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Archive for the ‘Chris Dodd’ Category

Governing class tightens its grasp on the levers of power

By Richard W. Rahn

The “Dodd financial reform” bill being considered by the Senate will make it illegal for 99.6 percent of the population to invest in needed new and promising start-up companies while at the same time ensuring that the 33 largest banks, which control 92 percent of all bank assets, will be required to purchase more federal government debt before giving loans to businesses and individuals. Quite simply, the government is continuing to practice financial fascism.

The new health care bill will require us to buy specified health insurance, whether it is appropriate for us or not. Government-run ads encourage people to buy tickets in government-run lotteries, where the expected value can be less than one-sixth of the ticket price. Yet the new financial reform bill will make it illegal to invest in a new venture or start-up company for anyone who does not have a liquid net worth of $2.2 million or an annual income of roughly $450,000 if single or $675,000 if married – which rules out all but fewer than 1 percent of the population. If this passes and is signed into law, Congress and the president will be saying to the American people, “Ninety-nine-plus percent of you are too stupid to know how to invest your own money.” (They think the rest of us are as irresponsible as they are.)

A major reason the American economy has prospered is that traditionally it has been easy to start a new business, and new businesses account for much of the innovation and job growth in the American economy. Inventors, from Thomas Edison (who started GE, among other companies) to the modern-day whizzes behind Apple, Google and all the rest, have relied on their ability to get “angel” investors to begin their companies. An angel investor is one who is willing to invest in a new and untried business with the hope of a very large return.

It is well known that there is a very high rate of failure among new businesses. For instance, more than 90 percent of all new restaurants fail within three years – but many of the ones that don’t fail become very profitable. For every new Apple, there are hundreds of failures. In the name of “investor protection,” the Securities and Exchange Commission (SEC) makes it almost mandatory that entrepreneurs approach only “accredited investors” when seeking investment capital. Currently, an accredited investor is a person who has a net worth of $1 million or an income of $200,000 per year. The SEC will argue that such a rule protects “widows and orphans” from unscrupulous promoters. This is the same SEC that failed to see the Madoff Ponzi scheme when it was dumped in its lap.

In fact, the rule makes little sense and strongly discriminates against knowledgeable people who are not yet wealthy but are quite capable of making good investment decisions while doing nothing to protect the medical doctor or professional basketball player who easily might meet the definition of an accredited investor but knows little about the risks of new ventures. Under the current rule, a young finance professor at a good university business school who makes $120,000 a year and has a net worth of just $500,000 would not be considered competent to invest in a promising new high-tech start-up, while a successful country-and-Western singer with an eighth-grade education and no experience in or knowledge of business or finance would be considered competent. The proposed rule in the financial reform bill will make this absurdity and loss of financial freedom far worse.

What right do the financial fascists in Washington, who created the world’s biggest financial Ponzi schemes (i.e., Social Security and Medicare) and the largest unsustainable debt in history, have to tell more than 99 percent of the rest of us what we can and cannot invest in?

Those in the same political class are ardent proponents of state lotteries, which typically give a ticket buyer one chance in 15 million of winning, with a payout of less than 50 percent of the ticket price. If one does win and decides to take a lump sum rather than a 30-year payout, the normal payment is one-third of the face amount, upon which the recipient will have to pay full federal and state income tax. Given President Obama’s new tax-increase proposals, a lottery winner in a high-tax state such as California would be paying about 50 percent of the winnings in tax. Thus, a person who buys a $1 ticket can expect to receive only about 7.5 cents in return. If this is not financial fraud, there is no such thing as financial fraud, but because it is practiced by government, it is deemed OK even though any private party doing the same thing would go jail.

At the same time the government class is doing its best to fleece the poor and math-challenged by promoting state lotteries, it is doing its best to prevent middle-class Americans from investing in new businesses that might become productive. Could this possibly have anything to do with who were the big financial givers to the Obama campaign and to the campaigns of the Democratic congressional committee chairmen?

