gifts on federal employees. It also complained that Chevron refused to cooperate with the investigation, a claim Chevron subsequently disputed.

Constellation Energy: Nuclear Operators

Although it is too dangerous, too expensive and too centralized to make sense as an energy source, nuclear power won’t go away, thanks to equipment makers and utilities that find ways to make the public pay and pay.

Case in point: Constellation Energy Group, the operator of the Calvert Cliffs nuclear plant in Maryland. When Maryland deregulated its electricity market in 1999, Constellation — like other energy generators in other states — was able to cut a deal to recover its “stranded costs” and nuclear decommissioning fees. The idea was that competition would bring multiple suppliers into the market, and these new competitors would have an unfair advantage over old-time monopoly suppliers. Those former monopolists, the argument went, had built expensive nuclear reactors with the approval of state regulators, and it would be unfair if they could not charge consumers to recover their costs. It would also be unfair, according to this line of reasoning, if the former monopolists were unable to recover the costs of decommissioning nuclear facilities.

In Maryland, the “stranded cost” deal gave Constellation (through its affiliate Baltimore Gas & Electric, BGE) the right to charge ratepayers $975 million in 1993 dollars (almost $1.5 billion in present dollars).

Deregulation meant that Constellation’s energy generating assets — including its nuclear facility at Calvert Cliffs — were free from price regulation. As a result, instead of costing Constellation, Calvert Cliffs’ market value increased.

Deregulation also meant that, after an agreed-upon freeze period, BGE was free to raise its rates as it chose. In 2006, it announced a 72 percent rate increase. For residential consumers, this meant they would pay an average of $743 more per year for electricity.

The sudden price hike sparked a rebellion. The Maryland legislature passed a law requiring BGE to credit consumers $386 million over a 10-year period. At the time, Constellation was very pleased with the deal, which let it keep most of its price-gouging profits — a spokesperson for the then-governor said that Constellation and BGE were “doing a victory lap around the statehouse” after the bill passed.

In February 2008, however, Constellation announced that it intended to sue the state for unconstitutionally “taking” its assets via the mandatory consumer credit. In March, following a preemptive lawsuit by the state, the matter was settled. BGE agreed to make a one-time rebate of $170 million to residential ratepayers, and 90 percent of the credits to ratepayers (totaling $346 million) were left in place. The deal also relieved ratepayers of the obligation to pay for decommissioning — an expense that had been expected to total $1.5 billion (or possibly much more) from 2016 to 2036.

The deal also included regulatory changes making it easier for outside companies to invest in Constellation — a move of greater import than initially apparent. In September, with utility stock prices plummeting, Warren Buffet’s MidAmerican Energy announced it would purchase Constellation for $4.7 billion, less than a quarter of the company’s market value in January.

Meanwhile, Constellation plans to build a new reactor at Calvert Cliffs, potentially the first new reactor built in the United States since the near-meltdown at Three Mile Island in 1979.

“There are substantial clean air benefits associated with nuclear power, benefits that we recognize as the operator of three plants in two states,” says Constellation spokesperson Maureen Brown.

It has lined up to take advantage of U.S. government-guaranteed loans for new nuclear construction, available under the terms of the 2005 Energy Act [see “Nuclear’s Power Play: Give Us Subsidies or Give Us Death,” Multinational Monitor, September/October 2008]. “We can’t go forward unless we have federal loan guarantees,” says Brown.

Building nuclear plants is extraordinarily expensive (Constellation’s planned construction is estimated at $9.6 billion) and takes a long time; construction plans face massive political risks; and the value of electric utilities is small relative to the huge costs of nuclear construction. For banks and investors, this amounts to too much uncertainty — but if the government guarantees loans will be paid back, then there’s no risk.

Or, stated better, the risk is absorbed entirely by the public. That’s the financial risk. The nuclear safety risk is always absorbed, involuntarily, by the public.

CNPC: Fueling Violence in Darfur

Many of the world’s most brutal regimes have a common characteristic: Although subject to economic sanctions and politically isolated, they are able to maintain power thanks to multinational oil company enablers. Case in point: Sudan, and the Chinese National Petroleum Corporation (CNPC).

In July, International Criminal Court (ICC) Prosecutor Luis Moreno-Ocampo charged the President of Sudan, Omar Hassan Ahmad Al Bashir, with committing genocide, crimes against humanity and war crimes. The charges claim that Al Bashir is the mastermind of crimes against ethnic groups in Darfur, aimed at removing the black population from Sudan. Sudanese armed forces and government-authorized militias known as the Janjaweed have carried out massive attacks against the Fur, Masalit and Zaghawa communities of Darfur, according to the ICC allegations. Following bombing raids, “ground forces would then enter the village or town and attack civilian inhabitants. They kill men, children, elderly, women; they subject women and girls to massive rapes. They burn and loot the villages.” The ICC says 35,000 people have been killed and 2.7 million displaced.

The ICC reports one victim saying: “When we see them, we run. Some of us succeed in getting away, and some are caught and taken to be raped — gang-raped. Maybe around 20 men rape one woman. … These things are normal for us here in Darfur. These things happen all the time. I have seen rapes, too. It does not matter who sees them raping the women — they don’t care. They rape girls in front of their mothers and fathers.”

Governments around the world have imposed various sanctions on Sudan, with human rights groups demanding much more aggressive action.

But there is little doubt that Sudan has been able to laugh off existing and threatened sanctions because of the huge support it receives from China, channeled above all through the Sudanese relationship with CNPC.

“The relationship between CNPC and Sudan is symbiotic,” notes the Washington, D.C.-based Human Rights First, in a March 2008 report, “Investing in Tragedy.” “Not only is CNPC the largest investor in the Sudanese oil sector, but Sudan is CNPC’s largest market for overseas investment.”

China receives three quarters of Sudan’s exports, and Chinese companies hold the majority share in almost all of the key oil-rich areas in Sudan. Explains Human Rights First: “Beijing’s companies pump oil from numerous key fields, which then courses through Chinese-made pipelines to Chinese-made storage tanks to await a voyage to buyers, most of them Chinese.” CNPC is the largest oil investor in Sudan; the other key Chinese company is the Sinopec Group (also known as the China Petrochemical Corporation).

Oil money has fueled violence in Darfur. “The profitability of Sudan’s oil sector has developed in close chronological step with the violence in Darfur,” notes Human Rights First. “In 2000, before the crisis, Sudan’s oil revenue was $1.2 billion. By 2006, with the crisis well underway, that total had shot up by 291 percent, to $4.7 billion. How does Sudan use that windfall? Its finance minister has said that at least 70 percent of the oil profits go to the Sudanese armed forces, linked with its militia allies to the crimes in Darfur.”

There are other nefarious components of the CNPC relationship with the Sudanese government. China ships substantial amounts of small arms to Sudan and has helped Sudan build its own small arms factories. China has also worked at the United Nations to undermine more effective multilateral action to protect Darfur. Human rights organizations charge a key Chinese motivation is to lubricate its relationship with the Khartoum government so the oil continues to flow.

CNPC did not respond to repeated requests for comment.

Dole: The Sour Taste of Pineapple

Starting in 1988, the Philippines undertook what was to be a bold initiative to redress the historically high concentration of land ownership that has impoverished millions of rural Filipinos and undermined the country’s development. The Comprehensive Agricultural Reform Program (CARP) promised to deliver land to the landless.

It didn’t work out that way.

Plantation owners helped draft the law and invented ways to circumvent its purported purpose.

Dole pineapple workers are among those paying the price.

Under CARP, Dole’s land was divided among its workers and others who had claims on the land prior to the pineapple giant. However, under the terms of the law, as the Washington, D.C.-based International Labor Rights Forum (ILRF) explains in an October report, “The Sour Taste of Pineapple,” the workers received only nominal title. They were required to form labor cooperatives. Intended to give workers — now the new land owners — a means to collectively manage their land, the cooperatives were instead controlled by wealthy landlords.

“Through its dealings with these cooperatives,” ILRF found, Dole and Del Monte, (the world’s other leading pineapple grower) “have been able to take advantage of a number of worker abuses. Dole has outsourced its labor force to contract labor and replaced its full-time regular employment system that existed before CARP.” Dole employs 12,000 contract workers. Meanwhile, from 1989 to 1998, Dole reduced its regular workforce by 3,500.

Under current arrangements, Dole now leases its land from its workers, on extremely cheap terms — in one example cited by ILRF, Dole pays in rent one-fifteenth of its net profits from a plantation. Most workers continue to work the land they purportedly own, but as contract workers for Dole.

The Philippine Supreme Court has ordered Dole to convert its contract workers into regular employees, but the company has not done so. In 2006, the Court upheld a Department of Labor and Employment decision requiring Dole to stop using illegal contract labor. Under Philippine law, contract workers should be regularized after six months.

Dole emphasizes that it pays its workers $10 a day, more than the country’s $5.60 minimum wage. It also says that its workers are organized into unions. The company responded angrily to a 2007 nomination for most irresponsible corporations from a Swiss organization, the Berne Declaration. “We must also say that those fallacious attacks created incredulity and some anger among our Dolefil workers, their representatives, our growers, their cooperatives and more generally speaking among the entire community where we operate.” The company thanked “hundreds of people who spontaneously expressed their support to Dolefil, by taking the initiative to sign manifestos,” including seven cooperatives.

The problem with Dole’s position, as ILRF points out, is that “Dole’s contract workers are denied the same rights afforded to Dole’s regular workers. They are refused the right to organize or benefits gained by the regular union, and are consequently left with poor wages and permanent job insecurity.” Contract workers are paid under a quota system, and earn about $1.85 a day, according to ILRF.

Conditions are not perfect for unionized workers, either. In 2006, when a union leader complained about pesticide and chemical exposures (apparently misreported in local media as a complaint about Dole’s waste disposal practices), the management of Dole Philippines (Dolefil) pressed criminal libel charges against him. Two years later, these criminal charges remain pending.

Dole says it cannot respond to the allegations in the ILRF report, because the U.S. Trade Representative is considering acting on a petition by ILRF to deny some trade benefits to Dole pineapples imported into the United States from the Philippines.

Concludes Bama Atheya, executive director of ILRF, “In both Costa Rica and the Philippines, Dole has deliberately obstructed workers’ right to organize, has failed to pay a living wage and has polluted workers’ communities.”

GE: Creative Accounting

General Electric (GE) has appeared on Multinational Monitor’s annual 10 Worst Corporations list for defense contractor fraud, labor rights abuses, toxic and radioactive pollution, manufacturing nuclear weaponry, workplace safety violations and media conflicts of interest (GE owns television network NBC).

This year, the company returns to the list for new reasons: alleged tax cheating and the firing of a whistleblower.

In June, former New York Times reporter David Cay Johnston reported on internal GE documents that appeared to show the company had engaged in long-running effort to evade taxes in Brazil. In a lengthy report in Tax Notes International, Johnston cited a GE subsidiary manager’s powerpoint presentation that showed “suspicious” invoices as “an indication of possible tax evasion.” The invoices showed suspiciously high sales volume for lighting equipment in lightly populated Amazon regions of the country. These sales would avoid higher value added taxes (VAT) in urban states, where sales would be expected to be greater.

Johnston wrote that the state-level VAT at issue, based on the internal documents he reviewed, appeared to be less than $100 million. But, “since the VAT scheme appears to have gone on long before the period covered in the Moreira [the company manager] report, the total sum could be much larger and could involve other countries supplied by the Brazil subsidiary.”

A senior GE spokesperson, Gary Sheffer, told Johnston that the VAT and related issues were so small relative to GE’s size that the company was surprised a reporter would spend time looking at them. “No company has perfect compliance,” Sheffer said. “We do not believe we owe the tax.”

Johnston did not identify the source that gave him the internal GE documents, but GE has alleged it was a former company attorney, Adriana Koeck. GE fired Koeck in January 2007 for what it says were “performance reasons.” GE sued Koeck in June 2008, alleging that she wrongfully maintained privileged and confidential information, and improperly shared the information with third parties. In a court filing, GE said that it “considers its professional reputation to be its greatest asset and it has worked tirelessly to develop and preserve an unparalleled reputation of ‘unyielding integrity.’”

GE’s suit followed a whistleblower defense claim filed by Koeck in 2007. In April 2007, Koeck filed a claim with the U.S. Department of Labor under the Sarbanes-Oxley whistleblower protections (rules put in place following the Enron scandal).

In her filing, Koeck alleges that she was fired not for poor performance, but because she called attention to improper activities by GE. After being hired in January 2006, Koeck’s complaint asserts, she “soon discovered that GE C&I [consumer and industrial] operations in Latin America were engaged in a variety of irregular practices. But when she tried to address the problems, both Mr. Burse and Mr. Jones [her superiors in the general counsel’s office] interfered with her efforts, took certain matters away from her, repeatedly became enraged with her when she insisted that failing to address the problems would harm GE, and eventually had her terminated.”

Koeck’s whistleblower filing details the state VAT-avoidance scheme discussed in Johnston’s article. It also indicates that several GE employees in Brazil were blackmailing the company to keep quiet about the scheme.

Koeck’s whistleblower filing also discusses reports in the Brazilian media that GE had participated in a “bribing club” with other major corporations. Members of the club allegedly met to divide up public contracts in Brazil, as well as to agree on the amounts that would be paid in bribes. Koeck discovered evidence of GE subsidiaries engaging in behavior compatible with the “bribing club” stories and reported this information to her superior. Koeck alleges that her efforts to get higher level attorneys to review the situation failed.

In a statement, GE responds to the substance of Koeck’s allegations of wrongdoing: “These were relatively minor and routine commercial and tax issues in Brazil. Our employees proactively identified, investigated and resolved these issues in the appropriate manner. We are confident we have met all of our tax and compliance obligations in Brazil.GE has a strong and rigorous compliance process that dealt effectively with these issues.”

