Somewhere during the past few weeks, this current recession has been unofficially christened “The Great Recession.” I first heard the term a couple of weeks ago on CNN, and it has been creeping into a lot of conversations both in the media and in normal conversations. The losers in this recession are well documented, but I’d like to give a little shout out to a couple of benefactors in these hard times. The primary winner of the (non-existent) Big Winner of the Year award goes to all the recipients of advertising both for and against health care reform. The latest figures I can find date back three months to August and by that time $54 million dollars had been spent in various media outlets. www.washingtonpost.com/wp-dyn/content/article/2009/08/04 It only seems logical that at least that much has been spent since then, as the real fighting was taking place. That figure probably goes underreported because, lets face it, the people receiving the money are the ones who would be reporting about it. The runner up to the Great Recession Sidestep Award goes to retailers of America who will make an estimated $8 billion in gift cards that are purchased but never redeemed. It just goes to show that no matter how tough things get, somebody is always making money.
By Myron Gushlak
Tuesday, December 1, 2009
Friday, September 25, 2009
Anniversary
This week marked the first anniversary of the collapse of Lehman Brothers, the watershed event of the near financial collapse. The New York Times paid the event the appropriate homage with its report of the winners and losers of the past year. www.nytimes.com/2009/09/11/business/11views.html?_r=1&scp=3&sq=financial.
The losers have been clearly identified. Lehman and Bear Stearns of course, who did not survive. Fannie Mae, Freddie Mac, American International Group and Citi Bank are all on life support. The winners? It seems JP Morgan Chase is the strongest. They incorporated Bear Stearns and Washington Mutual and have repaid the government TARP monies. Wells Fargo who was able to raise needed recovery money from private investors and Goldman Sachs who recently converted to a commercial bank in order to qualify for FDIC insurance all seem to be on the right road..
On a day when seemingly conflicting reports of a drop in unemployment and an unexpected decline in housing both make news, it seems that only one thing is clear. The story of winners and losers is far from over.
By Myron Gushlak
The losers have been clearly identified. Lehman and Bear Stearns of course, who did not survive. Fannie Mae, Freddie Mac, American International Group and Citi Bank are all on life support. The winners? It seems JP Morgan Chase is the strongest. They incorporated Bear Stearns and Washington Mutual and have repaid the government TARP monies. Wells Fargo who was able to raise needed recovery money from private investors and Goldman Sachs who recently converted to a commercial bank in order to qualify for FDIC insurance all seem to be on the right road..
On a day when seemingly conflicting reports of a drop in unemployment and an unexpected decline in housing both make news, it seems that only one thing is clear. The story of winners and losers is far from over.
By Myron Gushlak
Friday, August 28, 2009
Bernanke and FDR
The Federal Reserve Bank chairman, Ben Bernanke was reappointed to second four-year term in a move that seemed unlikely a few short months ago. Although a holdover from the Bush administration, Bernanke has repeatedly earned the thanks of President Barack Obama as he has helped to steer the US economy through these troubled economic times. www.google.com/hostednews/afp/article/ALeqM5i7ZxXpevkTny0tqWCIgC5TZZqe7g
Bernanke is a noted scholar of The Great Depression, and although he has apparently kept the US from a repeat of that calamity, he might be the first to admit that it was Franklin Delano Roosevelt, and not himself, who was mostly responsible for keeping the nation from reaching new depths in the economy. The modern reader may be unaware of the enormity of the programs of The New Deal as implemented by Roosevelt. Among other things, FDR created the Unemployment Insurance Act, which has helped keep the ravages of unemployment to manageable levels for millions of Americans. He also created the Social Security Act which has helped growing segments of today’s aging population from feeling the full wrath of another major depression. The FDIC, also a Roosevelt initiative, has protected the savings of millions of Americans and prevented far more damaging bank collapses. The domino effect in the absence of any of these three programs alone would have plunged the world into a far more severe recession.
In a way, the programs initiated by Roosevelt have created “stop losses” throughout the economy. His programs at the time were railed against as being socialistic, but it is hard to imagine how far last autumn’s economic free fall might have lasted without them.
I in no way want to diminish Bernanke’s achievements. It is a far more complicated and a far more global economy than the one that stared back at FDR. But certainly Bernanke understands the historical context of his actions far better than most. Seventy-five or eighty years later, Roosevelt’s programs still represent a new deal for millions of Americans. It’s just that today, few of them realize it.
By Myron Gushlak
Bernanke is a noted scholar of The Great Depression, and although he has apparently kept the US from a repeat of that calamity, he might be the first to admit that it was Franklin Delano Roosevelt, and not himself, who was mostly responsible for keeping the nation from reaching new depths in the economy. The modern reader may be unaware of the enormity of the programs of The New Deal as implemented by Roosevelt. Among other things, FDR created the Unemployment Insurance Act, which has helped keep the ravages of unemployment to manageable levels for millions of Americans. He also created the Social Security Act which has helped growing segments of today’s aging population from feeling the full wrath of another major depression. The FDIC, also a Roosevelt initiative, has protected the savings of millions of Americans and prevented far more damaging bank collapses. The domino effect in the absence of any of these three programs alone would have plunged the world into a far more severe recession.
In a way, the programs initiated by Roosevelt have created “stop losses” throughout the economy. His programs at the time were railed against as being socialistic, but it is hard to imagine how far last autumn’s economic free fall might have lasted without them.
I in no way want to diminish Bernanke’s achievements. It is a far more complicated and a far more global economy than the one that stared back at FDR. But certainly Bernanke understands the historical context of his actions far better than most. Seventy-five or eighty years later, Roosevelt’s programs still represent a new deal for millions of Americans. It’s just that today, few of them realize it.
By Myron Gushlak
Thursday, August 13, 2009
The Fellowship
Has “The Fellowship” come across your personal radar yet? How about the C Street House? “The Chosen”? If none of these things have yet to make it into your world, drop your soap opera of the day, or your reality show du jour. This is “way more better” as the saying goes. You know all those republicans that feel it is their moral duty to instruct all of us mere humans about morality? You know the ones – The Governor Mark Samfords of the world, the Senator John Ensigns, the Chip Pickerings? Shall I go on? You know them either as the latest documented philanderers or you may know them as members of The Fellowship. It seems that many of the nation’s Christian Republicans hang out in (or live in) a boardinghouse in Washington, D.C. www.nytimes.com/2009/07/19/opinion/19dowd.html?scp=4&sq=The%20Fellowship&st=cse where prayer and bible study are de rigueur. It is nicknamed the C Street House.