The 1,300-page financial reform bill going through the Senate will, in essence, make the biggest banks (those considered too big to fail) wards of the state – which is classic financial fascism. The Obama Treasury, not the semi-independent Federal Reserve, will decide what these banks are allowed to invest in, in exchange for an unlimited U.S. government guarantee. Since September 2009, banks have been lending more to the government than to private industry. One does not have to be a rocket scientist to see where all this is headed.

Richard W. Rahn is a senior fellow at the Cato Institute and chairman of the Institute for Global Economic Growth.

Dodd’s Chief Counsel Bought Financial Stocks During 2008 Crisis

By Robert Schmidt

March 18 (Bloomberg) — Senate Banking Committee Chairman Christopher Dodd’s chief counsel in 2008 traded stock in Morgan Stanley, Wells Fargo & Co., American International Group Inc. and other rescued companies as the panel considered legislation to address the credit crisis, according to her financial disclosure form filed with the Senate.

Amy Friend, 51, who is now leading the panel’s effort to write a bill overhauling Wall Street regulations, bought $1,000- to-$15,000 stakes in four banks, weeks after Dodd hired her in January 2008, the form shows. She also owned shares of Fannie Mae, Freddie Mac, AIG and other insurance firms, according to the disclosure document, which she signed on June 5, 2009.

The transactions, permissible under Senate rules, included buying $1,000 to $15,000 of Federal Home Loan Bank bonds and Fannie Mae debt in June and July, 2008. On July 30 of that year, then-President George W. Bush signed into law a Dodd-sponsored bill setting out new regulations for the housing finance agencies and allowing the Treasury Department to give them cash injections.

“This looks very bad,” said Melanie Sloan, the executive director for Citizens for Responsibility and Ethics in Washington and a former Democratic congressional aide. “At the very least it’s inappropriate and it gives the appearance of wrongdoing, even if there is none.”

Ethics Committee

Dodd, a Connecticut Democrat, defended his chief counsel. “Amy Friend is one of the fiercest public advocates on Capitol Hill today,” Dodd said in an e-mailed statement. “Her integrity is second to none.”

Friend, who declined to comment, informed her supervisor of her holdings, and consulted the Senate Ethics Committee when she was hired, Kirstin Brost, the Senate Banking Committee spokeswoman, said.

Friend lists the investments as jointly owned with her husband. She continues to hold financial securities, Brost said. Friend’s disclosure form for 2009 is due in May.

Sloan and other ethics specialists say Friend’s stock ownership and trading reflect the leeway lawmakers and congressional staff have with their investments. Unlike Treasury Department employees or bank examiners at independent regulatory agencies who aren’t allowed to hold shares of companies they oversee, U.S. lawmakers and their staff are free to invest with few restrictions.

Still, Friend’s counterparts on the banking panel’s Republican side and on the House Financial Services Committee didn’t own financial instruments, according to their 2008 disclosures.

‘Squishy’ Rules

The rules “are kind of squishy intentionally,” said Kenneth Gross, a partner at the Skadden, Arps, Slate, Meagher & Flom LLP law firm in Washington who counsels people on ethics regulations. “Congress has permitted the holding and trading of securities virtually unfettered.”

Senate rule 37 states that no lawmaker or employee “shall knowingly use his official position to introduce or aid the progress or passage of legislation, a principal purpose of which is to further only his pecuniary interest.”

In additional guidance, the Senate Ethics Manual notes that the restriction is “narrow” and says that if the legislation has broad impact, a prohibition wouldn’t apply.

The rules require staff that have “substantial holdings” that could be directly affected by a committee’s work to divest, unless they are given a waiver by the Senate Ethics Committee.

The ethics panel has told congressional staff that a fair definition of “substantial” would be any single holding equal to 3 percent to 5 percent of total liquid assets. Friend’s combined financial investments constituted less than 2 percent of her liquid assets, below the ethics guidance, Brost said.

‘Not Unethical’

John Hasnas, who teaches ethics as an associate professor at Georgetown University’s McDonough School of Business in Washington, said that while her actions may not look good politically, “the fact that it may appear unethical to others doesn’t mean what you did was wrong.”