Koeck’s Sarbanes-Oxley complaint was thrown out in June, on the grounds that it had not been filed in a timely matter.

The substance of her claims, however, are now under investigation by the Department of Justice Fraud Section, according to Corporate Crime Reporter.

Imperial Sugar: 13 Dead

On February 7, an explosion rocked the Imperial Sugar refinery in Port Wentworth, Georgia, near Savannah.

Tony Holmes, a forklift operator at the plant, was in the break room when the blast occurred.

“I heard the explosion,” he told the Savannah Morning News. “The building shook, and the lights went out. I thought the roof was falling in. … I saw people running. I saw some horrific injuries. … People had clothes burning. Their skin was hanging off. Some were bleeding.”

Days later, when the fire was finally extinguished and search-and-rescue operations completed, the horrible human toll was finally known: 13 dead, dozens badly burned and injured.

As with almost every industrial disaster, it turns out the tragedy was preventable. The cause was accumulated sugar dust, which like other forms of dust, is highly combustible.

The Occupational Safety and Health Administration (OSHA), the government workplace safety regulator, had not visited Imperial Sugar’s Port Wentworth facility since 2000. When inspectors examined the blast site after the fact, they found rampant violations of the agency’s already inadequate standards. They proposed a more than $5 million fine, and issuance of citations for 61 egregious willful violations, eight willful violations and 51 serious violations. Under OSHA’s rules, a “serious” citation is issued when death or serious physical harm is likely to occur, a “willful” violation is a violation committed with plain indifference to employee safety and health, and “egregious” citations are issued for particularly flagrant violations.

A month later, OSHA inspectors investigated Imperial Sugar’s plant in Gramercy, Louisiana. They found 1/4- to 2-inch accumulations of dust on electrical wiring and machinery. They found 6- to 8-inch accumulations on wall ledges and piping. They found 1/2- to 1-inch accumulations on mechanical equipment and motors. They found 3- to 48-inch accumulations on workroom floors. OSHA posted an “imminent danger” notice at the plant, because of the high likelihood of another explosion.

Imperial Sugar obviously knew of the conditions in its plants. It had in fact taken some measures to clean up operations prior to the explosion.

Graham H. Graham was hired as vice president of operations of Imperial Sugar in November 2007. In July 2008, he told a Senate subcommittee that he first walked through the Port Wentworth facility in December 2007. “The conditions were shocking,” he testified. “Port Wentworth was a dirty and dangerous facility. The refinery was littered with discarded materials, piles of sugar dust, puddles of sugar liquid and airborne sugar dust. Electrical motors and controls were encrusted with solidified sugar, while safety covers and doors were missing from live electrical switchgear and panels. A combustible environment existed.”

Graham recommended that the plant manager be fired, and he was. Graham ordered a housekeeping blitz, and by the end of January, he testified to the Senate subcommittee, conditions had improved significantly, but still were hazardous.

But Graham also testified that he was told to tone down his demands for immediate action. In a meeting with John Sheptor, then Imperial Sugar’s chief operating officer and now its CEO, and Kay Hastings, senior vice president of human resources, Graham testified, “I was also informed that I was excessively eager in addressing the refinery’s problems.”

Sheptor, who was nearly killed in the refinery explosion, and Hastings both deny Graham’s account.

The company says that it respected safety concerns before the explosion, but has since redoubled efforts, hiring expert consultants on combustible hazards, refocusing on housekeeping efforts and purchasing industrial vacuums to minimize airborne disbursement.

In March, the House of Representatives Education and Labor Committee held a hearing on the hazards posed by combustible dust. The head of the Chemical Safety Board testified about a 2006 study that identified hundreds of combustible dust incidents that had killed more than 100 workers during the previous 25 years. The report recommended that OSHA issue rules to control the risk of dust explosions.

Instead of acting on this recommendation, said Committee Chair George Miller, D-California, “OSHA chose to rely on compliance assistance and voluntary programs, such as industry ‘alliances,’ web pages, fact sheets, speeches and booths at industry conferences.”

The House of Representatives then passed legislation to require OSHA to issue combustible dust standards, but the proposal was not able to pass the Senate.

Remarkably, even after the tragedy at Port Wentworth, and while Imperial Sugar said it welcomed the effort for a new dust rule, OSHA head Edwin Foulke indicated he believed no new rule was necessary.

“We believe,” he told the House Education and Labor Committee in March, “that [OSHA] has taken strong measures to prevent combustible dust hazards, and that our multi-pronged approach, which includes effective enforcement of  existing standards, combined with education for employers and employees, is effective in addressing combustible dust hazards. We would like to emphasize that the existence of a standard does not ensure that explosions will be eliminated.”

Philip Morris International: Unshackled

The old Philip Morris no longer exists. In March, the company formally divided itself into two separate entities: Philip Morris USA, which remains a part of the parent company Altria, and Philip Morris International.

Philip Morris USA sells Marlboro and other cigarettes in the United States. Philip Morris International tramples over the rest of the world.

The world is just starting to come to grips with a Philip Morris International even more predatory in pushing its toxic products worldwide.

The new Philip Morris International is unconstrained by public opinion in the United States — the home country and largest market of the old, unified Philip Morris —and will no longer fear lawsuits in the United States.

As a result, Thomas Russo of the investment fund Gardner Russo & Gardner told Bloomberg, the company “won’t have to worry about getting pre-approval from the U.S. for things that are perfectly acceptable in foreign markets.” Russo’s firm owns 5.7 million shares of Altria and now Philip Morris International.

A commentator for The Motley Fool investment advice service wrote, “The Marlboro Man is finally free to roam the globe unfettered by the legal and marketing shackles of the U.S. domestic market.”

In February, the World Health Organization (WHO) issued a new report on the global tobacco epidemic. WHO estimates the Big Tobacco-fueled epidemic now kills more than 5 million people every year.

Five million people.

By 2030, WHO estimates 8 million will die a year from tobacco-related disease, 80 percent in the developing world.

The WHO report emphasizes that known and proven public health policies can dramatically reduce smoking rates. These policies include indoor smoke-free policies; bans on tobacco advertising, promotion and sponsorship; heightened taxes; effective warnings; and cessation programs. These “strategies are within the reach of every country, rich or poor and, when combined as a package, offer us the best chance of reversing this growing epidemic,” says WHO Director-General Margaret Chan.

Most countries have failed to adopt these policies, thanks in no small part to decades-long efforts by Philip Morris and the rest of Big Tobacco to deploy political power to block public health initiatives. Thanks to the momentum surrounding a global tobacco treaty, known as the Framework Convention on Tobacco Control, adopted in 2005, this is starting to change. There’s a long way to go, but countries are increasingly adopting sound public health measures to combat Big Tobacco.

Now Philip Morris International has signaled its initial plans to subvert these policies.

The company has announced plans to inflict on the world an array of new products, packages and marketing efforts. These are designed to undermine smoke-free workplace rules, defeat tobacco taxes, segment markets with specially flavored products, offer flavored cigarettes sure to appeal to youth and overcome marketing restrictions.

The Chief Operating Officer of Philip Morris International, Andre Calantzopoulos, detailed in a March investor presentation two new products, Marlboro Wides, “a shorter cigarette with a wider diameter,” and Marlboro Intense, “a rich, flavorful, shorter cigarette.”

Sounds innocent enough, as far as these things go.

That’s only to the innocent mind.

The Wall Street Journal reported on Philip Morris International’s underlying objective: “The idea behind Intense is to appeal to customers who, due to indoor smoking bans, want to dash outside for a quick nicotine hit but don’t always finish a full-size cigarette.”

Workplace and indoor smoke-free rules protect people from second-hand smoke, but also make it harder for smokers to smoke. The inconvenience (and stigma of needing to leave the office or restaurant to smoke) helps smokers smoke less and, often, quit. Subverting smoke-free bans will damage an important tool to reduce smoking.

Philip Morris International says it can adapt to high taxes. If applied per pack (or per cigarette), rather than as a percentage of price, high taxes more severely impact low-priced brands (and can help shift smokers to premium brands like Marlboro). But taxes based on price hurt Philip Morris International.

Philip Morris International’s response? “Other Tobacco Products,” which Calantzopoulos describes as “tax-driven substitutes for low-price cigarettes.” These include, says Calantzopoulos, “the ‘tobacco block,’ which I would describe as the perfect make-your-own cigarette device.” In Germany, roll-your-own cigarettes are taxed far less than manufactured cigarettes, and Philip Morris International’s “tobacco block” is rapidly gaining market share.

One of the great industry deceptions over the last several decades is selling cigarettes called “lights” (as in Marlboro Lights), “low” or “mild” — all designed to deceive smokers into thinking they are safer.

The Framework Convention on Tobacco Control says these inherently misleading terms should be barred. Like other companies in this regard, Philip Morris has been moving to replace the names with color coding — aiming to convey the same ideas, without the now-controversial terms.

Calantzopoulos says Philip Morris International will work to more clearly differentiate Marlboro Gold (lights) from Marlboro Red (traditional) to “increase their appeal to consumer groups and segments that Marlboro has not traditionally addressed.”

Philip Morris International also is rolling out a range of new Marlboro products with obvious attraction for youth. These include Marlboro Ice Mint, Marlboro Crisp Mint and Marlboro Fresh Mint, introduced into Japan and Hong Kong last year. It is exporting clove products from Indonesia.

The company has also renewed efforts to sponsor youth-oriented music concerts. In July, activist pressure forced Philip Morris International to withdraw sponsorship of an Alicia Keys concert in Indonesia (Keys called for an end to the sponsorship deal); and in August, the company was forced to withdraw from sponsorship in the Philippines of a reunion concert of the Eraserheads, a band sometimes considered “the Beatles of the Philippines.”

Responding to increasing advertising restrictions and large, pictorial warnings required on packs, Marlboro is focusing increased attention on packaging. Fancy slide packs make the package more of a marketing device than ever before, and may be able to obscure warning labels.

Most worrisome of all may be the company’s forays into China, the biggest cigarette market in the world, which has largely been closed to foreign multinationals. Philip Morris International has hooked up with the China National Tobacco Company, which controls sales in China. Philip Morris International will sell Chinese brands in Europe. Much more importantly, the company is starting to sell licensed versions of Marlboro in China. The Chinese aren’t letting Philip Morris International in quickly — Calantzopoulos says, “We do not foresee a material impact on our volume and profitability in the near future.” But, he adds, “we believe this long-term strategic cooperation will prove to be mutually beneficial and form the foundation for strong long-term growth.”

What does long-term growth mean? In part, it means gaining market share among China’s 350 million smokers. But it also means expanding the market, by selling to girls and women. About 60 percent of men in China smoke; only 2 or 3 percent of women do so.

Roche: Saving Lives is Not Our Business

Monopoly control over life-saving medicines gives enormous power to drug companies. And, to paraphrase Lord Acton, enormous power corrupts enormously.

The Swiss company Roche makes a range of HIV-related drugs. One of them is enfuvirtid, sold under the brand-name Fuzeon. Fuzeon is the first of a new class of AIDS drugs, working through a novel mechanism. It is primarily used as a “salvage” therapy — a treatment for people for whom other therapies no longer work. Fuzeon brought in $266 million to Roche in 2007, though sales are declining.

Roche charges $25,000 a year for Fuzeon. It does not offer a discount price for developing countries.

Like most industrialized countries, Korea maintains a form of price controls — the national health insurance program sets prices for medicines. The Ministry of Health, Welfare and Family Affairs listed Fuzeon at $18,000 a year. Korea’s per capita income is roughly half that of the United States. Instead of providing Fuzeon, for a profit, at Korea’s listed level, Roche refuses to make the drug available in Korea.

Korea is not a developing country, emphasizes Roche spokesperson Martina Rupp. “South Korea is a developed country like the U.S. or like Switzerland.”

Roche insists that Fuzeon is uniquely expensive to manufacture, and so that it cannot reduce prices. According to a statement from Roche, “the offered price represents the lowest sustainable price at which Roche can provide Fuzeon to South Korea, considering that the production process for this medication requires more than 100 steps — 10 times more than other antiretrovirals. A single vial takes six months to produce, and 45 kilograms of raw materials are necessary to produce one kilogram of Fuzeon.”

The head of Roche Korea was reportedly less diplomatic. According to Korean activists, he told them, “We are not in business to save lives, but to make money. Saving lives is not our business.”

Says Roche spokesperson Rupp: “I don’t know why he would say that, and I cannot imagine that this is really something that this person said.”

Another AIDS-related drug made by Roche is valganciclovir. Valganciclovir treats a common AIDS-related infection called cytomegalovirus (CMV) that causes blindness or death. Roche charges $10,000 for a four-month course of valganciclovir. In December 2006, it negotiated with Médicins Sans Frontières/Doctors Without Borders (MSF) and agreed on a price of $1,899. According to MSF, this still-price-gouging price is only available for poor and very high incidence countries, however, and only for nonprofit organizations — not national treatment programs.

Roche’s Rupp says that “Currently, MSF is the only organization requesting purchase of Valcyte [Roche’s brand name for valganciclovir] for such use in these countries. To date, MSF are the only AIDS treatment provider treating CMV for their patients.  They told us themselves this is because no-one else has the high level of skilled medical staff they have.”

Dr. David Wilson, former MSF medical coordinator in Thailand, says he remembers the first person that MSF treated with life-saving antiretrovirals. “I remember everyone was feeling really great that we were going to start treating people with antiretrovirals, with the hope of bringing people back to normal life.” The first person MSF treated, Wilson says, lived but became blind from CMV. “She became strong and she lived for a long time, but the antiretroviral treatment doesn’t treat the CMV.”