Often referred to as “The Family” because of their constant quest for power and control , conservative Republicans continue to pontificate from this particular perch about God and country, and yes, morality. When questioned about the seeming contradiction between what is preached and what is practiced, some of these lofty Republicans refer to the fact that they weren’t merely elected, they were “chosen.” If you need to read more, check out Jeff Sharlet’s “The Family,” available in paperback, or read his article in Harper’s. www.harpers.org/archive/2003/03/0079525
I’m a sucker for this sort of thing. I keep waiting for Roger Clemens and Manny Ramirez to co-author a book about the moral pitfalls of drugs in sports. Or Paris Hilton’s future tome extolling the virtues of a good education. This would all be hysterically funny if it wasn’t so damn scary.
By Myron Gushlak
Often referred to as “The Family” because of their constant quest for power and control , conservative Republicans continue to pontificate from this particular perch about God and country, and yes, morality. When questioned about the seeming contradiction between what is preached and what is practiced, some of these lofty Republicans refer to the fact that they weren’t merely elected, they were “chosen.” If you need to read more, check out Jeff Sharlet’s “The Family,” available in paperback, or read his article in Harper’s. www.harpers.org/archive/2003/03/0079525
I’m a sucker for this sort of thing. I keep waiting for Roger Clemens and Manny Ramirez to co-author a book about the moral pitfalls of drugs in sports. Or Paris Hilton’s future tome extolling the virtues of a good education. This would all be hysterically funny if it wasn’t so damn scary.
By Myron Gushlak
Tuesday, July 28, 2009
Walter
It was hard to miss the news that Walter Cronkite died this past weekend. Every news station paid fitting tribute to the grandfatherly CBS anchorman. What caught my eye, however, was the enormity of his audience. In his heyday, three out of four Americans watched the news as it was read by Walter Cronkite. (www.cbsnews.com/stories/2009/07/19/sunday/main5173016.shtml)
By its very definition, nostalgia hearkens back to a time that seems simpler and less complicated. In this current era of splintered marketplaces, that nightly following seems incomprehensible. Does anyone even know how many possible news sources there are today? CNN, MSNBC, BBC,CBS,NBC – seemingly more sources than there are letters to cover them. Would ten or twelve percent of the country not be considered an enormous following? What does this say, then, about the enormous influence of this man?
Walter Cronkite made it his first priority to be an objective reporter of the news. Today, it is difficult to say when an anchor is reporting or when he is editorializing. Cronkite himself said that he only interjected his own opinion one time in his life – that during the Vietnam War. He said he thought the war was un-winnable and that the US should pull out without victory. What impact did that have? Lyndon Johnson, the president at the time, said that when he heard that he “lost” Cronkite, he knew he lost the American people. Think about that for a moment out of the context of television. Do many of us ever utter any words that effect more than a few hundred people? Most of us fail to impact more than a dozen. Cronkite was able to influence the policy of the country.
His stated objective to report the news without bias might have changed history again had he not retired when he did. Cetrtainly, in Bill Moyer’s excellent reporting of the weapons of mass destruction fiasco that led to the Iraq war, even one objective article might have prevented the groundswell of public opinion that led to that war. www.pbs.org/moyers/journal/btw/watch.html.
I think it is safe to say that no one will ever again wield so powerful a voice to shape public opinion. In that regard, Cronkite’s death marked the end of an era.
By Myron Gushlak
By its very definition, nostalgia hearkens back to a time that seems simpler and less complicated. In this current era of splintered marketplaces, that nightly following seems incomprehensible. Does anyone even know how many possible news sources there are today? CNN, MSNBC, BBC,CBS,NBC – seemingly more sources than there are letters to cover them. Would ten or twelve percent of the country not be considered an enormous following? What does this say, then, about the enormous influence of this man?
Walter Cronkite made it his first priority to be an objective reporter of the news. Today, it is difficult to say when an anchor is reporting or when he is editorializing. Cronkite himself said that he only interjected his own opinion one time in his life – that during the Vietnam War. He said he thought the war was un-winnable and that the US should pull out without victory. What impact did that have? Lyndon Johnson, the president at the time, said that when he heard that he “lost” Cronkite, he knew he lost the American people. Think about that for a moment out of the context of television. Do many of us ever utter any words that effect more than a few hundred people? Most of us fail to impact more than a dozen. Cronkite was able to influence the policy of the country.
His stated objective to report the news without bias might have changed history again had he not retired when he did. Cetrtainly, in Bill Moyer’s excellent reporting of the weapons of mass destruction fiasco that led to the Iraq war, even one objective article might have prevented the groundswell of public opinion that led to that war. www.pbs.org/moyers/journal/btw/watch.html.
I think it is safe to say that no one will ever again wield so powerful a voice to shape public opinion. In that regard, Cronkite’s death marked the end of an era.
By Myron Gushlak
Thursday, July 16, 2009
End of Recession
The million dollar question as we hit the mid point of the third quarter of 2009 is when will the recession end? I am reminded of the age old story of a business owner asking his accountant what was the sum of two plus two. The accountant replied, “What do you want it to be?”
A quick perusal of the web will find you a prediction that the end of this current quarter will mark the low point of the economy, to one that predicts the effects of the recession will last until the end of 2010. The financier, Conde Nast, who made a bit of a name for himself by predicting the real estate collapse back in 2002 illustrates the problem. He has predicted that it will end soon (www.portfolio.com/views/columns/economics/2009/01/07/Spotting-Signs-of-Economic-Recovery), and that it will not end anytime soon. (www.portfolio.com/views/columns/economics/2008/11/11/Economic-Predictions-for-2009) . Nast may be the only one, then, certain to be correct when all is said and done. Feel like relying on the leading economic indicators as the tea leaves for the future? Not so fast. The interpretation of the meaning of these indicators is as diverse the crowd at a United Nations Bake Sale.
At Blue Water Partners, www.BlueWaterPartners.com we are well aware that people are always making money no matter how bad the economy. I suspect the end of the recession will come at different times for each of us, or to paraphrase George S. Kaufman, “It depends on your threshold for pain.”
