Bill Clinton's legacy, crisis and more

Clinton is not entirely blameless for repealing the Glass Seagall Act born during the depression era circa 1930's and replacing it with a new act. This new Act allowed banks to get into investment banking activities. This, in short, means that actual mortgages of clients could be converted into bonds (vetted by the rating agencies) and then sold to unsuspecting investors far and wide. This is one of the major contributing reasons of the sub-prime crisis. Had local banks not been allowed to transfer "risk" from themselves to an investor, they would have not indulged in sub-prime loans and also would have been much more careful in follow ups with non paying customers and ensured that the mortgage was always given to the customers who would repay it back to the bank. The change of the law removed this most crucial control wherein the bank did not have much reason to ensure that it acted in the best interest of its own self and of course, today we have seen what happens when a bank does not have control over its customers or the loans that it gave and meanwhile the investors also come and file a lawsuit and then...the bank goes bankrupt. This is quite familiar to us with exactly the same things happening in US, UK, Iceland, Ireland etc.

However, this common sense control was removed and the banks continued to sell mortgages which after a 90 day period (if the owner had not defaulted by then on the monthly payment) were legally allowed to be converted into a securitized asset "bond" (by virtue of this law approved by Clinton).

Anyhow, now it too late to play the blame game and of course, with all due respect, it was not entirely Clinton's fault, it was partly his advisers and partly the bureaucracy and the way the system works prodded by bankers (especially the ones too big to fail) and regulators and the rating agencies....and the list goes on.

In fact, Clinton also admits that NOT regulating derivatives during his administration between 1992-2000 was his fault. This is a sign of a great man because no one else has admitted this yet including Greenspan and many others.

I strongly recommend that you set aside a few minutes and read all the pages of this article.

Excerpts:

When the subject came up during our conversation in Chappaqua, Clinton calmly dissected the case against him and acknowledged that in at least some particulars his critics have a point. In almost clinical form, as if back at Oxford as a Rhodes scholar, he broke down the case against him into three allegations: first, that he used the Community Reinvestment Act to force small banks into making loans to low-income depositors who were too risky. Second, that he signed the deregulatory Gramm-Leach-Bliley Act in 1999, repealing part of the Depression-era Glass-Steagall Act that prohibited commercial banks from engaging in the investment business. And third, that he failed to regulate the complex financial instruments known as derivatives.

The first complaint Clinton rejects as “just a totally off-the-wall crazy argument” made by the “right wing,” noting that community banks have not had major problems. The second he gives some credence to, although he blames Bush for, in his view, neutering the Securities and Exchange Commission. “Letting banks take investment positions I don’t think had much to do with this meltdown,” he said. “And the more diversified institutions in general were better able to handle what happened. And again, if I had known that the S.E.C. would have taken a rain check, would I have done it? Probably not. But I wouldn’t have done anything. In other words, I would have tried to reverse everything if I had known we were going to have eight years where we would not have an S.E.C. for most of the time.”

However, it is true that many small banks have gone under. 36 banks have already closed in USA this year in 2009, more than the entire 2008. This does not include many banks worldwide who are having problems. Read here about small community banks in Minnesota having problems:
Analysts warn bank failures loom in Minnesota




It is indeed a fascinating article and you will come out enriched after having read it.

The Mellowing of William Jefferson Clinton

I love Clinton's picture too!

Hell in Crisis: How greed corrupted all

These caricatures while funny tend to accurately depict the boom and consequently the greed that enveloped all the mighty and powerful be they businessmen, executives, Government servants or anyone in positions of power. This eventually led to the downfall and meltdown of the financial markets and brought us where we are today in the financial landscape. Everyone played this game of power wherein the high and mighty kept on dancing (or paying bonuses) mainly because everyone was doing so and too many people/companies were making too much money at the same time. The executives and businessmen were paying off to subordinates because they were making too much money because the company was making too much money. The executives and subordinates alike were spending more in luxury items, large houses, traveling, food etc because they were making easy money and the circle went round and round. All the brakes and controls were thrown to the winds and all rules were bent because money continue to be made. Leveraging, back room dealings, uncontrolled growth, manipulations, low interest rates leading to excessive risk taking, lack of Government & regulatory control and mostly greed all made a lethal mix to bring us to this day today.

Now that companies have stopped making money (stopped dancing), so the Governments (who received large bribes - read donations - and tax revenues) are not happy and neither are the folks who received large amounts of easy money. Hence the music has literally stopped and the world has come upon a crisis.

Good quality, ethical compass, value for money and customer service have all made a sudden and swift comeback.

Anyone who has not been doing so in the past is and will be suffering by virtue of no easy money, no job/income and hence the cycle of money rotating in the system has to reduce dramatically which is being currently supported to an extent by the spending of all Governments in infrastructure projects. We have seen the beginning of this catastrophe over the last few months whereby non financial companies have also gone into a meltdown which include car companies as different as GM, Chrysler, Toyota, Jaguar; Retailers such as large malls in America and other stores; TV companies such as Sony and Panasonic; real estate companies such as Trump (USA), Nakheel (Dubai) and DLF (India) etc; Telecom companies such as BT, not including the hedge funds, mortgage companies, banks and insurance companies that have gone under around the world. Read here the job cuts of first quarter of 2009 across countries and industries.