“I’ve been working in MSF projects and treating people with AIDS with antiretrovirals for seven years now,” he says, “and along with many colleagues we’ve been frustrated because we don’t have treatment for this particular disease. We now think we have a strategy to diagnose it effectively and what we really need is the medicine to treat the patients.”

Source

Sierra Leone: A mission for MSF(Doctors Without Borders)

Bonuses for Wall Street Should Go to Zero, U.S. Taxpayers Say

By Christine Harper

November 11 2008

U.S. taxpayers, who feel they own a stake in Wall Street after funding a $700 billion bailout for the industry, don’t want executives’ bonuses reduced. They want them eliminated.

“I may not understand everything, but I do understand common sense, and when you lend money to someone, you don’t want to see them at a new-car dealer the next day,” said Ken Karlson, a 61-year-old Vietnam veteran and freelance marketer in Wheaton, Illinois. “The bailout money shouldn’t have been given to them in the first place.”

Compensation at Goldman Sachs Group Inc., Morgan Stanley, Citigroup Inc. and the six other banks that received the first $125 billion of the federal funds is under scrutiny by lawmakers, including Rep. Henry Waxman, a California Democrat, and New York Attorney General Andrew Cuomo, also a Democrat. President-elect Barack Obama cited the program at his first news conference on Nov. 7, saying it will be reviewed to make sure it’s “not unduly rewarding the management of financial firms receiving government assistance.”

While year-end rewards are likely to decline with a drop in revenue this year, industry veterans say that eliminating them risks driving away the firms’ most productive workers.

“There are instances where bonuses are justified, deserved, and in the best interests of the investment bank involved,” said Dan Lufkin, a co-founder of Donaldson Lufkin & Jenrette Inc., the investment bank acquired by Credit Suisse Group AG in 2000. “Your very best people are people you want to hold, and your very best people will have opportunities even in this environment to transfer allegiance.”

`Your Jaw Drops’

The companies, which set aside revenue throughout the year to pay bonuses, haven’t commented on plans for year-end awards, typically decided this month or next. A study released last week said the firms are likely to cut bonuses for top executives by as much as 70 percent.

“Even really sober people are saying this is the worst financial crisis since the Depression, and they’re saying bonuses are just going to be reduced?” said Patrick Amo, a 53-year-old retired merchant marine in Seattle. “Oh my God, you read that and your jaw drops.”

Wall Street firms’ pay has traditionally been tied closely to performance of the companies, which is why employees receive most of their compensation at the end of the year after final results are known. Depending on seniority and performance, bonuses for traders, bankers and executives can be a multiple of their salaries, which range from about $80,000 to $600,000.

Blankfein’s $67.9 Million

The nine banks that Waxman pressed to detail their bonus plans asked for more time to respond, according to his spokeswoman, Karen Lightfoot. She said they’ve been granted an additional two weeks. The original deadline was yesterday.

Goldman, the largest and most profitable U.S. securities firm in the world last year, paid Chief Executive Officer Lloyd Blankfein a record $67.9 million bonus for 2007 on top of his $600,000 salary. That was justified, he told shareholders at the company’s annual meeting in April, because of Goldman’s superior financial results.

“We’re very much a performance-related firm,” he said. “If those results don’t come in, I assure you at Goldman Sachs you won’t see that compensation.”

Goldman’s profit is down 47 percent so far this year and five analysts expect the company to report its first loss as a public company in the fourth quarter that ends this month. The stock price has dropped 67 percent this year and Goldman received $10 billion from the U.S. government in the bailout last month. Michael DuVally, a spokesman for Goldman Sachs in New York, declined to comment on the company’s plans for bonuses this year.

`Appalling’

“The executives in companies that get bailout money should have their base salaries reduced by 10 percent for 2009 and they should pay back a substantial portion of their 2007 bonuses to the government for the financial devastation they oversaw, fostered and, in some cases, directly caused,” said S. Woods Bennett, a 57-year-old lawyer in Baltimore. “Their sense of entitlement is appalling.”

In addition to Goldman, Morgan Stanley and Citigroup, the companies that received the first round of money from the U.S. government’s Troubled Asset Relief Program were Merrill Lynch & Co., JPMorgan Chase & Co., Bank of America Corp., Wells Fargo & Co., State Street Corp. and Bank of New York Mellon Corp.

Some needed the money more than others. Citigroup and Merrill haven’t been profitable since early last year. Earnings at each of the other firms, except Boston-based State Street, have been dropping.

`Money’s Money’

“Bonuses and severance packages will obsess the American public” and become “a humiliation and embarrassment,” said Arthur Levitt, a senior adviser to the Carlyle Group, former chairman of the Securities and Exchange Commission, and a board member of Bloomberg LP, the parent company of Bloomberg News. “Compensation committees, believe me, are paying close attention to this.”

Several of the companies — including Citigroup and Wells Fargo — have said they won’t use federal funds to pay bonuses. That’s disputed by some, including former compensation consultant Graef Crystal.

“The argument of saying we’re not using the bailout money is just crap because money’s fungible, money’s money,” said Crystal, who writes the newsletter graefcrystal.com. “It exposes them to ridicule.”

A renegotiated government rescue for American International Group Inc., which was once the world’s largest insurance company, includes a freeze on the bonus pool for 70 top executives and imposes limits on severance benefits, the Treasury said in a statement yesterday. AIG’s bailout is separate for the $125 billion being invested in nine banks.

Economy Contracts

The bailout is only part of the reason that people object to Wall Street bonuses this year. The financial industry worldwide has taken more than $690 billion in writedowns and credit losses this year and cut more than 150,000 jobs, according to data compiled by Bloomberg.

A decline in lending has caused the wider economy to contract: the U.S. gross domestic product shrank at a 0.3 percent annual pace in the third quarter, consumer spending fell at its fastest pace since 1980 and unemployment jumped to 6.5 percent, the highest since 1994.

“This is the real economy these vultures have wrecked once again,” said Leo Gerard, president of the Pittsburgh-based United Steelworkers, which represents 1.2 million active and retired members. “Workers are taking it on the chin through no fault of their own.”

Top Executives

“Please explain how miserable performance of biblical proportions warrants any bonuses, particularly using money from me the customer and taxpayer,” said Glenn Brown, 67, who recently retired after 21 years as a researcher in the department of surgery at Beth Israel Deaconess in Boston and as an adjunct assistant professor at Harvard Medical School. “I don’t understand how they can even conceive of doing that.”

“If these guys were so talented how did this problem happen anyway?” said Mark Whitling, 63, who works as the chief financial officer of a steel service company that employs 125 people in Eastern Ohio. “We don’t feel sorry for them.”

Attention is most focused on the top executives at the banks that are receiving federal money. They’ll have to take the steepest pay cuts because their pay is disclosed in proxy filings, according to Alan Johnson, managing director of Johnson Associates, the compensation consulting firm that estimates bonuses will decline between 10 percent and 70 percent.

“I’d advise the CEO to say he can’t take anything if it’s one of these firms getting bailed out by the government,” said Crystal. “I think he’s just going to have to go down to just his salary.”

Pay or Lose

That’s probably not the case for employees whose pay isn’t disclosed, even those who get bonuses that exceed $1 million.

Both Johnson and Crystal say that top performers should receive bonuses this year or companies risk losing their best workers. Of about 600 people who responded to an online survey on the eFinancialCareers.com Web site, 46 percent said they would be unwilling to take any pay cut this year.

“You could build up, I would think, a lot of resentment on the part of people who say, `Look I did give my all this last year, and I know it’s been a bad year, but everything that was asked of me I accomplished and then some,”’ said Crystal. Eliminating bonuses across the board “could be very demoralizing in the long run and it could lose you some people.”

Larry Frank, a 60-year-old retired software company owner who lives in Ormond Beach, Florida, said he told his broker at Merrill Lynch that he would pull his money from the company if it paid the $6.7 billion it has set aside this year to pay bonuses. While he thinks top managers should suffer, he doesn’t think everybody should lose out on getting a bonus.

`Bunch of BS’

“Individual brokers, if they’re performing and their areas are profitable and they’re doing their job, I can’t see punishing them,” he said. “The CEO shouldn’t get anything.”

Still, other people say that all employees working at companies receiving bailout funds should pay the price.

“It’s crazy, it’s all one company, it’s the same thing,” said Scott Floyd, a 37-year-old marketing executive in Manhattan Beach, California. “For people to say the guys in the brokerage should get bonuses because they did well, but it was just the mortgage lending division that did terribly, that’s a bunch of BS.”

Amo, the retired ship captain in Seattle, said that since most financial companies are cutting jobs, they shouldn’t worry about paying bonuses to keep people from leaving.

“Where are they going to go? Don’t let the door hit you on your way out,” he said. “It’s not like it’s just one company — the entire Street is frozen.”

`Thumbing Their Noses’

Karlson, the Vietnam vet, said he thinks Wall Street executives are “thumbing their noses at the common people” if they pay themselves bonuses while people in the country are losing their homes.

“The rationale that they depend on their bonuses, come on, how are we supposed to relate to that?” he said. “You don’t get a bonus from your company if it doesn’t do a good job.”

Jim Beachboard, a 57-year-old lawyer in Little Rock, Arkansas, compared taking a bonus to “kind of like being on the Titanic.”

“It was supposed to be women and children first, so the guys that tried to jump in the lifeboats weren’t really looked upon with much kindness,” he said. “When you start thinking of this many tax dollars being injected into the system, I know there are all sorts of rationalizations and justifications that you can use to try to justify almost anything, but it’s just really in very poor taste.”

Taking a bonus isn’t something executives should be proud of, Beachboard added.

“My mother always told me, don’t ever do anything that you would be too ashamed to tell me about, and I thought, would they really want to tell their mother that?”

Source

Government Gives Record Aid To AIG

In a record bailout of a private company, the government on Monday provided a new $150 billion financial-rescue package to troubled insurance giant American International Group, including $40 billion for partial ownership.

November 10 2008


The action, announced by the Federal Reserve and the Treasury Department, was taken as it became increasingly clear that an original financial lifeline thrown to AIG in September would be insufficient to stabilize the teetering company. All told, the moves boost aid to the company to more than $150 billion. Fed officials, however, expressed confidence that the money would be repaid to taxpayers.

The $40 billion infusion comes from the recently enacted $700 billion financial bailout package. The government is buying preferred shares of AIG stock, giving taxpayers an ownership stake in the company. In turn, restrictions will be placed on executive compensation at the firm.

As part of the new arrangement, the Federal Reserve is reducing a $85 billion loan it had made available to AIG to $60 billion. The Fed also is replacing a separate $37.8 billion loan to the insurance company with a $52.5 billion aid package.

The actions were needed to “keep the company strong and facilitate its ability to complete its restructuring process successfully,” the Federal Reserve said.

And that would be good for the fragile U.S. economy, said White House press secretary Dana Perino.

The new package “will allow AIG to continue to restructure themselves in a way that will not hurt the overall economy. AIG is a large, interconnected firm,” she said.

If the company were to fail, it would wreak havoc on the country’s already ailing economic health, Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke determined back in September when the government first moved to help AIG, Perino said.

Shares of AIG added 32 cents, or 15.2 percent, to $2.43 in early-afternoon trading. The company’s stock has traded between $1.25 and $62.30 in the past year.

It marked the first time money from the $700 billion bailout package Congress enacted last month has gone to any company other than a bank.

Struggling U.S. auto companies — General Motors Corp., Ford Motor Co. and Chrysler — have been pressing the government for more financial assistance. The money would be on top of the $25 billion in loans that Congress passed in September to help retool auto plants to build more fuel-efficient vehicles.

The Treasury Department, which is overseeing the bailout program, has promised to inject $250 billion into banks in return for partial ownership. The original notion behind the bailout package was to help financial institutions lend money more freely again, one of the main reasons the economy is in danger of getting stuck in a long and painful recession.

Until Monday, all of AIG’s bailout relief was coming from the Fed.

The Fed, earlier this year, said it would loan a total of $123 billion to AIG. The insurance company was later allowed to access another $20.9 billion through the Fed’s “commercial paper” program. That’s where the Fed is buying mounds of companies’ short-term debt often used for crucial day-to-day expenses, such as payrolls and supplies.

Monday’s restructuring provides AIG with easier terms on the original Fed loan. The new package reduces the interest rate AIG will pay and will extend the loan term to five years from two, reducing the need for AIG to sell off business lines and other assets at firesale prices to repay the government.

Under the new $52.5 billion package, the loans will last for six years. Through two new facilities, the Fed will fund the purchase of both residential mortgage-backed securities from AIG’s portfolio, and collateralized debt obligations, which are complex financial instruments that combine various slices of debt.

By taking these troubled assets off AIG’s balance sheet, it should take stress off the company, giving it more breathing room and helping to prevent future losses, Fed officials said. The Fed doesn’t believe it will suffer losses because it is hopeful the market for such distressed investments will recover as the economy and financial markets rebound.

AIG reported Monday that continued financial market turmoil resulted in a large third-quarter loss.

The New York-based company said it lost $24.47 billion, or $9.05 per share, after a profit of $3.09 billion, or $1.19 per share, a year ago.

Results included pretax losses of $18.31 billion tied to the declining value of AIG’s investment portfolio. They also were hurt by catastrophe losses and charges related to restructuring.

Excluding items, operating losses totaled $3.42 per share — missing analysts’ average loss estimate of 90 cents per share, according to Thomson Reuters.

In early October AIG said it would sell certain business units to pay off the $85 billion Fed loan. The company, however, said it plans to retain its U.S. property-and-casualty and foreign general insurance businesses. It also plans to keep an ownership interest in its foreign life-insurance operations.

AIG is a colossus on Wall Street and financial districts worldwide, with operations in more than 130 countries and $1 trillion in assets on its balance sheet.