“If the rules say that she is allowed to do it and the only problem is that it gives the appearance of impropriety, in my opinion she has not behaved unethically,” Hasnas said in a telephone interview.

It is impossible to tell the exact amount of Friend’s purchases and sales from the ethics records, which require her to value investments only in broad ranges.

She listed each of her financial stocks as being worth $1,000 to $15,000. They included: AIG, Bank of America Corp., Bank of New York Mellon Corp., Discover Financial Services, Freddie Mac, Fannie Mae, Federated Investors Inc., M&T Bank Corp., Wells Fargo, MetLife Inc. and MGIC Investment Corp., a mortgage insurer.

Company Stocks

Friend’s portfolio included stocks of more than 100 companies, many non-financial, ranging from Coca-Cola Co. to Target Corp. to Xerox Corp. She also owned mutual funds, municipal bonds and Treasury bills.

Friend was an attorney at the Office of the Comptroller of the Currency before joining the banking committee. She also teaches a spinning class at a Northern Virginia gym in her spare time, earning $1,200 in 2008.

Friend’s first year working for the panel included the near-collapse of Bear Stearns Cos., the bankruptcy of Lehman Brothers Holdings Inc., the government bailouts of AIG, Fannie Mae and Freddie Mac, and passage of the $700 billion financial rescue law.

The committee also considered the Housing and Economic Recovery Act, which provided foreclosure assistance to struggling homeowners, created a more powerful regulator for the home loan banks and Fannie Mae and Freddie Mac, and gave the Treasury emergency authority to bail out the housing-finance giants.

Fannie Mae Shares

On July 23, as lawmakers neared agreement on the bill, shares of Fannie Mae rose 12 percent to close at $15 in New York Stock Exchange composite trading. Friend’s own Fannie Mae stock holdings would have increased in value as well, though not enough to cover steady declines since she acquired the shares on January 23, when they closed at $34.78

Friend also made five purchases of Federal Home Loan Bank Board bonds in 2008, each valued at $1,000 to $15,000, according to the form. Two were in January, one in February, one in March and one in June of that year. Friend valued her total holdings of the bonds at $50,000 to $100,000, according to the form.

She also purchased Fannie Mae debt on July 1, two weeks before the bill, sponsored by Dodd and Senator Richard Shelby of Alabama, the senior Republican on the banking committee, passed the Senate.

Bank of America

Some of Friend’s trades listed in the disclosure statement were stock purchases — all in 2008 — and may not have been profitable. For example, when she bought Bank of America on Feb. 20, its closing share price was $42.97. She acquired additional shares on May 27, when the closing price was $34.17. It was $17.03 a share at yesterday’s close.

Friend purchased AIG on Aug. 12 when its closing share price was $457. About a month later, the firm received an $85 billion loan from the Federal Reserve, the first of several bailouts. AIG shares closed yesterday at $33.61 a share.

Very few of the trades in Friend’s portfolio were sales. She did unload $1,000 to $15,000 of Morgan Stanley shares on Sept. 22, several days after then-Treasury Secretary Henry Paulson asked Congress to pass the Troubled Asset Relief Program designed to remove toxic debt from banks’ books.

–Editors: Brendan Murray, Paula Dwyer

To contact the reporter on this story: Robert Schmidt in Washington at rschmidt5@bloomberg.net.

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

Useless Regulation: Dodd Bill “Empowers” Fed To Do Nothing

In what amounts to a dog and pony show without dogs and without ponies, Dodd Bill Empowers Regulators to Limit Size of Financial Firms.

U.S. Senator Christopher Dodd, the Connecticut Democrat who chairs the Senate Banking Committee, speaks about overhauling U.S. financial regulation. Dodd, speaking at a news conference in Washington, unveiled a plan to overhaul financial rules and empower the Federal Reserve to break up large firms that pose a “grave threat” to U.S. economic stability.