By Myron Gushlak
A quick perusal of the web will find you a prediction that the end of this current quarter will mark the low point of the economy, to one that predicts the effects of the recession will last until the end of 2010. The financier, Conde Nast, who made a bit of a name for himself by predicting the real estate collapse back in 2002 illustrates the problem. He has predicted that it will end soon (www.portfolio.com/views/columns/economics/2009/01/07/Spotting-Signs-of-Economic-Recovery), and that it will not end anytime soon. (www.portfolio.com/views/columns/economics/2008/11/11/Economic-Predictions-for-2009) . Nast may be the only one, then, certain to be correct when all is said and done. Feel like relying on the leading economic indicators as the tea leaves for the future? Not so fast. The interpretation of the meaning of these indicators is as diverse the crowd at a United Nations Bake Sale.
At Blue Water Partners, www.BlueWaterPartners.com we are well aware that people are always making money no matter how bad the economy. I suspect the end of the recession will come at different times for each of us, or to paraphrase George S. Kaufman, “It depends on your threshold for pain.”
By Myron Gushlak
Tuesday, June 30, 2009
Why Nothing Gets Done
The current economic situation has spawned a billion “fix it quick” schemes. I think most of them found there way to my desk via group e-mails. Most are half baked; all self-serving. But one caught my attention and it illustrates some very valid points. Not that I thought it was a good idea, just that it shed light on the complexity of the problems in a world with this many people. The e-mailer said that his solution for the current economic downturn was to give every American over the age of fifty one million dollars. He said that this would cost the government fifty billion dollars. More on that in a second.
With that influx of mad money pumped into the system, the author said, the housing crisis would be immediately ended because there would be a huge demand for upgraded houses. Banks would receive a huge influx of cash from existing mortgages being paid off. The auto companies would be back on the sunny side of the street because presumably everyone would buy cars. State coffers would bulge from the increase in sales tax revenues. Money would not only trickle down to every facet of society, but would gush down flooding even the most deprived areas of the economy with new money. “Happy days are here again….”
Okay, first of all, the man’s math was hideously wrong. There are over sixty million US citizens over the age of fifty, bringing the cost of his tongue in cheek plan well into the trillions. But let’s assume his math was correct. Imagine what would happen. The day the plan was announced, millions of people around the age of forty would flood the streets making the last week’s violence in Iran look like a stroll down Sunset Boulevard by comparison - everyone bemoaning their exclusion and demanding to be included in some way into “The Great Fix”. The Democrats and Republicans would want to take full credit for the plan for all those who would be receiving money while blaming the other party for excluding everyone else. Overnight, counterfeit birth certificate mills would spring up, with false documents selling for as much as $100,000 (ten percent of the value) or more. An entire industry dedicated to bilking the elderly would spring up instantly. (Even more tenacious than the one currently in place) The price of both houses and cars would be artificially inflated by the enormous demand, thereby creating a bubble that would only burst again after all the millions were spent a couple of years down the road. The effect on the global economy from this American solution is too complex to analyze in anything with only one volume.
This “solution” or lack of one to be more accurate, comes to mind with the United States grappling with health industry reform of an unprecedented magnitude. Be on the lookout for arguments from all those “forty year olds” about to be excluded from the final plans. Everyone currently benefiting from the system as it is now will be pumping billions of dollars into a marketing campaign warning the population that the new plan will bring down the very wrath of God. All those companies who will benefit from a change in plan will be pumping equal amounts of money promoting “the new solution.” It will be very difficult to harvest the truth from either argument. And no plan could possibly come close to being “right for everyone.”
Somebody, someplace will have to say, “This plan is not right for me. It will cost me more money, but I am in favor of it because it will benefit the country as a whole.” In fact, many millions of “somebodies” will have to say that. “Talk about your paradigm shifts…..…….
By Myron Gushlak
With that influx of mad money pumped into the system, the author said, the housing crisis would be immediately ended because there would be a huge demand for upgraded houses. Banks would receive a huge influx of cash from existing mortgages being paid off. The auto companies would be back on the sunny side of the street because presumably everyone would buy cars. State coffers would bulge from the increase in sales tax revenues. Money would not only trickle down to every facet of society, but would gush down flooding even the most deprived areas of the economy with new money. “Happy days are here again….”
Okay, first of all, the man’s math was hideously wrong. There are over sixty million US citizens over the age of fifty, bringing the cost of his tongue in cheek plan well into the trillions. But let’s assume his math was correct. Imagine what would happen. The day the plan was announced, millions of people around the age of forty would flood the streets making the last week’s violence in Iran look like a stroll down Sunset Boulevard by comparison - everyone bemoaning their exclusion and demanding to be included in some way into “The Great Fix”. The Democrats and Republicans would want to take full credit for the plan for all those who would be receiving money while blaming the other party for excluding everyone else. Overnight, counterfeit birth certificate mills would spring up, with false documents selling for as much as $100,000 (ten percent of the value) or more. An entire industry dedicated to bilking the elderly would spring up instantly. (Even more tenacious than the one currently in place) The price of both houses and cars would be artificially inflated by the enormous demand, thereby creating a bubble that would only burst again after all the millions were spent a couple of years down the road. The effect on the global economy from this American solution is too complex to analyze in anything with only one volume.
This “solution” or lack of one to be more accurate, comes to mind with the United States grappling with health industry reform of an unprecedented magnitude. Be on the lookout for arguments from all those “forty year olds” about to be excluded from the final plans. Everyone currently benefiting from the system as it is now will be pumping billions of dollars into a marketing campaign warning the population that the new plan will bring down the very wrath of God. All those companies who will benefit from a change in plan will be pumping equal amounts of money promoting “the new solution.” It will be very difficult to harvest the truth from either argument. And no plan could possibly come close to being “right for everyone.”
Somebody, someplace will have to say, “This plan is not right for me. It will cost me more money, but I am in favor of it because it will benefit the country as a whole.” In fact, many millions of “somebodies” will have to say that. “Talk about your paradigm shifts…..…….
