Jennifer miller nyc’s readers takeover times

The Reynolds Center has announced its 2008 fall workshop schedule.
Select a workshop and register from the drop-down menu below.

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By Jennifer Hopfinger By Kelly Carr By Kelly Carr, Travis Grabow and
Carol Legg By Andre Jackson By Jennifer Hopfinger

By September 8, 2008 01:06 PM
The coverage by most media on the government bailout of Fannie Mae and
Freddie Mac is massive, as it should be. This takeover is one of the
biggest business stories of the decade.

From analyzing the stock market’s response to honing in on local
ramifications, newspapers like The New York Times and The Wall Street
Journal amped up coverage to offer readers every detail as the story
unfolded. Other papers found unique angles to report the news and some
embraced new media techniques, answering readers’ questions in a
live forum.

The New York Times provided in-depth analysis, including detailed
Monday morning’s buzz on the floor of the New York Stock
Exchange as the Dow Jones Industrial Average immediately surged more
than 340 points.

Another by Floyd Norris, the Times’chief financial
correspondent, began with a biblical quote that would later set up the
notion that Fannie Mae and Freddie Mac, “were intended to serve
at least two masters – the investors who put up the capital and
a government that wanted to help the housing industry and extend home
ownership. In the end they failed to serve either very well.”
His eloquently crafted piece explains the takeover and its potential
consequences with sophistication and ease.

Finally, the Timesbrought the subject home to consumers with a that
explains what the takeover means in their world, from the fallout on
mortgage rates to the affect on tax dollars.

In addition to complete coverage of the breaking news, The Wall Street
Journal also gave its readers a breakdown of the winners and losers of
the takeover. In a unique, spunky , readers can understand the major
players and how the bailout affects groups like homeowners and
lobbyists.

The Charlotte Observer brought the explains the nightmare Legg Mason
Capital Management Inc. now faces as Freddie Mac’s largest
shareholder.

At The Boston Globe, business reporter Kimberly Blanton talked
directly with readers and answered their questions about the unfolding
story. Through an interactive feature on the paper’s Web site
called Blanton explained to a confused and interested audience how
much the takeover could cost taxpayers and how the move might affect
mortgage rates.

The chat was offered in addition to extensive coverage on the
Globe’sWeb site and stories slated for Tuesday’s paper.
Blanton said that while the discussion takes some time away from
reporting for the print edition, “News Chat” offers a new
platform to engage readers.

“Readers do ask basic questions and often insightful questions,
so this seems a way to answer them in a timely way — as the news is
unfolding,” she said. “A lot of the research that
reporters do never gets in the paper but we can share it with readers
this way.”

Also stepping outside mainstream coverage was Reuters’ reporter
Karey Wutkowski who worked a story that detailed how employees of
Fannie Mae and Freddie Mac were coping with the changes. In her she
describes an anxious group, most of whom are waiting for updates from
their direct supervisors before searching for new jobs.

San Francisco Chronicle The San Francisco Chronicle personalized the
government’s move by relating the buyout to the credit situation. The
Chronicle how even creditworthy consumers with steady income, good
track records and credit standing are being turned down for loans. The
Chronicle cites several local examples of consumers who had their
credit limits and home equity lines slashed due to the tight credit
situation. The Chronicle notes that “government guarantees for Fannie
Mae and Freddie Mac could help the mortgage market, but it’s not
clear how much or for how long.”

The Washington Post The Washington Post put a personal spin on the
takeover with a Q&A section titled ” that shows exactly what brought
on the government’s move.

Los Angeles Times The Los Angeles Times the takeover’s impact on
investors and how it fits into existing financial conditions. While
the Times suggests that the takeover may “buoy investors,” next week’s
earnings reports, the strengthening dollar and the shift in emerging
markets will also be considered by investors in the near future.

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Mccain obama debate in gwen ifill pbs

Democratic presidential candidate Sen. Barack Obama, D-Ill., claps
during a rally in Charlotte, N.C., Sunday, Sept. 21, 2008. (AP
Photo/Chris Carlson)

McCain says Obama acting more like politician than leader on economy,
Iraq … Obama to head to Tampa, Fla., this week to prepare for
presidential debates with McCain … Gwen Ifill hits the jackpot in
being selected moderator of highly anticipated VP debate …

BALTIMORE (AP) — Republican presidential nominee John McCain
told an audience Sunday that Barack Obama behaved more like a
politician than a leader, both on matters of national security and on
last week’s near-meltdown of the U.S. financial system.

Addressing a meeting of the National Guard Association, McCain faulted
Obama for not offering a plan to stabilize financial markets after a
crisis in the mortgage industry led to the collapse of two investment
banks and the government bailout of housing agencies Fannie Mae and
Freddie Mac and insurance giant AIG.

“At a time of crisis, when leadership is needed, Senator Obama has not
provided it,” McCain said.

On Friday, Treasury Secretary Henry Paulson announced he would begin
crafting a $700 billion federal takeover of the troubled financial
sector. The same day, McCain laid out his own series of proposals for
helping to stabilize the mortgage industry, such as a Mortgage and
Financial Institutions Trust.

Obama declined to offer a plan, saying he wanted to allow Paulson to
address the matter without political intrusion. Advisers to the
Democratic hopeful criticized McCain’s proposals as little more than
talking points that lacked any meaningful detail.

Later Sunday, McCain cautioned against granting unchecked authority to
Paulson, saying he is “greatly concerned that the plan gives a single
individual the unprecedented power to spend $1 trillion on the basis
of not much more than ‘Trust me.'”

CHARLOTTE, N.C. (AP) — Democratic presidential nominee Barack
Obama undergoes three days of preparation this week for a crucial
foreign policy clash with John McCain in the first debate of the
general election campaign.

Aides say it will be an opportunity for Obama to demonstrate
proficiency in an area where polls have shown voters give the edge to
McCain, a 26-year Washington veteran who promotes his ties to leaders
around the world.