Besides life, property and other insurance offerings, AIG provides asset-management services and airplane leases. Its myriad businesses are also linked to mutual funds, annuities and other retirement products held by millions of ordinary Americans.

But perhaps the biggest concern about AIG is the dizzying array of complex financial instruments it structured for commercial banks, investment banks and hedge funds around the globe — many of which were directly or indirectly linked to the value of U.S. mortgages.

Source

AIG Looting Continues

The Federal Reserve Defies Transparency Aim in Refusal to Identify Bank Loans

By Mark Pittman, Bob Ivry and Alison Fitzgerald

November 10 2008

The Federal Reserve is refusing to identify the recipients of almost $2 trillion of emergency loans from American taxpayers or the troubled assets the central bank is accepting as collateral.

Fed Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson said in September they would comply with congressional demands for transparency in a $700 billion bailout of the banking system. Two months later, as the Fed lends far more than that in separate rescue programs that didn’t require approval by Congress, Americans have no idea where their money is going or what securities the banks are pledging in return.

“The collateral is not being adequately disclosed, and that’s a big problem,” said Dan Fuss, vice chairman of Boston- based Loomis Sayles & Co., where he co-manages $17 billion in bonds. “In a liquid market, this wouldn’t matter, but we’re not. The market is very nervous and very thin.”

Bloomberg News has requested details of the Fed lending under the U.S. Freedom of Information Act and filed a federal lawsuit Nov. 7 seeking to force disclosure.

The Fed made the loans under terms of 11 programs, eight of them created in the past 15 months, in the midst of the biggest financial crisis since the Great Depression.

“It’s your money; it’s not the Fed’s money,” said billionaire Ted Forstmann, senior partner of Forstmann Little & Co. in New York. “Of course there should be transparency.”

Federal Reserve spokeswoman Michelle Smith declined to comment on the loans or the Bloomberg lawsuit. Treasury spokeswoman Michele Davis didn’t respond to a phone call and an e-mail seeking comment.

The Fed’s lending is significant because the central bank has stepped into a rescue role that was also the purpose of the $700 billion Troubled Asset Relief Program, or TARP, bailout plan — without safeguards put into the TARP legislation by Congress.

$2 Trillion

Total Fed lending topped $2 trillion for the first time last week and has risen by 140 percent, or $1.172 trillion, in the seven weeks since Fed governors relaxed the collateral standards on Sept. 14. The difference includes a $788 billion increase in loans to banks through the Fed and $474 billion in other lending, mostly through the central bank’s purchase of Fannie Mae and Freddie Mac bonds.

Before Sept. 14, the Fed accepted mostly top-rated government and asset-backed securities as collateral. After that date, the central bank widened standards to accept other kinds of securities, some with lower ratings. The Fed collects interest on all its loans.

The plan to purchase distressed securities through TARP called for buying at the “lowest price that the secretary (of the Treasury) determines to be consistent with the purposes of this Act,” according to the Emergency Economic Stabilization Act of 2008, the law that covers TARP.

`We Need Transparency’

The legislation didn’t require any specific method for the purchases beyond saying mechanisms such as auctions or reverse auctions should be used “when appropriate.” In a reverse auction, bidders offer to sell securities at successively lower prices, helping to ensure that the Fed would pay less. The measure also included a five-member oversight board that includes Paulson and Bernanke.

At a Sept. 23 Senate Banking Committee hearing in Washington, Paulson called for transparency in the purchase of distressed assets under the TARP program.

“We need oversight,” Paulson told lawmakers. “We need protection. We need transparency. I want it. We all want it.”

At a joint House-Senate hearing the next day, Bernanke also stressed the importance of openness in the program. “Transparency is a big issue,” he said.

Banks Resist Disclosure

The Fed lent cash and government bonds to banks, which gave the Fed collateral in the form of equities and debt, including subprime and structured securities such as collateralized debt obligations, according to the Fed web site. The borrowers have included the now-bankrupt Lehman Brothers Holdings Inc., Citigroup Inc. and JPMorgan Chase & Co.

Banks oppose any release of information because it might signal weakness and spur short-selling or a run by depositors, said Scott Talbott, senior vice president of government affairs for the Financial Services Roundtable, a Washington trade group.

“You have to balance the need for transparency with protecting the public interest,” Talbott said. “Taxpayers have a right to know where their tax dollars are going, but one piece of information standing alone could undermine public confidence in the system.”

Frank Backs Fed

The nation’s biggest banks, Citigroup, Bank of America Corp., JPMorgan Chase, Wells Fargo & Co., Goldman Sachs Group Inc. and Morgan Stanley, declined to comment on whether they have borrowed money from the Fed. They received $120 billion in capital from the TARP, which was signed into law Oct. 3.

In an interview Nov. 6, House Financial Services Committee Chairman Barney Frank said the Fed’s disclosure is sufficient and that the risk the central bank is taking on is appropriate in the current economic climate. Frank said he has discussed the program with Timothy F. Geithner, president and chief executive officer of the Federal Reserve Bank of New York and a possible candidate to succeed Paulson as Treasury secretary.

“I talk to Geithner and he was pretty sure that they’re OK,” said Frank, a Massachusetts Democrat. “If the risk is that the Fed takes a little bit of a haircut, well that’s regrettable.” Such losses would be acceptable, he said, if the program helps revive the economy.

Frank said the Fed shouldn’t reveal the assets it holds or how it values them because of “delicacy with respect to pricing.” He said such disclosure would “give people clues to what your pricing is and what they might be able to sell us and what your estimates are.” He wouldn’t say why he thought that information would be problematic.

`Unclog the Market’

Revealing how the Fed values collateral could help thaw frozen credit markets, said Ron D’Vari, chief executive officer of NewOak Capital LLC in New York and the former head of structured finance at BlackRock Inc.

“I’d love to hear the methodology, how the Fed priced the assets,” D’Vari said. “That would unclog the market very quickly.”

TARP’s $700 billion so far is being used to buy preferred shares in banks to shore up their capital. The program was originally intended to hold banks’ troubled assets while markets were frozen.

The Bloomberg lawsuit argues that the collateral lists “are central to understanding and assessing the government’s response to the most cataclysmic financial crisis in America since the Great Depression.”

AIG Lending

The Fed has lent at least $81 billion to American International Group Inc., the world’s largest insurer, so that it can pay obligations to banks. The central bank is also responsible for losses on a $26.8 billion portfolio guaranteed after Bear Stearns Cos. was bought by JPMorgan.

“As a taxpayer, it is absolutely important that we know how they’re lending money and who they’re lending it to,” said Lucy Dalglish, executive director of the Arlington, Virginia- based Reporters Committee for Freedom of the Press.

Ultimately, the Fed will have to remove some securities held as collateral from some programs because the central bank’s rules call for instruments rated below investment grade to be taken back by the borrower and marked down in value. Losses on those assets could then be written off, partly through the capital recently injected into those banks by the Treasury.

Moody’s Investors Service alone has cut its ratings on 926 mortgage-backed securities worth $42 billion to junk from investment grade since Sept. 14, making them ineligible for collateral on some Fed loans.

The Fed’s collateral “absolutely should be made public,” said Mark Cuban, an activist investor, the owner of the Dallas Mavericks professional basketball team and the creator of the Web site BailoutSleuth.com, which focuses on the secrecy shrouding the Fed’s moves.

Source

The Federal Reserve is refusing to identify the recipients of almost $2 trillion of emergency loans from American taxpayers or the troubled assets the central bank is accepting as collateral.

Well my take on this is the taxpayers have every right to know where their money is going.

They have the right to know every detail and they have to the right know where every bit of it is going right down to the last penny.

The Federal Reserve in my opinion should be eliminated pure and simple. This type of action re-enforces that thought.

I wouldn’t trust the Federal Reserve as far as I could throw them.

They are just a Private Profiteering Bank. Who I might add were in part responsible for the crisis in the first place.

Considering the “world wide crisis” they above all should be transparent.

So now we all have to wonder about their dirty secrets. They should be forced to divulge this information. Where is the accountability?

The Bush Legacy lives on.

I don’t know about the rest of the World but I for one want to know the truth.

Counties around the World are now being forced to get loans from the IMF or The World Bank which in my opinion aren’t to be trusted either.

The federal Reserve care nothing about the tax payers obviously or who they have hurt.

Their lobby groups were in great part also responsible for the problems now facing many countries as well as the American people.

What bailed-out banks spend on lobbying

By Matt Kelley


WASHINGTON

Nineteen banks taking taxpayer money from the Treasury Department have spent $32.4 million lobbying the federal government during the first nine months of this year, their lobbying disclosure reports show.

Combined, the Treasury is investing in the banks $159 billion from the $700 billion financial rescue package approved by Congress last month. None of the banks has indicated it plans to stop lobbying.

Lobbying by the financial industry before and during the financial crisis has come under criticism from consumer groups, members of Congress and President-elect Barack Obama.

“It’s ridiculous that the perpetrators of this mess should be the people dictating to Congress how to get out of it,” says Kathleen Day of the non-profit Center for Responsible Lending.

Sen. Dianne Feinstein, D-Calif., began drafting a bill to ban recipients of government help from lobbying with taxpayer funds after learning that insurance giant American International Group continued to lobby after it received $123 billion in government-backed loans. AIG suspended its lobbying Oct. 20, company spokesman Joe Norton says.

In a statement, Feinstein said “it would be unconscionable for these companies to misuse taxpayer dollars” on lobbying. Although federal law prohibits federal loan, grant or contract money from being used for lobbying, Feinstein wants to ensure that ban also applies to the investments, loan guarantees and other emergency help offered to financial firms, Feinstein spokesman Gil Duran said.

Financial industry lobbyist Scott Talbott says such restrictions are unnecessary.

“Washington is watching. The world is watching. Companies will be able to show how they’re using the money,” said Talbott, a senior vice president of the Financial Services Roundtable, a trade group that represents 21 large banks getting government investments. “Lobbyist money will come out of other income.”

Feinstein and others criticized AIG last month for sending executives on a $440,000 retreat after getting government help. AIG so far has spent $9.5 million on lobbying this year, records show.

Norton said AIG stopped working to influence legislation and regulations, but its lobbyists “continue to monitor policy and have general discussions” with lawmakers and regulators. He said AIG has no plans to fire its lobbyists or lobbying firms.

THE BALANCE OF INFLUENCE

Lobbying expenses for first 9 months of 2008
By banks receiving government help:

Company

Lobbying amount

Government investment

Merrill Lynch{*}

$4.6 million

$25 billion

Bank of America{*}

$4.7 million

$25 billion

Citigroup

$5.6 million

$25 billion

JPMorgan Chase

$5 million

$25 billion

Wells Fargo

$2 million

$25 billion

Goldman Sachs

$4.2 million

$10 billion

Morgan Stanley

$2.4 million

$10 billion

PNC Bank

$320,000

$7.7 billion

U.S. Bancorp

$290,000

$6.6 billion

Capital One

$920,000

$3.6 billion

* — Merrill Lynch is being taken over by Bank of America, and the merged bank will receive $25 billion

Sources: Lobbying disclosure reports, U.S. Senate Office of Public Records, Financial Services Roundtable

Source

Despite crisis, Merrill Lynch still lobbying

By Matt Kelley

WASHINGTON

Brokerage giant Merrill Lynch, a victim of the financial crisis, is merging with Bank of America and expects to share in the $25 billion the Treasury Department is spending to help the merged bank.

Despite its crumbling financial foundation and organizational upheaval, one thing at Merrill hasn’t changing: It has continued to lobby the federal government, including on the $700 billion financial rescue package that provided the money for the government investments in Merrill and other major banks.

President-elect Barack Obama and members of Congress have blamed lobbying by the financial industry in part for the current financial crisis. Last month, Obama said the crisis developed “when speculators gamed the system, regulators looked the other way, and lobbyists bought their way into our government.”

Jeff Peck, a lobbyist whose clients include Merrill Lynch, says financial companies will “take their lumps” before a skeptical Congress but have a right to lobby Washington policymakers.

Merrill Lynch hired the firm April 1 and paid it $160,000 through September to lobby Congress on a “blueprint for regulatory and mortgage reform,” the firm’s disclosure reports say. Merrill Lynch has spent $4.6 million in lobbying in the first nine months of the year, records show.

“When you have this kind of scrutiny and this kind of seismic change happening … everyone wants to make sure they’re part of the process that affects their business,” Peck said.

Bank of America also has no plans to quit lobbying, spokesman Scott Silvestri said.

“We continue to talk to Congress and regulators about issues of interest and concern to our company,” Silvestri said.

Lobbyists play a key role in keeping lawmakers and government decision-makers informed about how their decisions affect the lobbyists’ clients, says Scott Talbott of the Financial Services Roundtable, a group representing large banks, insurance companies and other financial institutions.

“Lobbyists provide information, and that role is more important than ever right now,” Talbott says. “You have a very complicated industry, and we’re trying to find the best solutions. … Now is not the time to be cutting back on information flow.”

Banks and other financial firms lobbied Congress for the financial rescue package, but the idea for direct government investment in financial institutions came from the Treasury Department. The American Bankers Association wrote to Treasury Secretary Henry Paulson last week to complain that healthy banks without toxic debt on their books were being pressured to take part.

“This is not a program the banking industry sought,” wrote Ed Yingling, CEO of the bankers’ group. He said some banks are worried that being coerced into taking government money will make them appear to be financially weak and that the government may decide to restrict dividend payments to shareholders.

Unlike the banks, in which the government is buying minority stakes, the feds completely took over Fannie Mae and Freddie Mac, the giant home mortgage financing companies brought down by the foreclosure crisis.

Fannie Mae and Freddie Mac spent $14.3 million on lobbying before the government halted it in September after taking over the companies at a cost of as much as $200 billion.