By Myron Gushlak
Wednesday, June 17, 2009
Scam Insurance
The past eighteen months or so have provided an endless supply of news stories about financial failures, scams and reports of general mis-management. Regular readers of this blog will recall several months ago, that I railed against the watchdogs of the industry – Moody’s, Standard and Poor et al for being practically criminally negligent as they continued to highly rate the financial products of many of the now infamous companies as they were about to collapse. Freddie Mac and Lehman Brothers are only two of many examples. It seems that there might not be a need for the government to get involved with a punitive action against these institutions. It seems, as is often the case, that the market is taking care of that situation internally.
I am referring to an article that came out that reports that David Einhorn has revealed that his current short-selling target is Moody’s, the credit rating firm. www.dealbook.blogs.nytimes.com/2009/05/28/prominent-short-seller-puts-moodys-in-his-sights . Why is this newsworthy? Mainly because Mr. Einhorn , who runs the New York hedge fund, Greenlight Capital, is the same man who sold Lehman Brothers short many months before it collapsed last fall. Mr. Einhorn declined to say how long he had been selling Moody’s short, but the share price was down 7% as the story broke. “Einhorn contends that investors have learned not to rely on Moody's, which for years has been criticized because it earns fees from the companies it rates. And after the mortgage market melted down in 2007, Moody's came under fire for giving top grades to bonds and derivatives backed by subprime loans.”
In explaining his rationale, Einhorn said, “The truth is nobody I know buys or uses Moody’s credit ratings because they believe in the brand. They use it because it is part of a government –created oligopoly and, often, because they are required to by law.” The “oligopoly” surely refers to the practice of being paid by the very people you are hired to rate, one of my own problems with the rating system as spelled out in past blogs.
Those who favor less government regulation can tout this development as an example of how the market self-corrects without government micro-managing. It is a classic case of the problem being fixed from within -a modern version of taking the criminal into the back room and beating the crap out of him. By the time “the law” gets there, they might find that justice has already been served. It’s an amusing idea, really – the notion of selling short as vigilante justice. But it does have a certain old world charm nonetheless.
By the way, shortly after this story broke, Einhorn told Reuters that he had been watching Moody’s since 2002, which is explanation enough as to why his actions are gathering so much attention.
By Myron Gushlak
I am referring to an article that came out that reports that David Einhorn has revealed that his current short-selling target is Moody’s, the credit rating firm. www.dealbook.blogs.nytimes.com/2009/05/28/prominent-short-seller-puts-moodys-in-his-sights . Why is this newsworthy? Mainly because Mr. Einhorn , who runs the New York hedge fund, Greenlight Capital, is the same man who sold Lehman Brothers short many months before it collapsed last fall. Mr. Einhorn declined to say how long he had been selling Moody’s short, but the share price was down 7% as the story broke. “Einhorn contends that investors have learned not to rely on Moody's, which for years has been criticized because it earns fees from the companies it rates. And after the mortgage market melted down in 2007, Moody's came under fire for giving top grades to bonds and derivatives backed by subprime loans.”
In explaining his rationale, Einhorn said, “The truth is nobody I know buys or uses Moody’s credit ratings because they believe in the brand. They use it because it is part of a government –created oligopoly and, often, because they are required to by law.” The “oligopoly” surely refers to the practice of being paid by the very people you are hired to rate, one of my own problems with the rating system as spelled out in past blogs.
Those who favor less government regulation can tout this development as an example of how the market self-corrects without government micro-managing. It is a classic case of the problem being fixed from within -a modern version of taking the criminal into the back room and beating the crap out of him. By the time “the law” gets there, they might find that justice has already been served. It’s an amusing idea, really – the notion of selling short as vigilante justice. But it does have a certain old world charm nonetheless.
By the way, shortly after this story broke, Einhorn told Reuters that he had been watching Moody’s since 2002, which is explanation enough as to why his actions are gathering so much attention.
By Myron Gushlak
Wednesday, May 20, 2009
Approaching Equality
Laura Pendergast-Holt has apparently broken through the glass ceiling and is about to join the “white men only” hall of fame for scam artists. According to today’s Dallas Business Journal . (www.bizjournals.com/dallas/stories/2009/05/11/daily54.htmlPendergest-Holt” , Ms Pender-Gast pleaded not guilty to fraud charges and is currently out on $300,000 bond. She was the chief investment officer of the Stanford Financial Group, which is in the midst of an eight billion dollar fraud allegation. You will recall that this past February, the SEC charged R. Allen Stanford with fraud and seized all his assets.
Although the inclusion of Ms. P-G in this elite company can only be considered a triumph for women everywhere, it should not be construed as an indication that the fight has been won in any real sense of the word. Until Ms.P-G can be joined by other minorities, including, but not limited to the African-American community, can anyone really defend the assertion that any real equality exists in the upper tiers of American society?
Furthermore, her inclusion in this prison bound club does not, even now, allow Ms P-G to be treated equally. Most reports stoop to commenting on her attractive appearance, and her youthful age. This merely shows how far we, as a society, need to come. Until equal attention is paid to the personal appearance of such felons as Bernard Madoff and Stanford himself, all news reports merely underline how far things need to progress before true equality can be claimed. The report from the above cited Dallas source refers to her as the “former thirty-five year old chief investment officer.” Did they also refer to Madoff’s former ages? No, I think not.
But progress comes slowly. For now, we must content ourselves with the incremental successes as they happen. We now have the Susan B. Anthony of scams and her name is Laura Pendergast-Holt. A pioneer in her own right, perhaps some day her portrait will grace the $7 bill. The words of Charlotte Whitton resound loudly on such a proud day. “Whatever women do they must do twice as well as men to be thought half as good. Luckily this is not difficult.”
By Myron Gushlak
Although the inclusion of Ms. P-G in this elite company can only be considered a triumph for women everywhere, it should not be construed as an indication that the fight has been won in any real sense of the word. Until Ms.P-G can be joined by other minorities, including, but not limited to the African-American community, can anyone really defend the assertion that any real equality exists in the upper tiers of American society?
Furthermore, her inclusion in this prison bound club does not, even now, allow Ms P-G to be treated equally. Most reports stoop to commenting on her attractive appearance, and her youthful age. This merely shows how far we, as a society, need to come. Until equal attention is paid to the personal appearance of such felons as Bernard Madoff and Stanford himself, all news reports merely underline how far things need to progress before true equality can be claimed. The report from the above cited Dallas source refers to her as the “former thirty-five year old chief investment officer.” Did they also refer to Madoff’s former ages? No, I think not.