If Obama can hold his own on foreign policy, it could ease those
worries, aides said Sunday as they tried to lower expectations for the
first-term Illinois senator, a powerful speaker but an uneven
performer in multiple debates during the Democratic primaries.

“John McCain has boasted throughout the campaign about his decades of
Washington foreign policy experience and what an advantage that would
be for him,” Gibbs said. “This debate offers him major home-court
advantage and anything short of a game-changing event will be a key
missed opportunity for him.”

While Obama is cloistered in Tampa, Fla., veteran Washington lawyer
Greg Craig will play the role of McCain in the debate preparations.
Craig was a member of President Clinton’s defense team during the
impeachment proceedings.

NEW YORK (AP) — Being selected the moderator for a vice
presidential debate is something like opening a suitcase on “Deal or
No Deal” and finding $1,000. Nice prize, but it’s no jackpot.

Not this year. The Oct. 2 showdown between Joe Biden and Sarah Palin
will likely put Gwen Ifill before the biggest TV audience of her life.

Given the extraordinary attention paid to the campaign and Palin’s
surprise selection as John McCain’s running mate, it stands a strong
chance of becoming the most-watched vice presidential debate ever. The
standard was the 56.7 million viewers in 1984, when Geraldine Ferraro
was the first woman ever selected for a major party ticket.

Ifill, moderator of PBS’ “Washington Week” and senior correspondent on
“The NewsHour,” is repeating her role from the 2004 debate between
Dick Cheney and John Edwards. She had never done a debate before that,
and admitted she was nervous about the large audience and all the
people scrutinizing her performance.

The 2004 experience and work before a live audience during a recent
swing of “Washington Week” shows done on the road have toughened her
up.

“The biggest pressure you have as a journalist ever is to make sure
you get an answer to your question,” said Ifill, whose crowded resume
includes The New York Times, The Washington Post and NBC News. “That’s
what I’m focusing on — how to ask questions that elicit answers
instead of spin, or in this case to elicit engagement between the
two.”

The format offers Ifill great freedom. Questions on domestic or
international issues are allowed, and it’s up to her to decide the
mix.

John McCain is scheduled to hold a town hall in Scranton, Pa, before
joining Sarah Palin at a rally in Media, Pa.

“Voting is a two-step process in this country. The difficulty with
young voters has always been getting them to do both steps.” —
Paul Gronke, director of the Early Voting Information Center at Reed
College in Oregon.

Undecided voters and those who say they might switch candidates
preferred Democrat Barack Obama to be their child’s schoolteacher over
Republican John McCain by 18 percentage points, according to an AP-
Yahoo News survey.

The al davis picture fannie mae regulator

RUSH: What you are about to hear, ladies and gentlemen, is
informative, educational, and stunning. It is Democrat after Democrat
defending all of these fraudulent mortgages from Freddie Mac;
attacking those who were raising concerns. You’re going to hear
Democrats viciously attacking the effort to regulate Fannie Mae and
Freddie Mac, which is at the root of the problem here requiring this
so-called bailout. Every black member of the committee is defending
Fannie Mae and Freddie Mac, and every Republican begging for more
regulation. You will not believe what you’re going to hear. They
defend Franklin Raines, every one of them. It is Barney Frank saying
“safety and soundness” is not an issue. Republicans are on the attack
one after another; Democrats defending one after another. I don’t get
excited about YouTube stuff going around because there’s so much
YouTube stuff, but this stuff is exciting. It’s huge. You have
Franklin Raines actually saying these assets are “riskless.” So we’re
going to start with every speaker. This is a hearing from 2004:
Republicans begging for regulations and Democrats defending Fannie and
Freddie. We start here with Rep. Richard Baker (R-LA).

BAKER: It is indeed a very troubling report, but it is a report of
extraordinary importance not only to those who wish to own a home, but
as to the taxpayers of this country who would pay the cost of the
clean up of an enterprise failure. The analysis makes clear that more
resources must be brought to bear to ensure the highest standards of
conduct are not only required, but more importantly, they are actually
met.RUSH: We’re talking here about Fannie Mae. Rep. Maxine Waters
(D-CA) starts the defense.

WATERS: Through nearly a dozen hearings where, frankly, we were trying
to fix something that wasn’t broke, Mr. Chairman, we do not have a
crisis at Freddie Mac, and particularly at Fannie Mae, under the
outstanding leadership of Mr. Frank Raines.RUSH: Here now is Rep.
Gregory Meeks (D-NY).MEEKS: As well as the fact that I’m just pissed
off at OFHEO, because if it wasn’t for you, I don’t think that we’d be
here in the first place, and now the problem that we have and that
we’re faced with is: maybe some individuals who wanted to do away with
GSEs in the first place, you’ve given them an excuse to try to have
this forum so that we can talk about it and maybe change the, uh, the
direction and the mission of what the GSEs had, which they’ve done a
tremendous job. There’s been nothing that was indicated that’s wrong,
you know, with Fannie Mae! Freddie Mac has come up on its own. And the
question that then presents is the competence that — that — that —
that your agency uh, uh, with reference to, uh, uh, deciding and
regulating these GSEs. Uh, and so, uh, I wish I could sit here and say
that I’m not upset with you, but I am very upset because, you know,
what you do is give — you know, maybe giving any reason to, as Mr.
Gonzales said, to give someone a heart surgery when they really don’t
need it.RUSH: That’s Gregory Meeks, a Democrat from New York,
attacking the regulator who was testifying about the problems at
Fannie Mae and Freddie Mac in 2004. Rep. Ed Royce (R-CA)…ROYCE: In
addition to our important oversight role in this committee, I hope
that we will move swiftly to create a new regulatory structure for
Fannie Mae, for Freddie Mac, and the federal home loan banks.RUSH:
Democrat response, Rep. Lacy Clay (D-MO)…CLAY: This hearing is about
the political lynching of Franklin Raines.RUSH: Ed Royce
again…ROYCE: There is a very simple solution. Congress must create a
new regulator with powers at least equal to those of other financial
regulators, such as the OCC or Federal Reserve.RUSH: Do you see what’s
shaping up here? This is pure politics and it boils down to — you
can’t avoid observing — racial politics. We had a bomb, a time bomb
waiting to go off at Fannie Mae and Freddie Mac which has gone off, it
has gone off. We had regulators testifying, brought in by Republicans
and Democrats, saying, “What do we need to do to stop this time bomb?
What do we need to do to diffuse it?” “Well, we need new regulations.
We need new oversight.” No, you don’t! You’re not going to get away
with kicking people out of houses and you’re not going to conduct a
lynching of Franklin Raines.” Now Franklin Raines… Just stick with
this. Gregory Meeks here attacks the regulator yet again.