Seriously, does anyone think Bernanke would act on this? Hell, Bernanke did not see a housing crisis or a recession. Bernanke thought he could put a floor on interest rates at 2% by paying interest on reserve. No one was more useless than Bernanke.

Take a look at Goldman Sachs. It is preposterous that a hedge fund, (and that is all Goldman Sachs is), can borrow money from the Fed at absurdly low rates and speculate in whatever the hell it wants.

Is this a systemic risk? Of course it is.
Does Bernanke or the Fed want to do anything about it? Of course not.

Beyond absurdities in lending arrangements, Goldman Sachs routinely trades against advice it give its clients. Where is the separation of duties? I think giving advice to clients and trading against it is fraudulent, at the very least it is unethical.

Does the Fed want to do anything about that? Of Course not.

What about off balance sheet assets at Citigroup and JPMorgan?
Does the Fed want to do anything about that? Of Course not.

What about the Pay Option ARMs mess at Wells Fargo?
Does the Fed want to do anything about that? Of Course not.

Dodd’s bill, assuming it gets passed, is much ado about nothing.

If Congress really wanted to do something it would require physical (not logical, within one company) separation of duties, it would prohibit trading against clients, and it would prevent off balance sheet accounting. Instead, Dodd’s bill “empowers” the Fed to do nothing. And “nothing” is exactly what the Fed will do.

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Captain, We Cannot Withstand Another Attack

Posted by Karl Denninger

This exciting development from Firedoglake:

As Ben Bernanke’s confirmation hearing begins in the Senate Banking
Committee, a source tells FDL News that one Senate staffer and an
outside source confirmed to him that at least one Republican on the
committee will also place a hold on the Federal Reserve chairman,
throwing the process into potential turmoil and giving Chris Dodd a
difficult series of choices to make.

Dodd, who just announced his intention to vote for Bernanke’s
confirmation in the Banking Committee and on the floor of the Senate,
would be in charge of the decision to honor or ignore that hold. The
fact that Dodd tried to place a hold on the FISA Amendments Act in
2007-08, and was generally ignored by Harry Reid, just adds a layer of
irony to the process.

The source, speaking on condition of anonymity because of his work
behind the scenes on the Bernanke confirmation, told me that two
separate sources assured him that the Republican hold would be made
public after today’s hearing. One staffer said that two Republicans
would place the hold, while the other said it would just be one. The
source said that the trans-partisan nature of opposition to Bernanke,
with a conservative Republican and a socialist independent uniting to
block the appointment, shows the intensity of the feelings on the
issue. “It’s great to see everyone come together – Democrats,
Republicans, progressives and libertarians, against this Federal
Reserve, which is not federal, and not a reserve, just a group printing
money and giving it to their buddies,” the source said.

While most people think that the multiple holds would delay the
process, it’s unclear whether or not it would succeed. Dodd would
probably have the discretion to roll over the hold in committee, though
he may be reluctant to do so, experts in Senate procedure said. Harry
Reid could also seek cloture on the motion to proceed on Bernanke’s
nomination on the floor, which would require 60 votes.

At the very least, this delay and the publicity surrounding
bipartisan opposition to Bernanke would bring attention to the issue of
the Federal Reserve and the desire for transparency, like the movement
to audit the Fed. That provision has already passed in the large
financial reform bill in the House Financial Services Committee, and Barney Frank said yesterday
that he didn’t expect any changes to the bill as it passed the House,
citing the public anger over the issue of transparency. There is
language on Fed audits in the draft financial reform bill written by
Sen. Dodd, which also strips the Fed of some of its power, but it is
not the same as Bernie Sanders’ audit the Fed bill, which has as many
as 30 cosponsors.

The source, who has been working on the Federal Reserve issue for
five years, marveled at how the issue has gained so much new attention
during the financial crisis. “Up until last year, nobody knew what the
Fed was. Ron Paul got 5 co-sponsors on his audit bill when he first
introduced it, and now we have 300.”

Sen. Dodd’s office has not yet responded with a comment.