But progress comes slowly. For now, we must content ourselves with the incremental successes as they happen. We now have the Susan B. Anthony of scams and her name is Laura Pendergast-Holt. A pioneer in her own right, perhaps some day her portrait will grace the $7 bill. The words of Charlotte Whitton resound loudly on such a proud day. “Whatever women do they must do twice as well as men to be thought half as good. Luckily this is not difficult.”
By Myron Gushlak
Thursday, April 9, 2009
The Age of Scam
In the same way that the 50’s ended and the 60’s began when John Kennedy was assassinated in 1963, the 1990’s ended on September 11, 2001. --But what of the decade that followed – the decade with no easy nickname. The aughts? The O’s? Whatever it is or will be called, the first decade of the twenty-first century ended prematurely this past autumn with the fall of Lehman Brothers and the threat posed by AIG’s possible collapse. Perhaps it will be known as the Decade of the Scam. Not all the scams that have been discovered have had the enormity of the Bernard Madoff Ponzi scheme, nor had Allen Stanford’s cache, but a week barely goes by without a new scam being revealed. They are epidemic.
If we expand the definition of “scam” a bit, it will be impossible to paint the past decade as anything but a fertile ground that nurtured a valley of scams. It has been a decade of calling a spade a diamond. If the media agrees that the spade is a diamond, then it becomes, in fact, a diamond. Bill Moyers (www.pbs.org/moyers/journal/btw/watch.html) made that abundantly clear in his television show explaining how the weapons of mass destruction allegations became facts in the buildup to the Iraqi war eight short years ago. Moyer’s show is must watch tv, even now, five years after the fact (and is still available on line, I believe). Perhaps the roots of manipulating perception can even be traced to Bill Clinton’s infamous, “It depends on what you mean by the word ‘is’” defense. There are no shortages of examples. The Bush administration’s legal argument about torture is possibly the final word on this phenomena. You know the argument by now. It went something very much like “the President of the United States does not condone torture. The President sanctions waterboarding. Therefore, waterboarding is not torture.”
Some might call it simply good “spin doctoring” but whatever you might call it, the result is The Decade of Scam. Anything goes, as long as you can call it something else. I want to put that phrase in the past tense, make it “everything went” instead of everything goes. But I’m not feeling quite that optimistic. At some point, a spade is a spade no matter what you call it. Perhaps in this next decade we will figure that out.
By Myron Gushlak
If we expand the definition of “scam” a bit, it will be impossible to paint the past decade as anything but a fertile ground that nurtured a valley of scams. It has been a decade of calling a spade a diamond. If the media agrees that the spade is a diamond, then it becomes, in fact, a diamond. Bill Moyers (www.pbs.org/moyers/journal/btw/watch.html) made that abundantly clear in his television show explaining how the weapons of mass destruction allegations became facts in the buildup to the Iraqi war eight short years ago. Moyer’s show is must watch tv, even now, five years after the fact (and is still available on line, I believe). Perhaps the roots of manipulating perception can even be traced to Bill Clinton’s infamous, “It depends on what you mean by the word ‘is’” defense. There are no shortages of examples. The Bush administration’s legal argument about torture is possibly the final word on this phenomena. You know the argument by now. It went something very much like “the President of the United States does not condone torture. The President sanctions waterboarding. Therefore, waterboarding is not torture.”
Some might call it simply good “spin doctoring” but whatever you might call it, the result is The Decade of Scam. Anything goes, as long as you can call it something else. I want to put that phrase in the past tense, make it “everything went” instead of everything goes. But I’m not feeling quite that optimistic. At some point, a spade is a spade no matter what you call it. Perhaps in this next decade we will figure that out.
By Myron Gushlak
Monday, March 9, 2009
Legal Scams
With all the talk about scams and frauds and new government regulations, it is disturbing to me that there are still “credit counselors” and mortgage lenders out there preying on the desperate. Many of, if not most of, the credit counselors who offer to get people out of credit card debt are predatory lenders. Some are affiliated with the credit card companies and operate to discourage consumers to declare bankruptcy, even when that financial option might be the best available. Some of these “counselors” often do nothing more than take a fifteen year debt and convert it to a thirty year debt. Yes, the result is “lower monthly costs”, but the overall cost is criminal, and do nothing for the borrower except offer a band-aid for a gunshot wound.
The credit card companies are just as bad. Their slick advertising campaigns mask usurious rates that would have been illegal a few years ago, and quite frankly, I don’t know why they’re not illegal now. They can change rates “at any time, for any reason” provided they notify the card holder of the change. There is a bill pending, the so called “Credit Card Reform Act of 2008” that may attempt to address some of these ills, but there is no mention of limiting rates credit card companies can charge. There is an attempt to end the ubiquitous “double cycle” billing method which averages out the balance from two previous bills, so the consumer gets billed for retroactive interest even if they paid off the balance. (www.money.cnn.com/2008/07/21/pf/consumer) Even though the banking industry is opposed to the changes that this act will attempt to address, most consumer advocates complain that the proposed changes barely scratch the surface of what is needed.
There are still mortgage companies offering 97% mortgages and other financial options that got us into this mess to begin with. It is probably wishful thinking to believe that government can cure these ills. As long as there are people desperate enough, or uneducated enough to borrow money under punitive conditions, there will be lenders available to them. I want to, in the very least, add my voice against such practices. To me, the practices that are currently the norm in the credit card industry are nothing more than a legal scam, as wrong and as damaging as the illegal scams that grab the headlines.
By Myron Gushlak
The credit card companies are just as bad. Their slick advertising campaigns mask usurious rates that would have been illegal a few years ago, and quite frankly, I don’t know why they’re not illegal now. They can change rates “at any time, for any reason” provided they notify the card holder of the change. There is a bill pending, the so called “Credit Card Reform Act of 2008” that may attempt to address some of these ills, but there is no mention of limiting rates credit card companies can charge. There is an attempt to end the ubiquitous “double cycle” billing method which averages out the balance from two previous bills, so the consumer gets billed for retroactive interest even if they paid off the balance. (www.money.cnn.com/2008/07/21/pf/consumer) Even though the banking industry is opposed to the changes that this act will attempt to address, most consumer advocates complain that the proposed changes barely scratch the surface of what is needed.
