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    Monday
    Jan052009

    Rebuilding Confidence: It's "Come to Jesus" Time For the Rating Agencies

    Here is a provocative piece from the Wall Street Journal.

     

     

     

    Let's Write the Rating Agencies Out of Our Law

    JANUARY 2, 2009

    The rating agencies have been widely criticized for their role in the financial crisis. It is said that they wrongly assessed the risks on trillions of dollars worth of bonds backed by residential mortgages. And indeed they did. But this is hardly surprising.

    Rating agencies employ quite ordinary mortals to analyze the credit risk of bonds, just as firms like Goldman Sachs and Merrill Lynch employ quite ordinary mortals to analyze the outlook for stocks. No one is shocked when equity analysts' recommendations don't pan out. Why should we expect any more of the rating agencies?

    We should not, but the regulators have, and that is the problem. Regulators of banks, insurance companies and broker dealers have all incorporated the work of the ratings agencies into their regulations in myriad ways. Most importantly, bond ratings determine -- as a matter of law -- how much capital regulated institutions need in order to own the bonds.

    For every dollar of equity that insurance companies are required to hold for bonds rated AAA, $3 is needed for bonds rated BBB, and $11 is needed for bonds rated just below investment grade (BB). For banks, the sensitivity of capital requirements to ratings is generally even more extreme.

    The Bank for International Settlements also uses ratings to drive capital requirements, so the rating agencies have the same role in global capital markets that they have in the U.S.

    For money market funds, ratings are equally critical: They are typically barred altogether from investments rated lower than AAA. In short, the ratings agencies are like a Consumer Reports for financial instruments -- but with the force of law behind their ratings. It is as if you were forbidden by law from buying an iron or a toaster unless it is rated "Excellent."

    Read Full Article at: http://online.wsj.com/article/SB123086073738348053.html?mod=todays_us_opinion

    Wednesday
    Dec242008

    Nobel Laureate’s Foundation Decimated

    In one of the more profoundly disturbing metaphors of the Madoff Scandal we are saddened to report the following: the Elie Wiesel Foundation for Humanity reported on its website that substantially all of its assets ($15 million) were under management by Bernie Madoff. EPD can find nothing at all humorous to say nor offer any spry commentary about the financial and psychological damage inflicted onto the Jewish philanthropies devastated by Madoff including Yeshiva University ($100 million and growing), Hadassa ($90 million) Stephen Speilberg's Wunderkinder Foundation (nearly $50 million). EPD urge anyone able to help out to consider contributing to these organizations who have to pick up the pieces of shattered trust.

    Other aspects of the Madoff Scandal remain fair game.

     

    http://www.eliewieselfoundation.org/
    http://www.eliewieselfoundation.org/madofffraudstatement.aspx

    To Our Friends:

    We are deeply saddened and distressed that we, along with many others, have been the victims of what may be one of the largest investment frauds in history. We are writing to inform you that the Elie Wiesel Foundation for Humanity had $15.2 million under management with Bernard Madoff Investment Securities. This represented substantially all of the Foundation's assets.

    The values we stand for are more needed than ever. We want to assure you that the Foundation remains committed to carrying on the lifelong work of our founder, Elie Wiesel. We shall not be deterred from our mission to combat indifference, intolerance, and injustice around the world.

    At this difficult time, the Foundation wishes to express its profound gratitude for all your support.

    The Elie Wiesel Foundation for Humanity

    Tuesday
    Dec232008

    Quit while your ahead!!

    What a difference a year makes! Sheldon Adelson's public company Las Vegas Sands managed to lose 90%of its value this year. Adelson should have quit or died while he was ahead. He has gone from the third richest man in America (right behind Bill Gates and Warren Buffett) to well... who knows when he will achieve the dead cat bounce. Talk about catching a falling knife! Hey then again it is still pretty impressive to lose well over $20 billion . It means you had to make a fair amount to begin with or maybe just fool a whole hell of a lot of people what you were worth in the first place. Love these pubic markets. Just think what Bernie Madoff would have been worth if he went public. Then again he would have never passed muster with SEC (right?) who virtually gave him a clean bill of health and was an advisory client of his.

     

    http://www.nytimes.com/2008/01/17/business/17adelson.html

    http://en.wikipedia.org/wiki/Sheldon_Adelson
    Tuesday
    Dec232008

    Federal Reserve balance sheet

    Machiavelli, the Karl Rove to the Medicis, asked whether it is better to be scared or just confused? OK that wasn't exactly his question but check out the Federal Reserve's own financial projections. See if you can make heads or tails of the Federal Reserve Balance Sheet.

     

    Federal Reserve Balance Sheet

     

    James Hamilton

    December 22, 2008

    Here I survey how we got here, where things currently stand, and what it all means.

    Let me begin by reviewing some first principles of what the Fed is all about. How did the cash currently in your wallet get there? You withdrew it from an ATM, perhaps. But these wonderful contraptions don't just give you the green stuff for free-- you had to have deposits in the bank to be able to withdraw the cash. You can think of your account with your bank as credits you can use to get cash whenever you want it.

    But where did your bank get the cash? It likely has an account with the Federal Reserve System, which account, just like the one you have with your bank, shows a certain level of deposits that the bank has in its account with the Fed. Your bank can then go to the Fed and withdraw those deposits in the form of cash. So you can think of your bank's deposits with the Fed as credits it can use to get cash whenever it wants

    Read Full Article at: http://www.rgemonitor.com/financemarkets-monitor/254852/federal_reserve_balance_sheet

    Friday
    Dec192008

    Fed Loans Guided by Raters Grading Subprime Debt AAA

    Can you believe this????? Bernanke's assessment of who qualifies for the tarp dough that he is doling out by the hundreds of billions of dollars is relying on the credit assessment of none other than the rating agencies who brilliance (read greed) led to the destruction of the western world. Only the rating agencies have done a better job in fooling people than good ole Bernie.


    ps. Herd on the Cliff: Bernie Madoff turned down the job. He was tied up.


    By Alison Fitzgerald

    Dec. 18, 2008

    Federal Reserve Chairman Ben S. Bernanke is basing hundreds of billions in emergency lending on credit ratings from companies that gave AAA grades to toxic securities.

    The Fed has purchased $308.5 billion in commercial paper and lent $631.8 billion under eight credit programs, most of which require appraisals of short-term debt and loan collateral by “major nationally recognized statistical ratings organizations.” That, in effect, means Moody’s Investors Service, Standard & Poor’s and Fitch Ratings.

    Read Full Article at: http://www.bloomberg.com/apps/news?pid=20601109&sid=ahpPBA8vqN2o&refer=home

    Tuesday
    Dec162008

    Bernard Madoff (3)

    Aren't you glad Madoff was advising the the SEC? That's a real confidence builder in my book Internet security companies always hire high school hackers. They know what their doing. . Makes perfect sense to me. Why? Bernie truly understood securities fraud. He wrote the book. At least he had real insight on how to be a crook. Takes one to stop one. Nicely done!!!

     

     

    The Perfect Ponzi

    As the investigations into Bernie Madoff's gigantic Ponzi scheme continue, one thing is becoming clear: The reason it lasted so long and got so huge is that it was superbly executed.

    In fact, if the global economic collapse had not prompted a mass of Madoff investors to demand their money all at once, it likely would have gone undetected until after Bernie's death (and possibly longer, if--as many people assume--his family was in on it.)

    Read Full Article at: http://clusterstock.alleyinsider.com/2008/12/the-perfect-ponzi