MEEKS: What would make you — why should I have confidence? Why should
anyone have confidence, uh, in — in you as a regulator at this
point?FALCON: Sir, Congressman, OFHEO did not improperly apply
accounting rules. Freddie Mac did. OFHEO did not fail to manage
earnings properly. Freddie Mac did. So this isn’t about the agency
engaging in improper conduct. It’s about Freddie Mac.RUSH: This is the
Democrats going after Ken Starr investigating Bill Clinton. This is
attacking the regulator, attacking somebody. Look, we all know now.
Looking back in 2004, we all know the regulator is right. We all know
the Republicans are right. We all know that the time bomb was ticking.
We know that the time bomb has gone off. The Democrats are now using
the time bomb to blame the private sector for this! Barney Frank,
Nancy Pelosi, and Harry Reid to this day are claiming that what went
wrong is the private sector, “greed on Wall Street.” What is obvious
is that what went on is Democrats in Congress propping up a failed
institution for whatever reasons: minority interests, interests of the
poor, votes from those interests, defending Franklin Raines — who was
a thief!Franklin Raines stole the money out of Fannie Mae and had the
employees there back-date and falsify letters and so forth, assets —
postdate them, predate them, to show that they were worth something,
when they were worthless. That’s how he scored his big payday. You can
see the wagons being circled here, and it boils down to that the
Democrats on this committee had no desire to have this fixed. They had
no desire for any of the problems to actually be properly enumerated.
Now, the Drive-By Media covered none of this. This is all from C-SPAN.
None of this is from cable television or evening news programs or
anything of the sort. Christopher Shays (R-CT) asks, “How many in this
room are on the payroll of Fannie Mae.”SHAYS: And we passed Sarbanes-
Oxley, which was a very tough response to that, and then I realized
that Fannie Mae and Freddie Mac wouldn’t even come under it. They
weren’t under the ’34 act, they weren’t under the ’33 act, they play
by their own rules, and I am tempted to ask how many people in this
room are on the payroll of Fannie Mae. Because what they do is they
basically hire every lobbyist they can possibly hire. They hire so
many people to lobby and they hire some people not to lobby, so that
the opposition can’t hire them.RUSH: Now, this is again another
indictment of Fannie Mae, but let’s go back and listen to Rep. Lacy
Clay (D-MO), describe what he thinks is really going on here.CLAY:
This hearing is about the political lynching of Franklin Raines.RUSH:
It was not about the “political lynching” of anybody, and there’s the
racial politics. It’s not even covert. There’s the overt racial aspect
of this that nobody is discussing and nobody is talking about, but it
all happened on a committee in the House chambers, House office
buildings, in 2004. Ladies and gentlemen, it is clear that there were
people who tried to stop this. The Republicans. Again, just to
illustrate, if there were a single Republican the Democrats could pin
this on, there would have been congressional hearings, you’d have
heard his name mentioned all weekend long. There is no such Republican
in existence who can be made to take the heat for that. Here is Rep.
Artur Davis (D-AL) defending executives at Fannie Mae.DAVIS: The
concern that I have is you’re making very specific, what you have
correctly acknowledged, broad and categorical judgments about the
management of this institution, about the willfulness of practices
that may or may not be in controversy. You’ve imputed various motives
to the people running the organization. You went to the board and put
a 48-hour ultimatum on them without having any specific regulatory
authority to put that kind of ultimatum on ’em. Uh, that sounds like
some kind of an invisible line has been crossed.RUSH: How about that?
“You went to the board. You put a 48-hour ultimatum on them without
having any specific regulatory authority to put that kind of ultimatum
on them.” What kind of authority are these same people asking for now?
To let the Treasury Secretary ensure the public welfare! The Treasury
Secretary, of all people! So as this goes on, you can clearly see and
you can clearly hear, there was no desire on the part of the Democrats
to even acknowledge that there was a ticking time bomb. Christopher
Shays again, Republican from Connecticut.SHAYS: Fannie Mae has
manipulated, in my judgment, OFHEO for years — and for OFHEO to
finally come out with a report as strong as it is, tells me that’s got
to be the minimum, not the maximum.RUSH: OFHEO is the regulatory
agency that is under attack here. What Shays is saying is that Fannie
Mae has manipulated the regulator for years and the regulator can take
it no more. The regulator said: Look, I can’t sweep this under the rug
anymore. To come out with a report as strong as it is, detailing the
problems and the ticking time bomb status of Fannie Mae and Freddie
Mac, what Shays is saying is, “It’s gotta be worse than they’re
saying, given how they’ve been manipulated in the past.” Barney
Frank…FRANK: …etcetera. Uh, I — This — You — you — you seem to
me saying, “Well, these are areas which could raise safety and
soundness problems.” I don’t see anything in your report that raises
safety and soundness problems.RUSH: “I don’t see anything in your
report…” This is a guy in charge of fixing this now. “I don’t see
anything in your report that raises safety and soundness.” I don’t see
a ticking bomb here. There’s nothing going wrong here. Maxine Waters
heaps praise on Franklin Raines…WATERS: Under the outstanding
leadership of Mr. Frank Raines, everything in 1992 has worked just
fine. In fact, the GSEs have exceeded their housing goals. What we
need to do today is to focus on the regulator, and this must be done
in a manner so as not to impede their affordable housing mission, a
mission that has seen innovation flourish from desktop underwriting to
100% loans. RUSH: To people who can’t pay ’em back! That’s brought
this system to a screeching halt and a perceived crisis. We need to
focus on the regulator. Barney Frank says it was the private sector
that caused this. Here are Democrats in Congress trying to destroy the
credibility of the regulator — while you have been led to believe
that there wasn’t enough regulation, that the private sector was
running around like a bunch of drunken cowboys. I hope you’re getting
the picture. There is more to this.