There are still mortgage companies offering 97% mortgages and other financial options that got us into this mess to begin with. It is probably wishful thinking to believe that government can cure these ills. As long as there are people desperate enough, or uneducated enough to borrow money under punitive conditions, there will be lenders available to them. I want to, in the very least, add my voice against such practices. To me, the practices that are currently the norm in the credit card industry are nothing more than a legal scam, as wrong and as damaging as the illegal scams that grab the headlines.
By Myron Gushlak
Monday, March 2, 2009
Scam or Charity?
It is a scam if we give someone something and get nothing in return. But not always. Sometimes we give something away with no expectation of return, and that is called charity, and not a scam at all. So where does the billions of dollars of aid that the United States gives to Africa fit into that equation? There has been a re-examination of that aid due to the massive amount of attention received by Dambisa Moyo, often referred to as the “anti-Bono.” Moyo is a leading economist and policy maker in the United States and served as the head of Economic Research and Strategy for Sub-Saharan Africa. (www.brookings.edu/articles) She is the author of Dead Aid, hence her comparison to Bono.
She argues in her book that Western aid to Africa, a pet topic of mine over the past year, has not only perpetuated poverty but also worsened it. She points to China to support her argument where there are 3.1 billion people. Forty years ago, China was poorer than many African countries. Today they have money that they earned from what they built, working hard to create a system where they were not dependent on aid. China now lends money to the United States. She believes that aid to Africa has held it back. “You get corruption-historically, leaders have stolen money without penalty- and you get dependency, which kills entrepreneurship. You also disenfranchise African citizens, because the government is beholden to foreign donors and not accountable to its own people” Moyo argues. (www.NYTimes/Questionsfor)
What she recommends in lieu of charity is to microfinance – to give people jobs. That resonated particularly with me because she cites Kiva (www.Kiva.org) as a suitable place to begin to truly help Africa. Kiva has been targeted in the past year by my own charitable foundation, (www.MyronGushlakFoundation.com)
Anyone who has spent any time parenting knows that this is a central dilemma. When to help and when to stand by and let your child fall. At some point, the offer of aid becomes a weapon creating a dependency that will guarantee compliance with what the giver wants to get in return. Aid can “buy” political compliance, as well as pave the way for favorable trade terms for the giver. So the original question stands, is it charity or is it a scam?
By Myron Gushlak
She argues in her book that Western aid to Africa, a pet topic of mine over the past year, has not only perpetuated poverty but also worsened it. She points to China to support her argument where there are 3.1 billion people. Forty years ago, China was poorer than many African countries. Today they have money that they earned from what they built, working hard to create a system where they were not dependent on aid. China now lends money to the United States. She believes that aid to Africa has held it back. “You get corruption-historically, leaders have stolen money without penalty- and you get dependency, which kills entrepreneurship. You also disenfranchise African citizens, because the government is beholden to foreign donors and not accountable to its own people” Moyo argues. (www.NYTimes/Questionsfor)
What she recommends in lieu of charity is to microfinance – to give people jobs. That resonated particularly with me because she cites Kiva (www.Kiva.org) as a suitable place to begin to truly help Africa. Kiva has been targeted in the past year by my own charitable foundation, (www.MyronGushlakFoundation.com)
Anyone who has spent any time parenting knows that this is a central dilemma. When to help and when to stand by and let your child fall. At some point, the offer of aid becomes a weapon creating a dependency that will guarantee compliance with what the giver wants to get in return. Aid can “buy” political compliance, as well as pave the way for favorable trade terms for the giver. So the original question stands, is it charity or is it a scam?
By Myron Gushlak
The Perfect Scam
Add Steven Speilberg, John Malkovich and Mets owner, Fred Wilpon to the list of thousands of people or groups who were victimized by Bernard Madoff’s Ponzi scheme. (s.wsj.net/public/resources/documents/st_madoff_victims) The list is international in scope and public knowledge of the victims is added to daily as people join in on lawsuits trying to recover lost funds. The prurient details of actual amounts of money lost isn’t always available, but probably no one’s losses will exceed the seven billion dollars of the Fairfield Greenwich Advisors group who lost half of their fourteen billion dollars in assets.
More names will undoubtedly be added to the list as individuals and corporations seek to recover lost funds. Many of the more public names will find there way to Entertainment Tonight, but I think I think Phyllis Molchatsky’s reaction to her losses was the most interesting of any I’ve read about. She is suing the SEC alleging negligence in their failure to detect Madoff’s scam.
As I mentioned recently, even if Madoff bought estates or artwork every day for the past ten years, those real assets are around somewhere. Finding those assets may be the new century’s version of searching for sunken pirate treasure depending on how shrewd Madoff was in hiding his ill-gotten gains. I haven’t read anywhere whether or not he plans to cooperate with authorities in locating the lost empire’s wealth. But this story is just beginning.
During the last century, film director Alfred Hitchcock was a guest on the Johnny Carson version of The Tonight Show. Johnny asked the reigning king of crime and horror movies whether he thought that anyone ever committed the perfect crime. Hitchcock’s response, in his unique breathless delivery, was that he was certain that perfect crimes were committed every day. They were never uncovered, never even recognized as crimes. That’s what made them perfect.
Which of course makes me wonder, has there ever been a perfect Ponzi scheme? Has anyone ever bilked billions or even millions from investors, and then slowly and systematically lost money so that those investors never even knew they were never actually invested in anything? Probably not, at least not with that amount of money. But I wonder on a small scale if little Ponzi schemes aren’t taking place every day, never to be discovered. It’s only a perfect crime if you don’t get caught.
By Myron Gushlak
More names will undoubtedly be added to the list as individuals and corporations seek to recover lost funds. Many of the more public names will find there way to Entertainment Tonight, but I think I think Phyllis Molchatsky’s reaction to her losses was the most interesting of any I’ve read about. She is suing the SEC alleging negligence in their failure to detect Madoff’s scam.
As I mentioned recently, even if Madoff bought estates or artwork every day for the past ten years, those real assets are around somewhere. Finding those assets may be the new century’s version of searching for sunken pirate treasure depending on how shrewd Madoff was in hiding his ill-gotten gains. I haven’t read anywhere whether or not he plans to cooperate with authorities in locating the lost empire’s wealth. But this story is just beginning.
