I Come Here to Bury, not to Praise

And unlike Marc Antony, I mean it.  Karen Martinez has retired as local counsel for the SEC, and the hagiographies are everywhere.  Pardon me if I don't join in.

As I've said numerous times on this blog, its companion, and elsewhere, the 2007 crash was an obvious thing, and it happened because the regulators were ignoring what was going on.  Of course, the regulators had been ignoring most things since Reagan took office, ratcheted it up several notches with the introduction of derivatives in the late 80s, and went into full snooze mode after the repeal of Glass-Steagall.  By 2005, there were billboards and radio and TV ads for straw buyers, no doc liars' loans were everywhere, appraisers were making up values, and rating agencies were making up risk levels.  The banks knew their game was crooked, but they were making to much in commissions and fees to stop it.  I have no doubt they also gave orders to the regulators to look the other way.

Then in Fall 2007 the banks figured out the merry-go-round was coming to a halt, so they woke up Martinez and everyone like her, pulled a Louis Renault, "We're shocked, SHOCKED to find that mortgage fraud is going on here," threw them some of their own people as sacrificial lambs, pointed them to the smaller players and ordered them to crack down on the small graft because it was interfering with large graft, and reminded them to leave the large graft alone.  And Martinez and everyone like her dutifully obeyed.  And along the way they slandered me all over the territory because they had decided I was the kingpin of one operation because they flunked Corporations 101 by not being able to tell the difference between a registered agent and a principal.

Now she's retired with her federal pension.  I wish I were compensated so well for accomplishing so little.  So I shall not be praising Caesar, now or any time in the foreseeable future.

Slaps on the Wrist

US, UK, and Swiss regulators have slapped fines against Chase, Citi, Bank of America, UBS, RBS, and HSBC for turning forex trading into a fraud factory for their own benefit.  The fines total US$ 4.3 billion, trumpeted as the heaviest penalties in history.  The traders involved have been shown the door, along with one of the forex chairs at the Bank of England.  And the fact that this crap is being touted as some sort of regulatory triumph shows just how messed up the system is.

First, this scam went on for years, the players were brazenly communicating their activities with each other, and no one did a thing.  Second, the forex market trades over US$ 5 trillion per day.  Even if these banks took only 0.1% commissions (HA!) and held just 10% of the market (They're well north of that.), the fines would amount to less than two weeks of commissions.  Third, once again only the little people have been punished while the players who make the policies that created these crimes remain in place.  It would be as if Donald Segretti took all the blame for Watergate and everyone else got to stay in the White House.

The game is rigged.  Makes you want to run right out and put your retirement in the market, doesn't it.

The Big Boys Get Different Rules

The statement in the title of this entry should come as a surprise to no one, but the Wall Street Journal provided us a reminder yesterday of just how different those rules are.

Businesses have always purchased life and disability insurance on their executives and key employees.  That just makes good business sense.  The loss of such a person puts a serious dent in operations.

Now suppose you have a small business.  You might think all your employees are key, and there's some merit to that.  It's certain, though, that you have an employee or two other than management who are crucial.  Where would you be without that secretary who knows all the "informal" procedures and can get that vendor to deliver tonight instead of tomorrow?  She's definitely key to your operation, but if tried to insure her, the insurance companies would tell you that you don't have an insurable interest and reject you.

That isn't what they tell the big boys, though.  Outfits like Bank of America, Chase, AIG, and yes, even dear old Zions routinely insure not only their executives but their lackeys and spear-carriers and use the proceeds to fund executive compensation (Check the Journal article I've linked to for information on a case a Zions subsidiary is embroiled in.).

Let's face it, folks, the system is broken, an no one who's been allowed to have a set of tools is inclined to fix it.  Running the game with two sets of rules is bad.  Enhancing revenue by betting on employees' deaths is worse (Not to mention the conflicts of interest.  I wonder how many of those deaths were caused by work-related risks?).  Using that revenue to fund executive perks is off the charts.

Choosing a Bank

This used to be a fairly simple process. Convenient location probably dictated your choice. Maybe you knew somebody at the branch. If you were really interested, you'd check interest rates and fees.

Not so simple any more. Now you have to worry about whether the bank is going belly-up.

Case in point. I've banked at Washington Mutual for years. Now it's gone, swallowed by Chase. Now I could stay, and turn into a Chase customer, except that I don't like Chase and don't trust it any farther than I can drop kick an anvil. So I'm shopping.

The obvious choice around here is Zions Bank. But I'm not going to go with the obvious choice. Some people out there are saying, "Oh, it's because you're not LDS." That has nothing to do with it. Zions doesn't care about my religious affiliation, and I don't care about its. My concerns are strictly what any business person's should be when making such a decision: business.

Zions has made a lot of loans. If SunCrest is any indication, a lot of those loans are garbage. I know there is a substantial amount of collateral tied up by the ANB receivership because ANB and Zions have the same collateral. That isn't good.

Zions also seems to have become the FDIC's local go-to guy for buying up problem banks, Silver States being the latest example. The FDIC's demands for those services are about to go up, and the value of the takeovers is about to go down. I'm wondering if Zions will find a way to just say "No."

Finally, Zions has engaged in some creative accounting, as evidenced recently by its having to pull off-books investments back onto the books. How can I tell what its liabilities actually look like?

If you aren't going through an analysis like this, you're asking for it. It simply isn't simple any more.

Coincidence?

So Wachovia agrees to be taken over by Wells Fargo instead of Citi. And unlike Citi, Wells won't use FDIC assistance for the takeover (At least not yet. Watch for something down the road when all the dust has settled and it can slip under the radar.). And now Wachovia has put partial freezes on Commonfund's Short and Intermediate Term Funds.

How does all this tie together? 1) The FDIC can say, without needing Botox to maintain a straight face, "See, the system works. We aren't insolvent. (Yet.);" 2) Instead of three banks (JP Morgan Chase, Citigroup, and Bank of America) holding nearly one third of the deposits in the US and Citi weighing in at over 11%, you will have four (Add Wells.) at nearly 40% and none over 10% (Appearance is everything when looking at market concentrations.); 3) The presidents of the 1,000 or so colleges and universities with investments in Commonfund will be calling Congress today screaming, "Do something!"

All this just in time for the House revote on the bailout.

Coincidence?