Another job loss tracker is here from Forbes.com. Please note this is only for announced lay offs of Top 500 US companies. It does not include anyone outside of the top 500 companies or in Govt sector or in independent outlets or in small businesses or self employed etc. Regardless, it is an interesting indicator.

There indeed is a crisis that does not seem to abate just like an oncoming tsunami - of 2004 - that was also never witnessed before!

Today, when America loses 500,000 jobs per month, it is claimed that things are improving, which effectively shows that how bad the things become! If you think about it, until about 2 years ago, America was on a huge growth trajectory and new jobs were being added around the world including USA whereas now with millions of jobs being lost just in 2009 (if we include job losses of 2007 and 2008 the numbers are really staggering and easily go above 15-20m job losses only in America), the media continues to put a positive spin on the news that losing 500,000 jobs is better!

Everyone needs to get over their high horses and realise how bad things have become and will continue to be, for some more time to come.

However, it is certainly true, what a learned economist characterized as TWINE - The World Is Not Ending.

Things shall improve, as eventually everything does, just like a new dawn after a dark night but it will take some more time and loads of patience.


Hell in Crisis
by Edward Sorel and Richard Lingeman
June 2009

Rothschild name shines and we feel proud in our association with them

Rothschild deserves accolades for its even stronger performance despite the ongoing financial crisis. Their due diligence, caring for their client's money, winning the best Private bank in 2008 award for 5 different categories in Luxembourg (consistently over the last several years) says it all. Kudos to my colleagues at Rothschild!

Now, Bloomberg delivers an article contrasting the remarkable differences between Madoff and the best in class Rothschild Private Bank and unmasks how Rothschild manage money for their clients. Rothschilds have not disappointed their clients and have followed the age old practices of being a conservative and staid private banker.

It is a privilege that my bank, Axis Bank from India, has a strong partnership with the same private banking group (Banque Privee Edmond de Rothschild Group) and it makes me feel proud to be associated with them so closely. Wishing them many more glorious awards and articles in the future and lucky for us being a partner with such an esteemed organisation!

Some excerpts:

“Madoff has become a filter for everyone’s perception of whether banks were doing their job,” said Leslie Gaines-Ross, chief reputation strategist at the Weber Shandwick consulting firm in New York and author of “Corporate Reputation: 12 Steps to Safeguarding and Recovering Reputation,” (John Wiley & Sons Inc., 2008). “Rothschild is one of the few that is still admired and holds true to its reputation.”

"Baron Benjamin, head of the Geneva arm of the Rothschild family that financed the Suez Canal and Wellington’s victory at Waterloo, is betting that heritage will help his firm grow. Rothschild had no investments with Madoff."

"Rothschild and Madoff are “poles apart,” said Cedric Tille, a professor at the Graduate Institute in Geneva and a former economist for the Federal Reserve Bank of New York. “Many private banks in Geneva have enough tradition to sell themselves as cool heads who don’t fall for the latest fad.”

"'Look for Safety’

Banque Privee Edmond de Rothschild Group received 1.7 billion francs of new assets in the first quarter. Pictet & Cie. and Mirabaud & Cie., two Geneva-based banks that trace their roots back to the 19th century, also attracted clients after avoiding Madoff, who’s in a Manhattan jail awaiting sentencing on charges that carry a maximum prison term of 150 years."

"Rothschild depends on its record of preserving customers’ savings to set itself apart, said Werner Rutsch, co-author of “Swiss Banking -- Where Next?” (Neue Zuercher Zeitung, 2008). "

"Madoff reported annual returns of 8.5 percent to 11.7 percent during the past five years, according to Notz Stucki. Rothschild’s $746 million Prifund Alpha Uncorrelated dollar fund rose at an annual rate of 5.9 percent in the same period. Funds that invest in other firms’ hedge funds gained 3.47 percent, data compiled by Chicago-based Hedge Fund Research Inc. show. "

"While Rothschild snubbed Madoff, he has mirrored his forebears with investments in Bordeaux vineyards, Brie de Meaux cheese and a slice of the French Alpine resort of Megeve. The promotion of what the bank calls its “art de vivre” reinforces the values and family history that are part of Rothschild’s marketing strategy, Cocca said."

"Rothschild produces wine at four properties in France’s Medoc region, close to the Lafite and Mouton Bordeaux vineyards owned by the French branch of the family, and in partnership with South Africa’s Rupert family on a Huguenot farm 50 miles from Cape Town."

Bloomberg:
Rothschild Difference With Madoff Becomes Geneva’s Obsession
Last Updated: May 7, 2009 18:01 EDT
By Warren Giles in Geneva