During the last century, film director Alfred Hitchcock was a guest on the Johnny Carson version of The Tonight Show. Johnny asked the reigning king of crime and horror movies whether he thought that anyone ever committed the perfect crime. Hitchcock’s response, in his unique breathless delivery, was that he was certain that perfect crimes were committed every day. They were never uncovered, never even recognized as crimes. That’s what made them perfect.
Which of course makes me wonder, has there ever been a perfect Ponzi scheme? Has anyone ever bilked billions or even millions from investors, and then slowly and systematically lost money so that those investors never even knew they were never actually invested in anything? Probably not, at least not with that amount of money. But I wonder on a small scale if little Ponzi schemes aren’t taking place every day, never to be discovered. It’s only a perfect crime if you don’t get caught.
By Myron Gushlak
Friday, January 30, 2009
Scams
The down time at BlueWater Partners (http://bluewater.ky/) is always interesting. I don’t think that would be too surprising to many people. When men work in high pressure jobs, handling large sums of money, things tend to get a little unpredictable during the breaks. Bond traders are notorious for this sort of behavior. A bond trader will work at warp speeds for hours at a time manning several telephone lines and computer screens simultaneously, and then bam, everything stops, and traders find themselves staring at one another in a minor daze. I knew of one bond trader in New York who caught mice and threw them out the window after making little parachutes for them during the down time. Things get weird. Conversations are often unrepeatable.
The talk the other day centered around the Bernard Madoff scam. It’s hard not to talk about Madoff, or “made-off” as I’ve heard him called recently, as in “he ‘made-off’ with all the money.” We started by talking about other scams, the original pyramid scheme of Charles Ponzi in the 1920’s to the Nigerian money laundering scheme that still surfaces every now and again. Madoff seems to have the biggest scam to date, at least in terms of dollars. The Albanian pyramid scheme of 1997 was the hands down biggest in terms of the numbers of people involved. It was estimated that two-thirds of that country’s entire population and government were caught up in it. Riots ensued when the whole thing collapsed, and the country still hasn’t fully recovered. But in terms of dollars, Madoff seems to have won a rather dubious prize.
Which led to the main topic of discussion – “Where is the money?”
If the totals that are being thrown around in the newspapers are remotely accurate, Madoff took hundreds of millions, and possibly billions of dollars. Think about that. In these days of billion dollar buyouts numbers get thrown around and lose their meaning. But he may have taken billions of dollars. A million dollars is a lot of money. If you spent a dollar a day for a million days you would have had to begin in the fifth century BC to be broke today. (without interest, of course.)
It was the esteemed consensus of BWP that a single man cannot spend that much money in his lifetime, never mind the forty or fifty years Madoff may have been at it. There just isn’t enough time in the day. It would take a foundation with many employees to spend at a fast enough rate. It’s a funny idea, not being able to spend a fixed amount of money, a Brewster’s Millions sort of fantasy, but think about it. If you stole one billion dollars, you would have to spend ten million dollars a day to make it disappear in a couple of decades. Now think about how much work it would be to spend ten million dollars a day every day for a couple of decades. If you gave it away in huge allotments. far too much attention would be drawn to you. Did he buy an estate a day for a year? A roomful of Picassos? Where are they? What a dilemma! So the question remains, where is the money?
I was reminded of a story I read many years ago. A man in France stole what is the equivalent to one million dollars in quarters. Do you know how much space you need to store a million dollars in quarters? What are you going to do with them? Sell them each for a nickel to neighborhood children? Go to quarter casino machines every day for eight hours? You would draw so much attention to yourself that you would be caught in weeks, which leads me to the what the police chief in charge of the case was quoted as saying, “Stealing this much money is its own punishment.”
By Myron Gushlak
The talk the other day centered around the Bernard Madoff scam. It’s hard not to talk about Madoff, or “made-off” as I’ve heard him called recently, as in “he ‘made-off’ with all the money.” We started by talking about other scams, the original pyramid scheme of Charles Ponzi in the 1920’s to the Nigerian money laundering scheme that still surfaces every now and again. Madoff seems to have the biggest scam to date, at least in terms of dollars. The Albanian pyramid scheme of 1997 was the hands down biggest in terms of the numbers of people involved. It was estimated that two-thirds of that country’s entire population and government were caught up in it. Riots ensued when the whole thing collapsed, and the country still hasn’t fully recovered. But in terms of dollars, Madoff seems to have won a rather dubious prize.
Which led to the main topic of discussion – “Where is the money?”
If the totals that are being thrown around in the newspapers are remotely accurate, Madoff took hundreds of millions, and possibly billions of dollars. Think about that. In these days of billion dollar buyouts numbers get thrown around and lose their meaning. But he may have taken billions of dollars. A million dollars is a lot of money. If you spent a dollar a day for a million days you would have had to begin in the fifth century BC to be broke today. (without interest, of course.)
It was the esteemed consensus of BWP that a single man cannot spend that much money in his lifetime, never mind the forty or fifty years Madoff may have been at it. There just isn’t enough time in the day. It would take a foundation with many employees to spend at a fast enough rate. It’s a funny idea, not being able to spend a fixed amount of money, a Brewster’s Millions sort of fantasy, but think about it. If you stole one billion dollars, you would have to spend ten million dollars a day to make it disappear in a couple of decades. Now think about how much work it would be to spend ten million dollars a day every day for a couple of decades. If you gave it away in huge allotments. far too much attention would be drawn to you. Did he buy an estate a day for a year? A roomful of Picassos? Where are they? What a dilemma! So the question remains, where is the money?
I was reminded of a story I read many years ago. A man in France stole what is the equivalent to one million dollars in quarters. Do you know how much space you need to store a million dollars in quarters? What are you going to do with them? Sell them each for a nickel to neighborhood children? Go to quarter casino machines every day for eight hours? You would draw so much attention to yourself that you would be caught in weeks, which leads me to the what the police chief in charge of the case was quoted as saying, “Stealing this much money is its own punishment.”