BREAK TRANSCRIPTRUSH: Now, back to these sound bites here from the
2004 House hearing. The regulator who is being attacked, I need you to
know who this guy is. His name is Armando Falcon, Jr. He was the
director of the Office of Federal Housing Enterprise Oversight, OFHEO,
and was being attacked by all the Democrats on the committee in the
sound bites which we will resume shortly. There is a story here from
the Washington Post back pages, December 28, 2004: “There are no
awards for moxie in regulating, but if such a program is ever
established, supporters of Armando Falcon Jr., director of the Office
of Federal Housing Enterprise Oversight, would probably nominate him.
The tiny agency was created in 1992 to oversee Fannie Mae and Freddie
Mac, two government-backed housing financiers with assets and mortgage
guarantees adding up to more than $3 trillion. … It has David and
Goliath features: a tiny agency taking on a gigantic company; Falcon,
an unknown regulator paid $158,100 annually, going up against Fannie
Mae chief executive Franklin D. Raines, who received $16.8 million in
cash compensation in 2003. … Three months ago, Falcon and his agency
dropped a bombshell: a report that concluded Fannie Mae committed
numerous accounting and earnings mistakes. The investigation began
after members of Congress blamed OFHEO for missing similar problems at
Freddie Mac.”This is what Chris Shays was talking about. So the guys
at OFHEO said, “Okay, we looked the other way, but we’re going to get
tough here.” That brought the Democrats out to attack Falcon, and
that’s what you’re listening to in the sound bites that we will resume
here in just a moment. Now, a follow-up story, and I reference this
moments ago, the AP, April 19th this year: “Franklin Raines, former
chief executive, Fannie Mae, and two other top executives are paying a
total of nearly $31.4 million over their roles in a 2004 accounting
scandal in a settlement that the government announced Friday.” What
was happening here, ladies and gentlemen, is that false signatures
were used to aid Fannie Mae bonuses, and the same regulator that these
people are attacking in the ’04 hearing that you’re going to hear us
resume in a moment are now attacking Falcon for bringing all of this
to light. This is from the Washington Post of April 7th of 2005:
“Fannie Mae employees falsified signatures on accounting transactions
that helped the company meet earnings targets for 1998, a
‘manipulation’ that triggered multimillion-dollar bonuses for top
executives, a federal regulator said yesterday. Armando Falcon Jr.,
director of the Office of Federal Housing Enterprise Oversight, said
the entries were related to the movement of $200 million in expenses
from 1998 to later periods.” Now, I just say all this to refresh your
memory. The regulator found the abuses, and these are more than
abuses. These are crimes. There were crimes. In 2004, we are playing
for you sound bites of a House committee hearing in which the
regulator, Mr. Armando Falcon, is explaining what he found. The
Democrats on the committee have decided to attack him, to discredit
him because Fannie Mae, Freddie Mac has become for them at that time a
way to get their constituents into houses they can’t afford. It was a
ticking time bomb. Everybody knew it then. The OFHEO guy, Falcon,
Bush, McCain, a number of Republicans were trying to sound the warning
bells about the ticking time bomb. The Democrats didn’t want to hear
it, started attacking the regulator and everybody else saying there
was a problem under the basis that this would challenge and harm this
new affordable housing. Affordable housing thus now defined as people
who can’t afford houses being allowed to live in them at taxpayer
expense, pure and simple. That’s what affordable housing is. Let’s
resume now. Maxine Waters, just to replay this, heaping praise on
Franklin Raines.WATERS: Under the outstanding leadership of Mr. Frank
Raines, everything in the 1992 act has worked just fine. In fact, the
GSEs have exceeded their housing goals. What we need to do today is to
focus on the regulator, and this must be done in a manner so as not to
impede their affordable housing mission, a mission that has seen
innovation flourish from desktop underwriting to 100% loans.RUSH: Now,
you’re probably saying, “Why hasn’t all this been mentioned by the
Republicans in the past week? Why hasn’t somebody stood up and said,
‘Hey, folks, the problem that we supposedly have a crisis with was
attempted to be solved numerous times,’ and cite all this?” The
Republicans that you’re hearing here, many of them are still in the
Congress, coulda stood up and said this. I can’t answer the question,
I don’t know. I don’t know why they’re not standing up and saying
this. I think everybody’s become affected by the crisis, the
psychological crisis here that has successfully been manufactured by
the Obama campaign and the Democrats and the media just five weeks
prior to the election. Here is Democrat Lacy Clay of Missouri.CLAY: I
find this to be inconsistent and a rush to judgment. I get the feeling
that the markets are not worried about the safety and soundness of
Fannie Mae as OFHEO says that it is, but of course the markets are not
political.