Lobbying by Fannie and Freddie has been bipartisan. Freddie Mac’s internal lobbyists included Kirsten Johnson-Obey, the daughter-in-law of House Appropriations Committee Chairman Dave Obey, D-Wis. Fannie Mae paid $115,000 in lobbying fees this year to a lobbying firm headed by Steve Farber, the co-chairman of the host committee for Democratic Party convention held in August in Denver.

On the Republican side, Freddie Mac paid $260,000 this year to Timmons & Co. — a lobbying firm founded by Bill Timmons, who worked in the Nixon and Ford administrations and was a top campaign aide or adviser to every presidential candidate since Richard Nixon.

Kathleen Day of the Center for Responsible Lending says financial companies’ clout should be on the decline because their mistakes led to the current crisis.

“It shouldn’t be the industry getting its way all the time,” Day said. “Look where that got us.”

Source

Published in: on November 8, 2008 at 6:38 am  Comments Off on What bailed-out banks spend on lobbying  
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Real Change Depends on Stopping the Bailout Profiteers

To understand the meaning of the U.S. election results, it is worth looking back to the moment when everything changed for the Obama campaign. It was, without question, the moment when the economic crisis hit Wall Street.

Up to that point, things weren’t looking all that good for Barack Obama. The Democratic National Convention barely delivered a bump, while the appointment of Sarah Palin seemed to have shifted the momentum decisively over to John McCain.

Then, Fannie Mae and Freddie Mac failed, followed by insurance giant AIG, then Lehman Brothers. It was in this moment of economic vertigo that Obama found a new language. With tremendous clarity, he turned his campaign into a referendum into the deregulation and trickle down policies that have dominated mainstream economic discourse since Ronald Reagan. He said his opponent represented more of the same while he stood for a new direction, one that would rebuild the economy from the ground up, rather than the top down. Obama stayed on this message for the rest of the campaign and, as we just saw, it worked.

The question now is whether Obama will have the courage to take the ideas that won him this election and turn them into policy. Or, alternately, whether he will use the financial crisis to rationalize a move to what pundits call “the middle” (if there is one thing this election has proved, it is that the real middle is far to the left of its previously advertised address). Predictably, Obama is already coming under enormous pressure to break his election promises, particularly those relating to raising taxes on the wealthy and imposing real environmental regulations on polluters. All day on the business networks, we hear that, in light of the economic crisis, corporations need lower taxes, and fewer regulations — in other words, more of the same.

The new president’s only hope of resisting this campaign being waged by the elites is if the remarkable grassroots movement that carried him to victory can somehow stay energized, networked, mobilized — and most of all, critical. Now that the election has been won, this movement’s new missions should be clear: loudly holding Obama to his campaign promises, and letting the Democrats know that there will be consequences for betrayal.

The first order of business — and one that cannot wait until inauguration — must be halting the robbery-in-progress known as the “economic bailout.” I have spent the past month examining the loopholes and conflicts of interest embedded in the U.S. Treasury Department’s plans. The results of that research can be found in a just published feature article in Rolling Stone, The Bailout Profiteers, as well as my most recent Nation column, Bush’s Final Pillage.

Both these pieces argue that the $700-billion “rescue plan” should be regarded as the Bush Administration’s final heist. Not only does it transfer billions of dollars of public wealth into the hands of politically connected corporations (a Bush specialty), but it passes on such an enormous debt burden to the next administration that it will make real investments in green infrastructure and universal health care close to impossible. If this final looting is not stopped (and yes, there is still time), we can forget about Obama making good on the more progressive aspects of his campaign platform, let alone the hope that he will offer the country some kind of grand Green New Deal.

Readers of The Shock Doctrine know that terrible thefts have a habit of taking place during periods of dramatic political transition. When societies are changing quickly, the media and the people are naturally focused on big “P” politics — who gets the top appointments, what was said in the most recent speech. Meanwhile, safe from public scrutiny, far reaching pro-corporate policies are locked into place, dramatically restricting future possibilities for real change.

It’s not too late to halt the robbery in progress, but it cannot wait until inauguration. Several great initiatives to shift the nature of the bailout are already underway, including http://bailoutmainstreet.com. I added my name to the “Call to Action: Time for a 21st Century Green America” and invite you to do the same.

Stopping the bailout profiteers is about more than money. It is about democracy. Specifically, it is about whether Americans will be able to afford the change they have just voted for so conclusively.

Source

Published in: on November 8, 2008 at 4:42 am  Comments Off on Real Change Depends on Stopping the Bailout Profiteers  
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AIG Already Running Through Government Loans

October 30 2008

The American International Group is rapidly running through $123 billion in emergency lending provided by the Federal Reserve, raising questions about how a company claiming to be solvent in September could have developed such a big hole by October. Some analysts say at least part of the shortfall must have been there all along, hidden by irregular accounting.

“You don’t just suddenly lose $120 billion overnight,” said Donn Vickrey of Gradient Analytics, an independent securities research firm in Scottsdale, Ariz.

Mr. Vickrey says he believes AIG must have already accumulated tens of billions of dollars worth of losses by mid-September, when it came close to collapse and received an $85 billion emergency line of credit by the Fed. That loan was later supplemented by a $38 billion lending facility.

But losses on that scale do not show up in the company’s financial filings. Instead, AIG replenished its capital by issuing $20 billion in stock and debt in May and reassured investors that it had an ample cushion. It also said that it was making its accounting more precise.

Mr. Vickery and other analysts are examining the company’s disclosures for clues that the cushion was threadbare and that company officials knew they had major losses months before the bailout.

Tantalizing support for this argument comes from what appears to have been a behind-the-scenes clash at the company over how to value some of its derivatives contracts. An accountant brought in by the company because of an earlier scandal was pushed to the sidelines on this issue, and the company’s outside auditor, PricewaterhouseCoopers, warned of a material weakness months before the government bailout.

The internal auditor resigned and is now in seclusion, according to a former colleague. His account, from a prepared text, was read by Representative Henry A. Waxman, Democrat of California and chairman of the House Committee on Oversight and Government Reform, in a hearing this month.

These accounting questions are of interest not only because taxpayers are footing the bill at AIG but also because the post-mortems may point to a fundamental flaw in the Fed bailout: the money is buoying an insurer — and its trading partners — whose cash needs could easily exceed the existing government backstop if the housing sector continues to deteriorate.

Edward M. Liddy, the insurance executive brought in by the government to restructure AIG, has already said that although he does not want to seek more money from the Fed, he may have to do so.

Continuing Risk

Fear that the losses are bigger and that more surprises are in store is one of the factors beneath the turmoil in the credit markets, market participants say.

“When investors don’t have full and honest information, they tend to sell everything, both the good and bad assets,” said Janet Tavakoli, president of Tavakoli Structured Finance, a consulting firm in Chicago. “It’s really bad for the markets. Things don’t heal until you take care of that.”

AIG has declined to provide a detailed account of how it has used the Fed’s money. The company said it could not provide more information ahead of its quarterly report, expected next week, the first under new management. The Fed releases a weekly figure, most recently showing that $90 billion of the $123 billion available has been drawn down.

AIG has outlined only broad categories: some is being used to shore up its securities-lending program, some to make good on its guaranteed investment contracts, some to pay for day-to-day operations and — of perhaps greatest interest to watchdogs — tens of billions of dollars to post collateral with other financial institutions, as required by AIG’s many derivatives contracts.

No information has been supplied yet about who these counterparties are, how much collateral they have received or what additional tripwires may require even more collateral if the housing market continues to slide.

Ms. Tavakoli said she thought that instead of pouring in more and more money, the Fed should bring AIG together with all its derivatives counterparties and put a moratorium on the collateral calls. “We did that with ACA,” she said, referring to ACA Capital Holdings, a bond insurance company that filed for bankruptcy in 2007.

Of the two big Fed loans, the smaller one, the $38 billion supplementary lending facility, was extended solely to prevent further losses in the securities-lending business. So far, $18 billion has been drawn down for that purpose.

For securities lending, an institution with a long time horizon makes extra money by lending out securities to shorter-term borrowers. The borrowers are often hedge funds setting up short trades, betting a stock’s price will fall. They typically give AIG cash or cashlike instruments in return. Then, while AIG waits for the borrowers to bring back the securities, it invests the money.

In the last few months, borrowers came back for their money, and AIG did not have enough to repay them because of market losses on its investments. Through the secondary lending facility, the insurer is now sending those investments to the Fed, and getting cash in turn to repay customers.

A spokesman for the insurer, Nicholas J. Ashooh, said AIG did not anticipate having to use the entire $38 billion facility. At midyear, AIG had a shortfall of $15.6 billion in that program, which

it says has grown to $18 billion. Another spokesman, Joe Norton, said the company was getting out of this business. Of the government’s original $85 billion line of credit, the company has drawn down about $72 billion. It must pay 8.5 percent interest on those funds.

An estimated $13 billion of the money was needed to make good on investment accounts that AIG typically offered to municipalities, called guaranteed investment contracts, or GICs.

When a local government issues a construction bond, for example, it places the proceeds in a guaranteed investment contract, from which it can draw the funds to pay contractors.

After the insurer’s credit rating was downgraded in September, its GIC customers had the right to pull out their proceeds immediately. Regulators say that AIG had to come up with $13 billion, more than half of its total GIC business. Rather than liquidate some investments at losses, it used that much of the Fed loan.

For $59 billion of the $72 billion AIG has used, the company has provided no breakdown. A block of it has been used for day-to-day operations, a broad category that raises eyebrows since the company has been tarnished by reports of expensive trips and bonuses for executives.

The biggest portion of the Fed loan is apparently being used as collateral for AIG’s derivatives contracts, including credit-default swaps.

The swap contracts are of great interest because they are at the heart of the insurer’s near collapse and even AIG does not know how much could be needed to support them. They are essentially a type of insurance that protects investors against default of fixed-income securities. AIG wrote this insurance on hundreds of billions of dollars’ worth of debt, much of it linked to mortgages.

Through last year, senior executives said that there was nothing to fear, that its swaps were rock solid. The portfolio “is well structured” and is subjected to “monitoring, modeling and analysis,” Martin J. Sullivan, AIG’s chief executive at the time, told securities analysts in the summer of 2007.

Gathering Storm

By fall, as the mortgage crisis began roiling financial institutions, internal and external auditors were questioning how AIG was measuring its swaps. They suggested the portfolio was incurring losses. It was as if the company had insured beachfront property in a hurricane zone without charging high enough premiums.

But AIG executives, especially those in the swaps business, argued that any decline was theoretical because the hurricane had not hit. The underlying mortgage-related securities were still paying, they said, and there was no reason to think they would stop doing so.

AIG had come under fire for accounting irregularities some years back and had brought in a former accounting expert from the Securities and Exchange Commission. He began to focus on the company’s accounting for its credit-default swaps and collided with Joseph Cassano, the head of the company’s financial products division, according to a letter read by Mr. Waxman at the recent Congressional hearing.

When the expert tried to revise AIG’s method for measuring its swaps, he said that Mr. Cassano told him, “I have deliberately excluded you from the valuation because I was concerned that you would pollute the process.”

Mr. Cassano did not attend the hearing and was unavailable for comment. The company’s independent auditor, PricewaterhouseCoopers, was the next to raise an alarm. It briefed Mr. Sullivan late in November, warning that it had found a “material weakness” because the unit that valued the swaps lacked sufficient oversight.

About a week after the auditor’s briefing, Mr. Sullivan and other executives said nothing about the warning in a presentation to securities analysts, according to a transcript. They said that while disruptions in the markets were making it difficult to value its swaps, the company had made a “best estimate” and concluded that its swaps had lost about $1.6 billion in value by the end of November.

Still, PricewaterhouseCoopers appears to have pressed for more. In February, AIG said in a regulatory filing that it needed to “clarify and expand” its disclosures about its credit-default

swaps. They had declined not by $1.6 billion, as previously reported, but by $5.9 billion at the end of November, AIG said. PricewaterhouseCoopers subsequently signed off on the company’s accounting while making reference to the material weakness.

Investors shuddered over the revision, driving AIG’s stock down 12 percent. Mr. Vickrey, whose firm grades companies on the credibility of their reported earnings, gave the company an F. Mr. Sullivan, his credibility waning, was forced out months later.

The Losses Grow

Through spring and summer, the company said it was still gathering information about the swaps and tucked references of widening losses into the footnotes of its financial statements: $11.4 billion at the end of 2007, $20.6 billion at the end of March, $26 billion at the end of June. The company stressed that the losses were theoretical: no cash had actually gone out the door.

“If these aren’t cash losses, why are you having to put up collateral to the counterparties?” Mr. Vickrey asked in a recent interview. The fact that the insurer had to post collateral suggests that the counterparties thought AIG’s swaps losses were greater than disclosed, he said. By midyear, the insurer had been forced to post collateral of $16.5 billion on the swaps.

Though the company has not disclosed how much collateral it has posted since then, its $447 billion portfolio of credit-default swaps could require far more if the economy continues to weaken. More federal assistance would then essentially flow through AIG to counterparties.

“We may be better off in the long run letting the losses be realized and letting the people who took the risk bear the loss,” said Bill Bergman, senior equity analyst at the market research company Morningstar.

Source

Seems the Bailout money was wasted on AIG. They obviously don’t know how to run a business. I guess they will be begging for more money in the near future. The Welfare bums strike again.

I guess they need another big party the last one wasn’t large enough to satisfy them.

Coping with global financial crisis

By Patrick Kagenda

October 31 2008

As the American economy struggles to recover from the credit crunch and European economies jostle with rescuing their financial institutions, subsidiary of American companies operating in Uganda are maintaining an upbeat facade, claiming they are not affected by the American economic woes.