By Myron Gushlak
Saturday, January 17, 2009
Dead Cat Bounce
I thought it might be fun to go back a year ago trying to find egregiously wrong financial forecasts for the year 2008, soon to be put out of its misery. I didn’t find any. Just about everybody was predicting dire consequences for the year just ended. If someone thought that forecast was overly pessimistic, I couldn’t find any evidence of it. The prospects for a good financial 2009 are also rarer than BMW’s in a trailer park. The only issue for debate seems to be how long things will stay bad. It was a bit surprising to me to read in multiple sources that most end of the year forecasts had the beginning of the recession as having already started in December, 2007, even though the US government didn’t “officially” put us in one until eleven months later in November.
Mark Lanler’s New York Times article of December 10, 2008, seems to echo the cries of doom and gloom that dominate the media and the internet for 2009. (www.nytimes.com/2008/12/10/business/worldbusiness/10global.html) His opinion is particularly disturbing because he cites the lack of an obvious engine to drive a recovery. The latest “buzzword” seems to be infrastructure investment as a way out of the woods, but the term is thrown around so frequently that it becomes like the emperor’s new clothes, true because we all say it’s true and we all want it to be true.
The late December stock market mini-rallies can be attributed to “a dead cat bounce”. We at Blue Water Partners (www.bluewaterpartners.com) “borrowed” that line several years ago with little apology to the originator of the term. An unnamed Singapore broker cited in The Financial Times, coined the phrase after a precipitous market plunge on Monday was followed by a modest recovery on Tuesday. His rather macabre observation was “that even a dead cat will bounce if dropped hard enough from high enough.” (www.thelede.blogs.nytimes.com/2007/03/01)
The term never fails to bring a smile to our faces, though the sentiment is hardly worth smiling about. Our hopes for 2009 is that the year as a whole will not (in retrospect) be anything more than a dead cat bounce from the plunge of 2008. Money will, of course, be made in 2009. Money is always being made somewhere. Buyers are making acquisitions. It’s a good time to have your financial people on speed dial, especially those who know how to drive value.
By Myron Gushlak
Mark Lanler’s New York Times article of December 10, 2008, seems to echo the cries of doom and gloom that dominate the media and the internet for 2009. (www.nytimes.com/2008/12/10/business/worldbusiness/10global.html) His opinion is particularly disturbing because he cites the lack of an obvious engine to drive a recovery. The latest “buzzword” seems to be infrastructure investment as a way out of the woods, but the term is thrown around so frequently that it becomes like the emperor’s new clothes, true because we all say it’s true and we all want it to be true.
The late December stock market mini-rallies can be attributed to “a dead cat bounce”. We at Blue Water Partners (www.bluewaterpartners.com) “borrowed” that line several years ago with little apology to the originator of the term. An unnamed Singapore broker cited in The Financial Times, coined the phrase after a precipitous market plunge on Monday was followed by a modest recovery on Tuesday. His rather macabre observation was “that even a dead cat will bounce if dropped hard enough from high enough.” (www.thelede.blogs.nytimes.com/2007/03/01)
The term never fails to bring a smile to our faces, though the sentiment is hardly worth smiling about. Our hopes for 2009 is that the year as a whole will not (in retrospect) be anything more than a dead cat bounce from the plunge of 2008. Money will, of course, be made in 2009. Money is always being made somewhere. Buyers are making acquisitions. It’s a good time to have your financial people on speed dial, especially those who know how to drive value.
By Myron Gushlak
Fashion
An article in this month’s Vanity Fair on George Bush caught my eye. Actually the cover photo of actress Cate Blanchett caught my eye, but why quibble? I was surprised that Vanity Fair would write about Bush or about anything that doesn’t carry a designer label, but I was quickly drawn into the article. Nothing in the piece was particularly new or surprising. The article is a composite of brief historical information, juxtaposed with comments by the people on the periphery of those events. The mosaic that evolves is anything but complementary to Bush 43. I’d read much of the same in Bob Woodward’s “State of Denial” and the excellent Cheney biography, “Angler” by Barton Gellman, but it occurred to me half way through that I was reading “Vanity Fair”.In a Marshall McCluhan moment I realized it is , literally, now fashionable to bash George Bush.
Perhaps it is my training in investment baking (www.Bluewaterpartners.com) but when I see everyone swimming upstream, I tend to want to see what’s going on in the other direction. When everyone’s pulling out of the market, it is often the best time to wade in. With that in mind, I tried to envision a favorable historic treatment of W. If the Middle East miraculously stabilizes and follows Iraq’s “democratic” lead, I suppose Bush will be seen as being ahead of his time. Perhaps the mortgage meltdown will be laid at the feet of former President, Bill Clinton’s decision to make housing more available to the poor of this country, and, even though Bush continued the Clinton program, the blame may get shifted there. People who travel extensively will tell you that the perception of America has drastically deteriorated in the past eight years. I don’t know how history will treat that. I realized quickly that I was swimming upstream just to get the point where I could make a case that he was merely an average president. Lawrence Wilkerson, top aide and later chief of staff to Colin Powell called him a “Sarah Palin-like president.” That comment would be considered a positive comment when compared to the other descriptions in the article.
The surprise to me when I read that Bush has a 29% approval rating is that almost one out of every three people do approve of his performance. Who are these people? And what are they wearing?
By Myron Gushlak
Perhaps it is my training in investment baking (www.Bluewaterpartners.com) but when I see everyone swimming upstream, I tend to want to see what’s going on in the other direction. When everyone’s pulling out of the market, it is often the best time to wade in. With that in mind, I tried to envision a favorable historic treatment of W. If the Middle East miraculously stabilizes and follows Iraq’s “democratic” lead, I suppose Bush will be seen as being ahead of his time. Perhaps the mortgage meltdown will be laid at the feet of former President, Bill Clinton’s decision to make housing more available to the poor of this country, and, even though Bush continued the Clinton program, the blame may get shifted there. People who travel extensively will tell you that the perception of America has drastically deteriorated in the past eight years. I don’t know how history will treat that. I realized quickly that I was swimming upstream just to get the point where I could make a case that he was merely an average president. Lawrence Wilkerson, top aide and later chief of staff to Colin Powell called him a “Sarah Palin-like president.” That comment would be considered a positive comment when compared to the other descriptions in the article.
The surprise to me when I read that Bush has a 29% approval rating is that almost one out of every three people do approve of his performance. Who are these people? And what are they wearing?
By Myron Gushlak
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