RUSH: Oh, the markets are not political, but the regulator is
political all of a sudden. The regulator who has found accounting
disasters, fraud, and theft throughout Fannie Mae and Freddie Mac
can’t be trusted because he’s political. These guys want to believe
the market back in 2004. The market, by the way, Congressman Clay, was
being intimidated by a number of Democrats. “If you don’t continue to
make and service these loans, then you’re going to be investigated.”
Here’s Barney Frank again, same hearing.FRANK: But I have seen nothing
in here that suggests that the safety and soundness are at issue, and
I think it serves us badly to raise safety and soundness as kind of a
general shibboleth when it does not seem to me to be an issue.RUSH:
Barney Frank four years ago: “There’s no problem here. I’ve seen
nothing in here, the regulator’s testimony, that suggests that safety
and soundness are an issue. I think it serves us badly to raise safety
and soundness as kind of general shibboleth.” These guys knew it, they
saw it, it was staring them right in the face and they wanted to
attack the regulator. Let me ask you a question. You go into the
hospital for a heart bypass, the doctor performing the surgery screws
it up. Do you ask him to do it again on the basis he knows best what
went wrong or do you go find a new doctor? I’m being serious, ask
yourself, you go in for some sort of surgery and you find out that a
finger was amputated by mistake, somebody got a report wrong, chart
wrong, do you go back to the guy who amputated your finger and read
the chart wrong and say, “Fix this?” It’s what we’re doing here. The
very people who designed this, they designed this to fail, it did
fail, the very people who knew that it was in the process of failing
have now been put in charge of fixing it, but they don’t want to do it
by themselves. They’re demanding that Republicans vote with them to
give them cover. Now, another Republican, this is Don Manzullo, (R-IL)
calling out the Democrats by name who raked in money.MANZULLO: Mr.
Raines, 1.1 million bonus and a $526,000 salary. Jamie Gorelick,
$779,000 bonus on a salary of 567,000. This — what you state on page
11 is nothing less than — than staggering. The 1998 earnings per
share number turned out to be $3.23 and nine mills, a result that
Fannie Mae met the EPS maximum payout goal right down to the penny.
Fannie Mae understood the rules and simply chose not to follow them.
If Fannie Mae had followed the practices, there wouldn’t have been a
bonus that year.RUSH: Okay, now, what’s up next is unreal. Franklin
Raines is being questioned by Christopher Shays. The second voice you
hear on this bite is Franklin Raines, who was discovered to have
committed major fraud and sent packing.SHAYS: And you have about 3% of
your portfolio set aside. If a bank gets below 4%, they are in deep
trouble. So I just want you to explain to me why I shouldn’t be
satisfied with 3%?RAINES: Because banks don’t — there aren’t any
banks who only have multifamily and single-family loans. These assets
are so riskless that their capital for holding them should be under
2%.SHAYS: Fine.RUSH: These assets are so riskless. Franklin Raines,
who will be in Obama’s cabinet. Franklin Raines, who gives Obama
advice on housing. Franklin Raines, who had to give back gazillions of
dollars that he stole from Fannie Mae. A former director of the Office
of Management and Budget for the Clinton administration, Franklin
Delano Raines. You just heard him say the assets, subprime mortgages,
all of these things that they bundled, riskless. Franklin Raines is a
Democrat, by the way, 2004 congressional hearing. And let’s close this
out, ladies and gentlemen, with Bill Clinton finally on ABC’s Good
Morning America last week, Chris Cuomo says, “Is it a little
surprising to you to hear the Democrats saying that this came out of
nowhere, this was all the Republicans? Pelosi saying it’s all the
Republicans, she knew what was going on with the SEC. They’re all
sophisticated people. Is that playing politics in this
situation?”CLINTON: The responsibility that the Democrats have may
rest more in resisting any efforts by Republicans in the Congress or
by me when I was president to put some standards and tighten up a
little on Fannie Mae and Freddie Mac.RUSH: Okay, forget him inserting
himself in there. He just admits here, the responsibility the
Democrats have may rest more in resisting any efforts by Republicans
in the Congress to tighten up a little bit on Fannie Mae and Freddie
Mac. And you’ve just heard evidence. There ought be no doubt who
caused this, and given that, why in the world anybody wants to put the
same party in charge of all of this, under the guise that they’re the
ones that have the compassion, that they’re the ones that care about
affordable housing, they are taking over the country. They are
stealing the country with this legislation, and our nominee is out
talking about earmarks.

Religulous bill maher’s up fox megan

Ben:I’m actually looking forward to his new flick, Religulous. I liked
him in Body Double, but haven’t liked him since then (except for the
time that Erik Estrada elbowed his face-nose on Pictionary). But that
tide could be turning.

Skin:He graduated from the same I Am God school of political
commentary that also claims Bill O’Reilly and Michael Moore as
graduates. He also parties. In fact, the only real difference between
Maher and Pat O’Brien is that Maher is smart enough not to leave
voicemails.

Ben:I once lost a soccer ball in Pat O’Brien’s mustache. What were you
saying about Megan Fox? Whatever it was, it made me extremely horny
for Transformers 2.

Skin:I once lost a beach ball in Pat’s nose. I was sunning with Megan
Fox, one of the washed-up fools from the original 90210, and Betsy
from his voicemails.

Skin:I usually only get political when I know for sure it’ll lead to
sex, but I gotta say the timing of this $700 billion bailout is really
going to impact the election. I don’t really follow the news so much
since The Far Side fell off. Are they trying to give $700 billion to
the same dudes who just f’d it up in the first place?

Ben:Megan Fox is in a new movie called The Bailout? Wait, what? I’m so
confused. Does that Henry Paulson robot turn into a Road Warrior’d out
Celica that tries to save the economy by car-banging Arnie Cunningham
or something?

Skin:The best scene in Christine was when Arnie’s dad nailed the
triple-lindy to beat Ralph Macchio’s nemesis, and then hooked up with
Hot Lips, all while AC/DC sang “Who Made Who.” Stephen King is a
genius.

Ben:If only fixing this busted-ass economy was as simple as dialing up
our favorite movie characters from the ’80s. Gordon Gekko would snort
coke off of Fannie Mae’s rack, while Fab Five Freddie Mac watched from
a hot tub full of Rubik’s Cubes.

Ben:My wife recently thought about divorcing me when she found out
that I am not actually an official centaur. Now I have no idea whether
I can save my marriage AND the economy. I might have to choose one or
the other.

Skin:What a rush. The last time I was writing about centaurs, it was a
letter that began: “Dear Penthouse, I never thought it’d happen to
me.” It’s wonderful to relive the good times.

Ben:The last time I wrote a letter to Penthouse was four minutes ago.
While crafting a penned masterpiece, I angrily demanded in calligraphy
to speak to a manager about the lack of Megan Fox nakedness in their
BS publication. My letter is on hold right now. While I’m waiting,
would you mind ranking the centaurs for me?

Skin:I’d say C.S. Lewis is at the top of that hierarchy. But as you
are well aware, I’m allergic to the obvious. And centaur dander. And
ragweed. I hope this column comes up during the presidential debate.
Allergies are a real issue.