Mr. Erick Rakama, Business development manager at DHL an American courier service provider, told The Independent that despite DHL cutting operations in USA, the action will have no effect on DHL Uganda operations. “Each country operates autonomously,” said Rakama.

Ms Poonam, the operations manager at UPS Uganda, another American courier company said the effects are strictly on the American market and not on the local markets like the Ugandan market. “We are not affected at all”, she said.

At AIG Uganda, Alex Wanjohi, AIG Uganda Managing Director said AIG Inc has decided to refocus the company on its core property and casualty insurance businesses which includes AIG Uganda Limited. This means it is business as usual for AIG South African operations where AIG Uganda falls.

“We operate autonomously and throughout the challenges faced by AIG Inc, AIG Uganda’s financial position has not been affected at all,” he said, “We have retained a very strong financial position and we continue to pay claims and write new business as usual”.

The Chief Executive of the Uganda Securities exchange, Mr Simon Rutega, said the lack of confidence in financial markets poses a potential for turmoil.

“In the short run the global credit crunch may not affect Uganda because our securities, our companies and our economies have no direct correlation,” he said, “We are not entangled with those markets despite the remittances coming from those economies, however the effect would be in the long run if this problem progresses.”

Uganda exports mainly primary commodities.

He said there could be a reduction in donor aid and support to social services.

“We have also learned that we have to be careful with these derivatives so, we have to verify whether those instruments are effective or not,” he said.

Experts continue to echo Rutega’s claim that African stock exchanges are insulated from the financial turmoil because of their limited links to the global economy.

“All of Africa represents only one percent of global trade,” Willy Ontsia, head of the Central Africa Stock and Shares Market (BVMAC) in Libreville said;

“If the crisis is short, its impact on Africa and emerging market economies will be relatively weak.”

“But if the crisis is prolonged, that will have an impact on several indicators that affect growth in developing countries,” he said, noting that a global slowdown would affect trade in raw materials — the backbone of many of the continent’s economies.

“Africa is less exposed because of its limited links to the international financial community… but I have reason to worry about the economic effects of the financial crisis on the continent,” said Donald Kaberuka, head of the African Development Bank (ADB).

“It’s the long-term effects that cause us great worry,” he told a press conference in Tunis.

But World Bank President Robert Zoellick last week said that developing nations may be at “a tipping point”.

“We have seen the dark side of global connectedness,” he said as the turmoil battered markets from Cairo to Johannesburg, posing risks to foreign investment and trade that could threaten Africa’s recent economic gains.

Some economists insist that the financial crisis will hit poor and rich countries the same “because there is no decoupling between their performances”.

Due to differences in their starting situations, the outcome will be different and growth in developing economies will slow but not so much as in advanced countries as their trade and capital accounts suffer.

Egypt’s main index plunged more than 16 percent at one point last week, mirroring spectacular losses around the world amid worries about European banks and doubts about the 700 billion dollar US bailout package.

The main index in South Africa, the continent’s largest economy, fell by seven percent but stabilised with trading in marginally positive territory.

Other key markets, including oil-exporter Nigeria and Morocco, suffered far less dramatic declines, while some bourses in countries like Ivory Coast have actually posted small gains.

Economies like South Africa, which are more connected to international finance, are more easily affected by the global turmoil, seen in the volatility on the Johannesburg Stock Exchange, said Razia Khan of Standard Charter Bank in London.

“For the rest of Africa, the global financial market rout is likely to mean a rise in risk aversion,” she said, warning that international investors were likely to seek stability rather than the risks posed by emerging markets.

Daniel Makina, a risk management expert at the University of South Africa, said those indirect effects could prove just as damaging for African economies, especially if exports to the rest of the world slow down.

“South Africa does a lot of trade with US and Europe especially,” Makina told AFP. “A recession in the US and Europe will impact on South Africa exports.”

Crude oil accounts for more than 50 percent of Africa’s exports, with Angola and Nigeria the biggest producers, according to the World Bank.

Worries that weak global growth will reduce demand for fuel have already sent oil prices tumbling to eight-month lows.

“All these things have ripple effects that could hurt growth,” Ontsia said. “Our fear is that this crisis will continue.”

  • Due to a general shortage of credit, poor countries will increasingly find it difficult to access finance.
  • Inflation, which is the main problem for the poor, could be reduced.
  • General re-pricing of risk due to the crisis will increase the cost of borrowing
  • Economies that depend on exports will be most impacted, especially due to a softening in commodity prices

Source

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Salaries hit by Icelandic bank Collapse

Council salaries hit by bank collapses

Treasury urged to defer £1bn business-tax demand as this month’s payroll for hundreds of thousands of workers is frozen in Icelandic accounts

By Jane Merrick, Brian Brady and Jonathan Owen
October 12 2008

Hundreds of thousands of council workers may not be paid this month because their earnings are frozen by the Icelandic bank collapse, it emerged last night.

The Local Government Association has just eight days to avert a catastrophe, senior sources warned. The LGA has urged the Treasury not to insist on prompt payment of nearly £1bn in business taxes owed by councils, and due on 20 October, to free up cash and allow staff to be paid.

It is understood that dozens of the 100-plus local councils that are victims of the Iceland banking crisis use their accounts for the payroll of everyone from the chief executive to front line staff. Until now it was thought only capital savings, worth £840m, were locked in the failed banks. But the accounts were also used as a quick way to earn interest to pay wages.

And in a fresh blow to the banking industry, The Independent on Sunday has learned that seven councils are to withdraw a total of £2bn from British and foreign banks because they fear the crisis could claim more victims. The money will be transferred to government bonds, leaving a gaping hole in UK banking assets at a time when the Treasury is struggling to prop them up with its £500bn bailout.

Treasury officials and the Icelandic authorities said last night that they had made “significant progress” in agreeing in principal a quick payout for British investors – including local councils – who had about £4bn in the Icelandic Landsbanki’s internet bank Icesave.

The News of the World also reported that the value of Icelandic-owned assets seized by the Britain under anti-terror laws was believed to be roughly equivalent to the amount invested in Icelandic banks by British individuals and organisations.

As the economic crisis deepens, Gordon Brown will today make an unprecedented appearance in Paris before an emergency summit of eurozone leaders held by French President Nicolas Sarkozy. The Prime Minister will give a presentation on last week’s bailout, which gave the taxpayer a £50bn stake in British banks.

A No 10 spokesman said last night: “We don’t expect everyone to do exactly what we have done, but the approach we set out is probably the best kind of model.”

Following G7 finance meetings in Washington, President George Bush called for a “serious global response” to cope with the continuing plunge in markets, backing moves to buy stock in troubled financial institutions.

A local government source warned that most of the councils caught in the collapse had invested funds from revenue accounts, used to cover recurring costs such as wages and local services, in Icelandic banks – with terrifying implications for staff and clients. It is not known which councils are affected, but conservative estimates of 50 authorities would cover more than 150,000 staff.

Public-sector unions last night revealed they had written to employers laying out their “grave concerns” about the immediate impact on wages, jobs and front-line services. Unison spokeswoman Mary McGuire said: “We have asked the LGA … how much councils have deposited, and exactly what the impact is going to be in the short term.”

Haringey in north London is believed to be among those councils whose payroll is frozen, though the chief executive refused to confirm or deny this. Haringey made a £5m investment in Iceland just last week – after the nation’s first bank, Glitnir, went bankrupt. Braintree council, in Essex, has confirmed that the £230,000 annual interest from £5m of taxpayers’ money held in three failed Icelandic banks was to be spent on payroll and services.

Despite warnings as far back as July that investing in Icelandic banks was risky, Tory-controlled Winchester council deposited £1m in Heritable, a Landsbanki subsidiary, in September. Lord Oakeshott, Liberal Democrat Treasury spokesman, said: “Winchester council was grossly imprudent. I wouldn’t put them in charge of a child’s money box.”

Council leaders will meet local government minister John Healey and the economic secretary to the Treasury, Ian Pearson, later this week to appeal for more help, including a delay in the payment of business rates. More money is due to the Treasury on 6 November, the date of the Glenrothes by-election.

The shadow Local Government Secretary, Eric Pickles, said: “If the Government shows some flexibility, I am sure that most problems in regard to cash-flow will be taken care of.”

Local government difficulties

Interest rate swaps

In the 1980s, council officers, who were largely unskilled for the task, became involved in a sophisticated form of derivative known as an interest rate swap. Until 1988, when interest rates rose, councils made a tidy profit, but then huge losses were incurred. Hammersmith & Fulham council lost about £200m on investments worth £6bn, but eventually settled with many of its creditors.

Off balance sheet

Not yet a disaster, but there are plenty of critics of councils’ – and central government’s – habit of taking health care facilities and schools built through the private finance initiative off their balance sheets. The argument is that the risk of the project failing is borne by the private sector and so the project should go on its balance sheet. However, even some officials privately admit that it’s a smoke and mirrors exercise to ensure big investments do not come out of a local or central government budget.

BCCI

The Bank of Credit and Commerce International collapsed in 1991 owing more than $16bn (£9.4bn) and took the deposits of local councils down with it.

Source

Time Line To Date

7 September
US government seizes control of mortgage lenders Fannie Mae and Freddie Mac.

14 September 2007
Bank of England steps in with emergency funding to support Northern Rock.

17 March 2008
Federal Reserve organises the rescue of Bear Stearns.

17 September
US rescues insurer AIG.

26 September
US government takes control of Washington Mutual in the largest-ever American bank failure.

29 September
UK government nationalises Bradford & Bingley’s loan book.

30 September
Ireland guarantees the deposits of all savers.

3 October
Biggest ever US government bail-out plan – worth $700bn – clears House of Representatives after being rejected a week earlier.

7 October
Iceland asks Russia for €4bn loan to avoid financial meltdown.

8 October
Chancellor Alistair Darling announces £450bn rescue plan for Britain’s ailing banks. Bank of England cuts interest rates by half a percentage point.

10 October
G7 meeting in Washington agrees global rescue plan.

Source

Wall Streeters are just Welfare Recipiants in Disguise

Wall Streeters are just Welfare Recipients, in Disguise they just cost more to feed is all.

They are the Rich Welfare bums who need it the least.

Exactly 9 Years Ago Today: Fannie Mae Eases Credit To Aid Mortgage Lending

Lest we forget. History can say a lot.

Fannie Mae Eases Credit To Aid Mortgage Lending

By STEVEN A. HOLMES

September 30, 1999

In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.

The action, which will begin as a pilot program involving 24 banks in 15 markets — including the New York metropolitan region — will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.

Fannie Mae, the nation’s biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits. In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates — anywhere from three to four percentage points higher than conventional loans. ”Fannie Mae has expanded home ownership for millions of families in the 1990’s by reducing down payment requirements,” said Franklin D. Raines, Fannie Mae’s chairman and chief executive officer. ”Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.” Demographic information on these borrowers is sketchy. But at least one study indicates that 18 percent of the loans in the subprime market went to black borrowers, compared to 5 per cent of loans in the conventional loan market. In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980’s. ”From the perspective of many people, including me, this is another thrift industry growing up around us,” said Peter Wallison a resident fellow at the American Enterprise Institute. ”If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.” Under Fannie Mae’s pilot program, consumers who qualify can secure a mortgage with an interest rate one percentage point above that of a conventional, 30-year fixed rate mortgage of less than $240,000 — a rate that currently averages about 7.76 per cent. If the borrower makes his or her monthly payments on time for two years, the one percentage point premium is dropped. Fannie Mae, the nation’s biggest underwriter of home mortgages, does not lend money directly to consumers. Instead, it purchases loans that banks make on what is called the secondary market. By expanding the type of loans that it will buy, Fannie Mae is hoping to spur banks to make more loans to people with less-than-stellar credit ratings. Fannie Mae officials stress that the new mortgages will be extended to all potential borrowers who can qualify for a mortgage. But they add that the move is intended in part to increase the number of minority and low income home owners who tend to have worse credit ratings than non-Hispanic whites. Home ownership has, in fact, exploded among minorities during the economic boom of the 1990’s. The number of mortgages extended to Hispanic applicants jumped by 87.2 per cent from 1993 to 1998, according to Harvard University’s Joint Center for Housing Studies. During that same period the number of African Americans who got mortgages to buy a home increased by 71.9 per cent and the number of Asian Americans by 46.3 per cent. In contrast, the number of non-Hispanic whites who received loans for homes increased by 31.2 per cent. Despite these gains, home ownership rates for minorities continue to lag behind non-Hispanic whites, in part because blacks and Hispanics in particular tend to have on average worse credit ratings. In July, the Department of Housing and Urban Development proposed that by the year 2001, 50 percent of Fannie Mae’s and Freddie Mac’s portfolio be made up of loans to low and moderate-income borrowers. Last year, 44 percent of the loans Fannie Mae purchased were from these groups. The change in policy also comes at the same time that HUD is investigating allegations of racial discrimination in the automated underwriting systems used by Fannie Mae and Freddie Mac to determine the credit-worthiness of credit applicants.

Compliments of One Mans Blog

Under Fannie Mae’s pilot program, consumers who qualify can secure a mortgage with an interest rate one percentage point above that of a conventional, 30-year fixed rate mortgage of less than $240,000 — a rate that currently averages about 7.76 per cent. If the borrower makes his or her monthly payments on time for two years, the one percentage point premium is dropped.

This means they made a small fortune on the poor for some time. Why is it the poor have to pay more interest? That one percent certainly adds up to a whole lot of profit.

There certainly are those who know how to make money off a stock market crash.

During the Great Depression there were those who made a fortune. Seems the as usual the rich got richer and the poor got very much poorer.

There are those who know very well how to create a crisis and profit from it. I see a pattern emerging.

One does have to wonder (in spite of all the legislation that has been passed over the years) how it is still possible this can happen.