Hear the guys on The Ben and Skin Show from 11 a.m. to 3 p.m. on Live
105.3 FM. E-mail them at benandskin@quickdfw.com.

Operation repo schedule’s banks investment financial

Petrino DiLeo looks at how politicians of both parties allowed an
unregulated shadow banking system to take shape.

IT’S UNTHINKABLE. The United States–the paragon of the “free market”
and loudest proponent of neoliberal policies such as free trade,
deregulation and privatization–has just carried out the three largest
nationalizations in world history in taking over the twin mortgage
behemoths Fannie Mae and Freddie Mac, and now the insurance giant AIG.

The U.S. government is now the largest guarantor of mortgages in the
world–and the largest insurance company as well.

The events that have caused the worst financial crisis since the Great
Depression are the logical conclusion of policies and legislation
implemented during the past 30 years. Lax standards and weakening of
regulation led to a free-for-all in the financial world and the
creation of a multitrillion-dollar “shadow banking system.”

Along the way, Wall Street institutions invented arcane investment
instruments called derivatives, swaps, structured financial products
and securitized debt–and investors dove headfirst into the resulting
alphabet soup of mortgage-backed securities, collateralized debt
obligations, credit default swaps, structured investment vehicles,
etc.

These investment products were sloppily hashed together, barely
monitored and never stress-tested. Rating agencies rubber-stamped
everything that Wall Street concocted. And the result is the unfolding
financial bloodbath.

“What we are witnessing is essentially the breakdown of our modern-day
banking system, a complex of leveraged lending [that is] so hard to
understand,” Bill Gross, head of the Pimco asset management group
wrote, in December of last year. “Colleagues call it the ‘shadow
banking system’ because it has lain hidden for years, untouched by
regulation, yet free to magically and mystically create and then
package sub-prime loans in [ways] that only Wall Street wizards could
explain.”

Of course, the real tragedy isn’t that Wall Street is falling. The
banks and other financial institutions like AIG gorged themselves for
years. Whatever happens, the titans of finance will remain
millionaires many times over. Few, if any, will face jail time.

The real issue is that the collapse on Wall Street is wreaking havoc
on lives around the country and around the world.

People who had no idea that their mortgages were part of Wall Street’s
slice-and-dice game are paying the price. Workers whose pensions ended
up invested in toxic bonds may not be able to retire. Cities and
states face a drying up of revenue and are cutting back on jobs and
services. And the federal government–using taxpayer money–is
swallowing Wall Street’s losses, while leaving the same people in a
position to profit when the crisis is defused.

– – – – – – – – – – – – – – – –

After the financial crisis that contributed to the Great Depression of
the 1930s, Congress enacted laws such as the Glass-Steagall Act of
1933 to separate commercial banks from investment banks.

The objective of this reform was to insulate risky deal-making by
investment banks from individuals’ deposits in commercial banks. The
Federal Reserve Bank, the Office of the Comptroller of the Currency
and state regulators all were charged with monitoring commercial
banks. The Securities and Exchange Commission was given purview over
monitoring the large investment banks and brokerage houses.

The traditional commercial banking model was of deposit-taking
institutions, which lent money back out as mortgage loans or other
forms of credit. Such banks were monitored and regulated, and had to
have a certain amount of capital on hand at all times.

Furthermore, deposits up to a certain dollar value were guaranteed by
the Federal Deposit Insurance Corporation (FDIC). Commercial banks
were allowed to borrow directly from the Federal Reserve Bank to
ensure their continued operation–a privilege that was only extended
to investment banks during the current crisis.

This banking model held for many years. The long economic boom after
the Second World War kept financiers pretty happy. Furthermore, the
prosperity helped keep in place an overall approach to economics that
tolerated government intervention into the economy. This approach was
known as Keynesianism, after the liberal British economist John
Maynard Keynes.

Crises in the 1970s, however, led to a revival of calls for
unregulated free markets. By the 1980s and 1990s, as part of
neoliberal restructuring, financial regulation came under attack. This
culminated in the Gramm-Leach-Bliley Act, signed into law by Bill
Clinton in 1999, which essentially repealed Glass-Steagall.

The Gramm in the law’s title is former Republican Sen. Phil Gramm, now
an executive at the UBS bank and John McCain’s top economic advisor.
But a key lobbyist for the law was Robert Rubin, the Citigroup
executive and former Treasury Secretary under Democratic President
Bill Clinton.

The Gramm-Leach-Bliley Act allowed banks, brokerage firms and insurers
to merge once again. It also dissolved the wall between commercial
banks and investment banks.

In 2000, Congress passed legislation (again, supported by Gramm)
called the Commodity Futures Modernization Act, which effectively
helped keep the commodities market hidden and unregulated. This law is
one reason why, during the run-up in food and oil futures prices
earlier this year, no one was quite sure how big a role speculators
played in pumping up prices.

The Federal Reserve is technically not part of the government. Its
policies and decisions on the setting of interest rates were dictated
by financial interests, particularly under former Federal Reserve
Chair Alan Greenspan.

Meanwhile, as part of the employers’ offensive, workers’ wages and
benefits came under attack. This facilitated a transfer of wealth from
the bottom of society to the top and helped restore profitability
across Corporate America.

However, in order to maintain high levels of consumption within the
U.S. economy, something needed to replace wages. An explosion of
household debt was the result. The vast increase in debt helped
workers maintain their standard of living, despite stagnating or
declining wages. At the same time, debt became a huge profit vehicle
for Wall Street.

– – – – – – – – – – – – – – – –

As one example, investment banks offer “money market accounts,” which
in practice look and act like traditional checking and savings
accounts. But there’s one important difference–not one cent of the
deposits is guaranteed by the government through the FDIC. If these
investment banks go down, so do the accounts.

This is a major reason why, when institutions like Lehman Brothers and
Bear Stearns appeared to be failing, there have been massive runs by
any funds that had money in those banks. They sought to pull out
before the institutions failed.