Seems our law makers never really get it right. It could be they really don’t actually do anything to prevent it. Could be they just pretend to fix it.

People become confident things will be OK. They start investing again, until the next crash comes along. Then we all just repeat the same scenario over again. Maybe it’s just me. But I see the wool being pulled over everyone’s eyes yet again.

They mess up and the Government Bails them out. So where is the accountability. Seems anyone in American messes up and Government is there to bail them out. They can be as irresponsible as they want. NO FEAR the Government will give them YOUR MONEY. Meanwhile back at the ranch there are millions living in poverty and many are ending up on the streets every day.

Isn’t that comforting? Yes your Government is taking care of you?

Wall Street bailout: Report from the front

This is almost amusing Poor Suffering Wall Streeters BOY does my heart go out them and all the suffering they have caused. The poor, pathtic, lost souls, that they are.

October 11, 2008

Lehman Brothers Holdings Inc. Chief Executive Richard S. Fuld Jr., wearing tie, is heckled by protesters as he leaves Capitol Hill in Washington after testify before the House Oversight and Government Reform Committee.

AP / Susan Walsh

I don’t fully understand how the $700-billion we are all donating to rescue Wall Street’s executives will be deployed, but I assume it will become clear in a few weeks when we are likely to see a report from the front along these lines: Hundreds of security personnel, some in riot gear, kept order at Congress’ much-anticipated bailout distribution site today on Wall Street. Earlier, dozens of relief trucks loaded with sacks of cash intended for needy financial executives had lumbered through the streets of lower Manhattan before dawn. An estimated 70,000 CEOs, CFOs, COOs, VPs and hedge fund managers hit hardest by the collapse of the credit markets will receive $10 million each in taxpayer money. By 7 a.m., they clogged Wall Street wearing tags issued by their former companies and the crowd was a sea of names like Freddie, Fannie, Lehman, AIG, Washington Mutual, Bear Sterns and Merrill Lynch. Congress had hired emergency-distribution veteran Oxfam International to oversee the operation. Oxfam’s spokesman Jack Rowley said that in the past weeks, needy recipients awaiting the relief drop have been housed in appropriate Manhattan hotels commandeered by the government as holding “camps.” The hotel/camps were chosen in the hopes the executives would be used to the routine, but authorities said conditions had become difficult, with Wall Streeters in some cases forced to share rooms ( try living like poor Americans on the Streets then Whine Boys) at the The Palace, the Four Seasons, The Ritz and the St. Regis. “The hygiene situation is appalling,” said Oxfam’s Rowley, “with the men’s locker-rooms attached to the day spas running out of Clubman aftershave, Armani cologne and Cartier eau de toilette.” ( try living like poor Americans on the Streets then Whine Boys) Rowley said food was also becoming a problem, and his people were putting out an emergency call to restaurants to donate more beef tartare, Dover sole, seared Hudson Valley fois gras, pistachio crusted filet au poivre and wild boar tagliatelle carbonado. ( try living like poor Americans on the Streets then Whine Boys) The denizens of Wall Street, though still among the world’s richest citizens, have been in crisis ever since they bet everything on shaky subprime mortgages , which then predictably collapsed. One executive, who insisted on anonymity, said it is unfair to point the finger of blame at Wall Street. “The middle class let us down,” he told reporters. “We tried to help these $40,000-a-year people by talking them into $3,000-a-month mortgages, which we could bundle into huge hedge investments, and what happens? Two years later they default into foreclosure, cratering our lucrative mortgage-backed securities. I guess that’s gratitude for you.” (OH they were so generous the kindness, the kindness and who are they tring to kid they did it for “profit”.). Congress cut costs at the distribution site by canceling the need for thousands of National Guard members. Instead, in a show of “solidarity with the American needy,” security was provided by a “coalition of the willing,” from such sympathetic states as Switzerland, Macau, Liechtenstein, Barbados, Monaco and the Cayman Islands. Although clad in riot gear, the security personnel also carried folders bulging with deposit slips from their local banks, offering the bailout recipients tax-free havens for their money. Authorities said preparatory operations had gone well, with C-130 cargo planes usually used by USAid to deliver rice to Third World disaster spots having landed at JFK at 2 a.m. They carried the first $70 billion of the $700-billion bailout fund. Waiting trucks were soon in position in lower Manhattan. At exactly 10 a.m., the Oxfam staff opened the truck cargo doors to reveal thousands of sacks bearing the stamp, “Gift to Wall Street from Main Street.” Instantly, the crowd surged forward. Men in Armani Collezioni charcoal 3-button suits with Salvatore Ferragamo belts jockeyed for position next to women in Mariella Burani black crepe blazers with drapped detailing matched with Gucci classic heels. Among them were the CEO’s of Fannie Mae (Daniel H Mudd From Fannie Mae makes 8.79 million a year and owns 18.3 million in shares) and Freddie Mac (Richard F Syron From Freddie Mac makes 3.40 million a year and owns 20.0 million in shares) — who will likely walk away from their companies with over $25 million each, as well as ex Lehman Brothers CEO Dick Fuld, (Better known as Richard S Fuld Jr From Lehman Bros Holdings made 71.90 million a year  and owns $436.8 million in shares).who got $480 million over the years in pay packages.

They all said they appreciated taxpayers helping them out now that they’re out of jobs. (MY  Interpretation of this statement, “Thanking the all day suckers, you the tax payer that is”).

Peacekeepers with bullhorns shouted for calm. Several reporters saw officers with tear gas guns tense up as the crowd began to chant, “Show us the money. . . .” International observers were concerned. “If we don’t get this finished in the next week, the situation will become acute,” said Oxfam veteran Gustav Yves-Pierre. “The risk of money riots is imminent.” He pointed out that many recipients were in arrears on yacht payments and club dues.

One man, Pierre said, told him he feared that if he could not follow through on a $100,000 pledge to the Yale capital campaign, his son would not be accepted early admission, and perhaps not at all, which would interrupt his family’s four-generation membership in Skull and Bones. “That’s why I’m here,” said Yves-Pierre. “Whether it’s the starving in Ethiopia or this, a human being can’t look away when tragedy is unfolding.” Those on the trucks worked feverishly, handing out 110-pound (50-kg) bags of cash, each containing $10 million. As money managers, recipients are expected to invest it and live off the interest, but officials were concerned that with yield rates on treasuries and bonds so low, the $10 million won’t generate enough, and Wall Streeters will have to dip into their new principal to pay for such essentials as Sothebys auctions, Tuscan vacations and caretaking for their Aspen ski houses. Many of those in line found it difficult to wait for hours in the sun and some, on the point of collapse, retreated to their BMWs, and idled with the air conditioning on. As predicted, there was only enough for 10 percent of those in line. It was a poignant sight as tens of thousands headed empty-handed back to their hotel-camps while the luckier recipients struggled to their cars balancing the heavy sacks on their heads. Some relief workers wept openly at the heartbreak. Source

Year of the Bailout

September 09, 2008 

Want a federal bailout? Get in line. Now that the Treasury Department has finally announced its rescue of mortgage giants Fannie Mae and Freddie Mac—at a cost of up to $100 billion each—isn’t it time to start tallying up all this largesse? A hundred billion here, a hundred billion there, maybe it doesn’t seem like much at first. But before you know it, you’ve drained the treasury of the world’s richest country. And besides, more rescues seem to be coming. Here’s a tally of the bailouts so far:

The stimulus package. Maximum taxpayer cost: $150 billion What taxpayers got: Free money, up to $1,200 from the government per household, to spend as they wish. Early research shows most recipients have used the money to pay down debts or boost their savings. Good for them, but bad for the economy, which benefits most in the short-term from spending, not saving.

Bear Stearns. Maximum taxpayer cost: $29 billion. What taxpayers got: Prevented an even worse meltdown in the financial markets—at least for a while.

Fannie Mae and Freddie Mac. Maximum taxpayer cost: $200 billion. What taxpayers get: The mortgage market won’t completely collapse. Interest rates may even drop a little and credit gets a bit easier.

IndyMac and 10 other banks. These insolvent banks had billions in deposits that were taken over by the Federal Deposit Insurance Corp. Taxpayers won’t foot the bill directly, because FDIC takeovers are funded by insurance that banks pay for. But those premiums are likely to rise across the industry, and banks may pass some of that cost onto consumers. What taxpayers get: They don’t have to worry about losing their deposits just because their bank acts reckless. So far, all these bailouts add up to about $400 billion the government could end up doling out to keep key parts of the economy solvent. As the zeroes and the billions mount, we tend to get a bit numb to the magnitude of the number. But it’s big. The savings and loan fiasco of the late 1980s—perhaps the biggest government bailout since the Great Depression—cost taxpayers a mere $130 billion. And $400 billion dwarfs government spending on most other things. It’s equivalent to more than half of the nation’s total annual budget for defense or for Social Security payments. And it’s more than one tenth of all federal spending in a given year. Worse—there’s more to come. Here are some of the bailouts still in the works:

The Detroit automakers. A bill working its way through Congress would commit up to $6 billion in low-interest loans to General Motors, Ford, and Chrysler. Some are pushing for loans of up to $50 billion. Yeah, they’re loans, not grants, and theoretically, the companies would repay them. Unless…something…happens.

More banks. The FDIC says it’s closely watching 117 problem banks at risk of insolvency. Those banks control about $78 billion in assets. Then there’s the daily drama of troubled Lehman Brothers, where investors wait to see whether a white knight will surface, cash in hand, or a Bear Stearns redux takes place. Source

Well we now the Banking bailout cost 810 Billion


The $700 Billion Bailout: One More Weapon of Mass Deception

September 22,2008
By Richard W. Behan
The American economy needs help, but there are other, far more equitable ways to accomplish it.

It is necessary only to assure the financial survival of Wall Street banks and brokerages, the administration’s most loyal supporters and its greatest political contributors — and in large measure the cause of the financial meltdown the country is facing……


Now I am going to retreat to my hoval and eat my bread and water like a good Slave.

Published in: on October 10, 2008 at 11:50 pm  Comments Off on Wall Streeters are just Welfare Recipiants in Disguise  
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Guess What AIG did after the Bailout? Party Time?

AIG Spa Trip Fuels Fury on Hill

Pressing Executives to Concede Mistakes, Lawmakers Blast Them About Bonuses


By Peter Whoriskey

October 8, 2008

For some people at AIG, the insurance giant rescued last month with an $85 billion federal bailout, the good times keep rolling

Joseph Cassano, the financial products manager whose complex investments led to American International Group‘s near collapse, is receiving $1 million a month in consulting fees.

Former chief executive Martin J. Sullivan, whose three-year tenure coincided with much of the company’s ill-fated risk-taking, is receiving a $5 million performance bonus.

And just last week, about 70 of the company’s top performers were rewarded with a week-long stay at the luxury St. Regis Resort in Monarch Beach, Calif., where they ran up a tab of $440,000.

At a House committee hearing yesterday, Rep. Henry A. Waxman (D-Calif.) showed a photograph of the resort, which overlooks the Pacific Ocean, and reported expenses for AIG personnel including $200,000 for rooms, $150,000 for meals and $23,000 for the spa.

“Less than a week after the taxpayers rescued AIG, company executives could be found wining and dining at one of the most exclusive resorts in the nation,” Waxman said in kicking off an angry hearing of the House Committee on Oversight and Government Reform. “We will ask whether any of this makes sense.”

“They were getting their manicures, their pedicures, massages, their facials while the American people were paying their bills,” thundered Rep. Elijah E. Cummings (D-Md.).

The gathering was planned before the bailout as a reward for life insurance agents, a company spokesman said, and fewer than 10 AIG executives were present.

The hearing promised and delivered strident condemnations of the two AIG executives the committee had invited to testify. Sullivan served as chief executive from 2005 to 2008; Robert B. Willumstad served as chief executive from June until September, and before that was chairman of the board.

“Shame on you, Mr. Sullivan,” said Rep. Jackie Speier (D-Calif.), noting that Sullivan was not giving up any of his $5 million performance bonus.

Over and over, the committee members vented outrage at having the federal government bail out the company, referring frequently to their angry constituents.

But neither Sullivan nor Willumstad acknowledged making any mistakes.

“Looking back on my time as CEO, I don’t believe AIG could have done anything differently,” Willumstad said.

Sullivan blamed “a global financial tsunami” and the “mark-to-market” accounting rules, which require businesses to value assets at market value, even if no sale is imminent.

“I have spent my entire adult life in service to AIG, and I am heartbroken at what has happened,” he told the committee.

The committee members, barely concealing their frustration, seemed stunned by the duo’s refusal to find fault with their own performances.

“Don’t you think the management has some responsibility for what went on there?” Rep. John F. Tierney (D-Mass.) said at one point, his voice incredulous.

Sullivan responded that when they learned there was trouble with their investments, they put controls in place.

Tierney then questioned whether, at their compensation levels, the manager should have been “ahead of the curve” on such troubles.

“This is a fundamental failure of management,” Tierney said, exasperated.

The executives sat stone faced.

The House committee, which took on executive compensation at bankrupt Wall Street firm Lehman Brothers on Monday, has received “tens of thousands” of pages of documents from AIG, Waxman said.

Those documents show that AIG executives may have played a more significant role in the company’s collapse than either of the two executives let on, Waxman said.

On Dec. 5, 2007, Sullivan told investors “we are confident in our marks and the reasonableness of our valuation methods.”

But just a week before, PricewaterhouseCoopers, AIG’s auditor, had warned Sullivan that the company “could have a material weakness relating to these areas,” according to minutes from the company’s audit committee.

Moreover, as early as March federal regulators blamed lax management.

“We are concerned that the corporate oversight of AIG Financial Products . . . lacks critical elements of independence, transparency and granularity,” the Office of Thrift Supervision wrote to the company on March 10.