Another phenomenon that emerged is called debt securitization. Banks
bought up different forms of debt–like mortgages. Yet rather than
simply hold them on their balance sheets and collect payments, they
created enormous pools of loans. They then created bonds based on
these massive pools of debt, and sold them to giant investors, at
varying levels of risk. The highest-rated and least-risky bonds paid
off at lower rates, while the riskier bonds–such as ones tied to sub-
prime loans–paid off at higher rates.

By the end of the first three months of 2007, the total value of all
outstanding securitized debt was $28 trillion–more than double the
figure of 10 years ago. None of this would have been possible without
deregulation.

The other components of the financial system that could be in trouble
include hedge funds, with $1.8 trillion in assets; the $2.5 trillion
overnight loan market, known as the repurchase, or repo, market; and
the commercial paper market–loans made to businesses without the
backing of collateral–worth $2.2 trillion.

Then there are derivatives–financial instruments based on an
underlying security such as a commodity, bond or currency, but
typically representing some kind of gamble about what direction the
value of the security would go in. The theoretical value of all
derivatives was a mind-boggling $596 trillion by the end of 2007.

On top of all this, the banks did all sorts of things to keep their
shady investment instruments hidden away, off company balance sheets.
As a result, no one knows how much damage could be done if these
trillions of dollars in paper assets have to be sold off at pennies on
the dollar–or become completely worthless. Fear of such a worldwide
financial meltdown drove the U.S. government to engineer the takeover
of Bear Stearns by JPMorgan Chase earlier this year.

The various components of the shadow banking system play off each
other. Hedge funds put their money in investment banks, or hire the
banks to place their investments. Commercial banks and investment
banks have merged. Investment banks operate their own hedge funds.
Banks use the “repo” market and commercial paper to fund day-to-day
operations. Financial institutions of all kinds have derivative
contracts. Many of these are so-called credit default swaps, a form of
insurance on bonds.

The whole system is based on the free flow of capital at all times.
But today, many parts of the shadow banking system aren’t functioning,
because the banks aren’t sure if the other banks they’re trading with
will be around tomorrow.

The credit-default swap market, worth an estimated $62 trillion, is a
particularly urgent problem. Because it’s totally unregulated, no one
knows which financial institutions will have to pay out how many
billions of dollars of insurance on mortgage-backed securities gone
bad–or whether they will have the money to do so.

It was this uncertainty that led to the government takeover of AIG,
which was a major provider of credit default swaps, and thus extremely
vulnerable to the collapse in the value of mortgage-backed securities.

This shadow banking system flourished under the non-watchful eye of
Alan Greenspan’s Federal Reserve. Today, it’s become clear that
Greenspan was warned repeatedly about many of the factors that led to
this catastrophe, but instead, cheered on the boom.

For example, Greenspan embraced the explosion of predatory sub-prime
lending. He applauded the emergence of securitization of mortgages. He
cheered on the technology stock bubble. He helped goad asset-price
bubbles with aggressive cuts in interest rates in the late 1990s and
after September 11, 2001. Greenspan also orchestrated an industry
bailout of the hedge fund Long Term Capital Management in 1998–the
godfather to today’s bailouts.

It’s impossible to predict how far the financial chaos will spread, or
just what the toll will be on the underlying economy.

But three things are clear already. The resulting credit crunch will
cause an already struggling economy to contract even further. The Wall
Street titans who presided over this disaster will remain personally
very comfortable. And workers will be asked–as always–to suffer the
consequences.

Financial banks securities in operation repo schedule

THE liquidity routinely provided by central banks has for years been
extended by a daisy chain of derivative transactions.

The credit squeeze which is tightening its grip on the world economy
is the result in large part of that chain being broken.

The asset write-downs being forced on the financial system are truly
gargantuan, reaching $US620 billion ($740 billion) at last count, with
the meter still ticking fast, but it has been the loss of liquidity,
not asset value, that brought the pillars of the world financial
establishment tumbling.

Lehman Brothers was forced to file for bankruptcy because confidence
in its ability to repay its debts evaporated, and financial markets
refused to advance it money.

AIG, Merrill Lynch, Bear Stearns, Fannie Mae, Freddie Mac, Northern
Rock and HBOS all faced the same agonising financial suffocation
before their assets were seized either by governments or larger
competitors, with their shareholders left for dead.

The loss of confidence in counterparty risk and a desire by financial
institutions to accumulate as much cash as they can are part of the
reason for the worldwide shortage of cash that is forcing up interest
rates on interbank and term debt markets.

Central banks are doing what they can to counter this, providing as
much cash to markets as they believe markets will absorb. But
financial institutions have been relying not only upon cash, but on a
myriad transactions leveraged by securities to fund themselves. That
business has dried up and it is probably beyond the scope of the
central banks to replace it.

Director of the Melbourne Centre for Financial Studies Professor Kevin
Davis says it has been puzzling that through the boom years, the broad
measure of money supply, M3, which includes currency and deposits in
both the banking and non-bank sectors, grew at a brisk, but not
excessive, annual average around 10 per cent.

When the financial crisis hit last year, it soared to more than 20 per
cent as organisations that were no longer able to fund themselves
using securities returned to the conventional banking system.

He cites research by Citigroup London analyst Matt King, penetrating
the smoke and mirrors in the last accounts of the five big New York
investment banks.

This shows that while they had a combined $US1.6 trillion in finance
secured by collateral on their balance sheets, the total blew out to
$US3.5 trillion by the time off-balance-sheet transactions are
included. The off-balance-sheet transactions are mainly collateral
they have received in “repo” deals, but then on-lent to someone else
(repos, or repurchase agreements, are essentially short-term secured
loans).

King explains how this funding disappears from the balance sheet. The
investment broker sells a hedge fund $100 million of stock in Company
A, providing a margin loan to finance it.

The hedge fund then short sells $100 million of shares in Company B,
and uses the proceeds to pay off the margin loan. The investment bank
now records no change in cash and no net receivable from the client,
so there is nothing on the balance sheet.