Just as frustrating to the committee members, Sullivan and Cassano seemed to have been rewarded for their performance, even though the company plunged under their stewardship.

AIG lost more than $5 billion in the last quarter of 2007 because of its risky financial products division, Waxman said.

Yet in March 2008 when the company’s compensation committee met to award bonuses, Sullivan urged the committee to ignore those losses, which should have slashed bonuses.

But the board agreed to ignore the losses from the financial products division and gave Sullivan a cash bonus of more than $5 million.

The board also approved a new contract for Sullivan that gave him a golden parachute of $15 million, Waxman said.

As for Cassano, the executive in charge of the company’s troubled financial products division, he received more than $280 million over the past eight years. Even after he was terminated in February as his investments turned sour, the company allowed him to keep as much as $34 million in unvested bonuses and put him on a $1 million-a-month retainer.

He continues to receive $1 million a month, Waxman said.

Asked why they didn’t fire Cassano, Sullivan said they needed to “retain the 20-year knowledge of the transactions.”

“What would he have had to have done for you to fire him?” Waxman said.

Source

After Bailout, AIG Executives Head to Resort

Peter Whoriskey

Less than a week after the federal government offered an $85 billion bailout to insurance giant AIG, the company held a week-long retreat for its executives at the luxury St. Regis Resort in Monarch Beach, Calif., running up a tab of $440,000, Rep. Henry Waxman (D-Calif.) said today at the the opening of a House committee hearing about the near-failure of the insurance giant.

Showing a photograph of the resort, Waxman said the executives spent $200,000 for rooms, $150,000 for meals and $23,000 for the spa.

“Less than a week after the taxpayers rescued AIG, company executives could be found wining and dining at one of the most exclusive resorts in the nation,” Waxman said. “We will ask whether any of this makes sense. ”

The committee will ask the company’s executives about their multimillion-dollar pay packages — some of which they continue to receive — as well as who bears responsibility for the company’s high-risk investment portfolio, which led to its near collapse just weeks ago.

“They were getting their manicures, their pedicures, massages, their facials while the American people were paying their bills,” thundered Rep. Elijah E. Cummings (D-Md.), of the executive retreat at the Monarch Resort.

The House committee, which took on executive compensation at bankrupt Wall Street firm Lehman Brothers yesterday, has received “tens of thousands” of pages of documents from AIG, Waxman said.

Those documents show that as the company’s risky investments began to implode, the company altered its generous executive pay plan to pay out regardless of such losses.
AIG lost over $5 billion in the last quarter of 2007 due its risky financial products division, Waxman said. Yet in March 2008, when the company’s compensation committee met to award bonuses, Chief Executive Martin Sullivan urged the committee to ignore those losses, which should have slashed bonuses.

But the board agreed to ignore the losses from the financial products division and gave Sullivan a cash bonus of over $5 million. The board also approved a new compensation contract for Sullivan that gave him a golden parachute of $15 million, Waxman said.

Joseph Cassano, the executive in charge of the company’s troubled financial products division, received more than $280 million over the last eight years, Waxman said. Even after he was terminated in February as his investments turned sour, the company allowed him to keep up to $34 million in unvested bonuses and put him on a $1 million-a-month retainer. He continues to receive $1 million a month, Waxman said.

Waxman also looked skeptically at the executives’ defense that the troubles in the business had to do with larger economic forces and not their own bad decisions.
When a former AIG auditor, Joseph St. Denis, expressed concerns, Cassano told him “I have deliberately excluded you from the valuation … because I was concerned that you would pollute the process,” according to Waxman.

St. Denis resigned in protest.

PricewaterhouseCoopers, AIG’s auditor, told the company in March 2008 that the “root cause” of AIG’s problems was that people assessing risk did not have enough access to the financial products division, where the risky investments originated.
Waxman further suggested that Sullivan had deliberately misled investors.

On Dec. 5, 2007, Sullivan expressed confidence to investors. But a week before, PricewaterhouseCoopers warned Sullivan that the company “could have a material weakness relating to these area,” committee members said.

Source

Published in: on October 8, 2008 at 4:31 am  Comments (2)  
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The End of the American order

KEVIN CARMICHAEL ,  From Saturday’s Globe and Mail

October 10 2008

OTTAWA — Before U.S. Treasury Secretary Henry Paulson was pressed into becoming the fire chief of the financial crisis, he had a good thing going as an economic missionary.

Basking in what he liked to call “the strongest global economy” of his business lifetime, Mr. Paulson, who joined President George W. Bush’s administration in June, 2006, embraced with zeal an aspect of his new job with roots in Cold War diplomacy.

In his two years as Treasury Secretary before financial markets came totally unhinged this summer, Mr. Paulson conducted more official business in China than he did in New York. He has visited as many cities in Latin America as he has cities in the United States of America. He rolled through Calcutta, New Delhi and Mumbai in three days in October, 2007; two weeks later, he spent five days in Africa.

The places changed, but the message stayed the same: American-style banking, unencumbered by regulation and open to U.S. financial institutions, is the surest way to create wealth.

“An open, competitive and liberalized financial market can effectively allocate scarce resources in a manner that promotes stability and prosperity far better than government intervention,” Mr. Paulson told an auditorium full of officials in Shanghai in March, 2007.

Mr. Paulson’s brand of capitalism isn’t promoting much stability these days, and prosperity isn’t a word that jumps to mind as policy makers from Canada to Japan to France scramble to avert a global economic recession.

The Made in America financial crisis has seriously undermined the U.S.’s standing as the undisputed leader of the international economy, posing the first serious threat to U.S. hegemony since the height of the Soviet Union.

After decades of strong-arming governments in Asia, Latin America and Eastern Europe to keep the state out of the economy, the U.S. government in September put up $285-billion (U.S.) to nationalize mortgage giants Fannie Mae and Freddie Mac and insurer American International Group Inc.

That’s nothing compared with the $700-billion Mr. Paulson got from Congress yesterday to purge the financial system of the bad debt at the root of the credit crisis. With governments saving failing banks in Europe, stock markets plunging in China and exports slowing in Brazil, the world is in no mood to take economic lessons from the U.S. government.

“There is a real element of anger and frustration around the planet that this is a U.S.-originated problem with global repercussions,” John Manley, a finance and foreign affairs minister under former prime minister Jean Chrétien, said in an interview. “The world will be looking for a loss of hubris from the United States as a result of this.”

America has dominated global economic affairs virtually unopposed since the collapse of the Berlin Wall, an era marked by the acceleration of global free-trade agreements, the confirmation of the dollar as the world’s de facto currency, and the rise of Wall Street as the world’s financial centre.

The U.S. and Britain dictated the Bretton Woods agreement in 1944, establishing the International Monetary Fund and the World Bank. The U.S. became the largest shareholder in the global institutions, which built their headquarters side by side in Washington. Unsurprisingly, the American vision of private ownership and unfettered markets dominated the prescriptions those agencies imposed on weaker economies in return for financial aid. That culminated in the Washington Consensus, a term coined in the 80s to encompass policies such as privatization, lower taxes and deregulation.

These days, countries can’t distance themselves fast enough from the Washington way of economic management.

“The world is on the edge of the abyss because of an irresponsible system,” French Prime Minister François Fillon said on the eve of a gathering of European Union leaders to discuss the financial turmoil.

German Finance Minister Peer Steinbrueck predicted the end of the U.S.’s status as the “superpower of the global financial system.” Chinese officials are rethinking their embrace of globalization, and Colombian President Alvaro Uribe said the U.S. must ensure the situation doesn’t get any worse.

“The Anglo-American model has suffered a big setback,” John Snow, who preceded Mr. Paulson as treasury secretary and is now chairman of private equity firm Cerberus Capital Management, said in an interview. “We don’t have the moral authority we might have had a few years ago to get others to follow our model.”

Other nations appear ready to assume a more assertive role in the global economy.

French President Nicolas Sarkozy, current President of the European Union, wants to host a summit of the world’s major economies next month to consider global rules for financial markets. Germany’s Mr. Steinbrueck, whose push for stricter oversight of hedge funds and private equity firms last year was blocked by Mr. Paulson, will be a ready ally.

“The whole spectrum of options for regulation is now open again,” said Glen Hodgson, chief economist at the Conference Board of Canada and an IMF official. “You only have moral authority when you have your own house in order.”

A new era of global financial regulation – however appropriate given the serious gaps exposed by the credit crunch – will increase costs for businesses and slow global economic growth.

Say what you will about U.S.-style capitalism, its ability to produce wealth is unchallenged. The world economy expanded at an average annual rate of 3.9 per cent over the past decade, as more emerging market nations embraced free-market ideals. Over the previous 10 years, global growth averaged 3.5 per cent.

There’s a risk that countries such as China and India could become more reluctant to ease barriers to international investors, especially in the financial sector.

“It’s a possibility that you see countries become more protectionist,” said Mr. Manley, who is now a senior counsel at law firm McCarthy Tétrault LLP. “That’s going to slow growth.”

There’s an element of schadenfreude in the world’s criticism of the U.S. government’s role in the financial meltdown.

After all, nobody likes a bully, which is essentially the approach American officials have taken to international negotiations for decades, said John Curtis, a former chief economist at Canada’s Trade Department. “They can be insensitive at times to others’ interests,” said Mr. Curtis, who is now a distinguished fellow at the Waterloo, Ont.-based Centre for International Governance Innovation.

Still, Mr. Curtis and others said it would be a mistake to get carried away with the idea that we’re witnessing the death of the American empire.

The U.S. hardly has a monopoly on economic crises, and the German and French governments, among others, have had to put up billions of their own to save several European banks from collapse, which has muted their criticisms of the U.S.

“I don’t think any country is in position to say they have the right regulatory system,” said James Barth, a senior fellow at the Sana Monica, Calif.-based Milken Institute and a former chief economist at the U.S. Office of Thrift Supervision. “One has to be careful to say the U.S. has a terrible financial system and that capitalism doesn’t work because of this particular situation.”

One reason the U.S. can’t be counted out is that Americans are used to such calamities.

Mr. Paulson would often tell his audiences that the U.S. copes with a financial crisis every decade or so because the country’s entrepreneurs get too greedy and overreach. The cleanup is wrenching, but the country’s economy is left stronger as a result, Mr. Paulson argued. The country’s rebound from the collapse of the dot.com bubble is perhaps the most recent example of Mr. Paulson’s creative destruction thesis.

There’s also the sheer size of the U.S. economy. The spread of the Wall Street crisis to other continents is a graphic example of how much the rest of the world still depends on America for their economic growth. The U.S.’s gross domestic product is three times the size of that of Japan, the world’s second biggest economy, and is four times the size of China’s.

The U.S. dollar still makes up more than 60 per cent of the world’s currency reserves, according to IMF data.

“They are so big, you can’t get along without them,” said Mr. Curtis, who also served at the IMF. “They are pre-eminent, they are no longer dominant.”

The U.S.’s standing in the world of global finance may well be determined by the outcome of Mr. Paulson’s $700-billion rescue package.

Observers marvel at the speed with which Mr. Paulson and U.S. Federal Reserve chairman Ben Bernanke developed the plan after earlier efforts failed to reverse the credit squeeze. It took years to sort out the mess created by the defaults of Argentina and Brazil.

If the U.S. can save its banks faster than the Europeans save theirs, Mr. Paulson will restore some of his department’s reputation abroad, said Daniel Drezner, a political science professor at Medford, Mass.-based Tufts University and a former Treasury Department economist.

But gone are the days when a U.S. treasury secretary will automatically be seen as the smartest guy in the room.

“It’s tough to tell other countries you should privatize and liberalize when you are going the other way,” Mr. Drezner said. “The Washington consensus is dead.”

Source

Privatization benefits only those who operate the corporations etc. It does not benefit anyone else. Everything in the end becomes more expensive.

Like Health Care for example. Those profits made by Insurance companies eat up a lot of money. Government run Health Care is more efficient and more cost effective by a long shot. Of course private companies that have tried and have succeeded in some countries have driven up the cost of Health Care and should be eliminated.

Government run systems have no need to advertise so money is not wasted there. The cost of advertising is massive.

You also don’t have to hire a Lawyer to get treatment, because your insurance companies says no. Universal Health Care is something that needs to be protected at all cost.

Social agencies like Welfare, is another thing that should not now, or ever be privatized.

Child protection agencies, should never be privatized.

Prisons should, never be privatized.

Electricity should, never be privatized.

Water should, never be privatized and numerous other things should always be operated by the Governments for the protection of services to the people.

It also keeps the price of services much lower.

Never believe privatizing anything will save you money.

That is a lie always was and always will be.

Governments have no need for profit to feed shareholders.

Their only share holders they have to protect, are the people of their countries.

That is the Governments Jobs to serve and protect the people of their country.

Capitalism just doesn’t work as we have seen. If anything it has caused a world wide epidemic of problems.

Massive problems. Cleaning up this mess is going to take a long time.

Free Trade Agreements should also be revisited as well and changes to them should be turned in to Fair Trade and be absolutely sure it benefits the people and not the Corporations.  Corperations should be regulated so they are not allowed to pollute or sue governments and numerous other restrictions should be implemented to protect all the people around the world.

Trade Agreements, as they stand now are geared giving profit and control to Corporations and do little if anything to protect people or to enhance their standard of living.  If anything they cause an increase in poverty.  Ask Farmers,  in  countries around the world how Free Trade has helped them. Many have gone out of Business. Problems as these have to be rectified. The sooner the better.

Related

A Crisis Made in the Oval Office

Guess What AIG did after the Bailout? Party Time?

Europeans Angry at their Money being Used for Bailouts

Europe catches America’s financial disease

Europe catches America’s financial disease