The investment bank needs to borrow the second stock so that the hedge
fund can deliver on its short sale, so it pledges the first, which it
is holding as collateral. The investment bank makes a margin on the
transactions, coming and going.

The reality of the transaction may be more complicated, but King says
this is the principle that explains how the investment banks have been
able to fund up to $US7 trillion in open positions maintained by hedge
funds.

King says you would not worry if the repo operations were conducted
using highly liquid assets such as treasury bonds. If the funding were
to disappear, the asset could simply be sold. However, securities used
for repo loans have been a mix of equities and convoluted credit
products.

In the US, the major source of securities for this funding has been
the “custodian” banks like State Street, which hold securities on
behalf of funds managers, and is known as “tri-party repo”.

At the Federal Reserve’s Jackson Hole conference last month, chairman
Ben Bernanke said he was encouraging banks to reduce their reliance on
tri-party repo funding for overnight financing of less liquid forms of
collateral.

“In the longer term, we need to ensure that there are robust
contingency plans for managing, in an orderly manner, the default of a
major participant,” he added, with subsequent events redefining the
meaning of “longer term”.

On Thursday night, Lehman Brothers administrator PwC said that hedge
funds who had pledged assets to the investment bank could not expect
to get them back.

In Australia, fund managers have contributed to this quasi-liquidity
through the lending of stocks to hedge funds.

Repo operations are not nearly such a large part of the financing of
Australian financial institutions, but still make up more than $20
billion of Macquarie Bank’s balance sheet.

The money-go-round has now seized up, and institutions can no longer
fund securities with securities. As positions become mismatched, there
is a desperate need for cash.

The plans being developed by the US Fed and Treasury for a trust to
take over the unwanted debts of the US banking system may do much to
restore financial market confidence.

But they cannot stop the squeeze on liquidity resulting from the
unwinding of the leverage built into the market for securities, and on
which large components of the world financial industry, including
hedge funds and investment banks, is based.

Australian regulators were trying to create a more robust liquidity
risk management system for the banks when their endeavours were rudely
interrupted by the crisis.

Until the crisis, liquidity risk management was thought of as
particular to individual institutions. Regulators wanted to ensure
that there were contingency plans afoot so that if, for whatever
reason, an institution lost access to financial markets for a period,
the risk could be managed.

However, the financial crisis has thrown up the risk that markets may
close for the entire financial system. APRA is planning to release a
discussion paper before the end of the year.

For the moment, the four major Australian banks are among the handful
of AA-rated banks left in the world. The liquidity shortage is raising
their costs, but they still have access to the funds they require. But
the crisis is adding urgency to the regulators’ “what-if” scenarios.

From here you can use the Social Web links to save Central bank
liquidity has aided by derivatives to a social bookmarking site.

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Staff writers THE Australian competition watchdog said today it would
not oppose BHP Billiton’s proposed takeover of rival mining giant Rio
Tinto.

Andrew Colley IT took a few days but Hutchison 3 Mobile customers
finally have access to popular websites such as BigPond and Hotmail.

FAST food chain McDonald’s has consolidated its $65 million
advertising account with DDB, dumping rival agency Leo Burnett.

Bernard Lane THE University of New England may move to elect a new
chancellor as early as next month in the long-running leadership
crisis.

Michael Bloomberg will seek to overturn a term limits law so he can
run New York for another four years.

Mark Dodd AN Australian delegation visiting Croatia will today meet
its leaders to press for help in resolving the fate of Britt
Lapthorne.

Paul Kelly, Editor-at-large ROSS Garnaut’s report will be anathema to
the environmental lobby but it focuses on the achievable.

Avril Groom in Milan WITH couture taking a clobbering, shoes and
accessories are now at the pointy end of fashion

The engine business small markets

Fannie Mae and Holdings amid a plummeting stock price? Well, for one
thing, Maryland beats the national average in small-business survival.
For another, the U.S. Small Business Administration recently named our
city as one of 11 sites nationally for its Emerging 200 program – an
effort to give 200 small inner-city businesses a boost because of
their potential for high growth and employment. Seventeen of these
firms are in our town, including a mid- to high-end printing company,
a day care provider for mothers re-entering the work force, and an
installer of granite counter tops. Each is receiving professional
guidance and training in order to maximize its effectiveness in the
marketplace. I take this news as an indicator of our success – that
Washington sees its neighbor to the north as a viable home for a local
economic model that is new and different, and primed for success. If
they see us that way, perhaps it’s time that we do the same.

Here are some essential numbers for our area: Ninety-five percent of
all businesses in Maryland employ 50 or fewer people. For the last 15
years, the only sector with an unbroken string of net new jobs is
small business. Let’s not forget that these firms are not getting tax
breaks or other incentives to stay in town, construct buildings or
expand their footprints. They’re doing it the hard way, through
perseverance and perspiration.It’s not just about new jobs, either,
but about the effective utilization of capital – not investing in
those crazy markets, not hiding it under the mattress. They’re
investing in the only thing we can really count on: individual
abilities. They secure the dollars to grow their businesses, and they
just go out and do it. When they hang up that “Grand Opening” banner,
for a bakery or a grocery delivery service or a dentist’s office, they
are truly investing. And even if capital markets dry up, they find a
way, through barter, partnerships and boot-strapping. So, to all those
who are fretting about bankruptcies and bailout proposals: Get a clue.
American entrepreneurship represents a step beyond the frazzled,
fickle corporate outlook of the Lehmans of the world. It represents
freedom. It means that we are our own boss; we manage our own affairs.
While some race to pull capital from traditional markets, we’re
cheering on the angels and entrepreneurs who are funding the next
generation of business growth and job creation. As Mike Morris from
Syracuse University likes to say, “Entrepreneurship is the most
empowering, the most democratic, the most freedom-creating phenomenon
in the history of the human race.”The sky is not falling in our fair
city; in fact, there’s an updraft. Let’s fly with it.Jim Kucher is
executive director of the entrepreneurship program in the University
of Baltimore’s Merrick School of Business. His e-mail is.