posted
I thought this should have its own thread as it has come to my attention that a lot of people didn't know this.
TradingMarkets.com Hank Paulson-Savior Monday October 20, 9:05 am ET By Gary Kaltbaum
In 2000 SEC Testimony, Paulson Recommended "Self-Regulation" For Wall Street, Plus A Rule Change Now Blamed For Collapse Back in 2000, when Hank Paulson was CEO of Goldman Sachs, he testified in front of the Security and Exchange Commission. Among other things, he lobbied the SEC to enact a "change to self-regulation" for Wall Street. He also urged them to change the "net capital rule" which governed the amount of leverage investment banks could use. The net capital rule was indeed changed in 2004, and is now blamed for the investment banks' collapse.
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PAULSON: The Challenge of Technology and Change to Self-Regulation in the United States: "The third area for re-examination and reform is the structure of broker/dealer regulation, a function now shared by the SEC and the self regulatory organizations ("SROs"), principally the New York Stock Exchange and NASD Regulation Inc."
"{W}e and other global firms have, for many years, urged the SEC to reform its net capital rule to allow for more efficient use of capital. This is the single most important factor in driving significant parts of our business offshore, so that our firms can remain competitive with our foreign competitors risk-based capital standards must become the norm. The SEC has made it clear that risk-based capital rules can be implemented only when the Commission is confident that firms employing value-at-risk models have robust credit and risk management policies in place."
"For these reasons we think it is time to seriously consider the creation of a single, independent SRO to adopt, examine and enforce a core body of financial responsibility, customer protection and margin rules. We hope and expect that there would be savings generated by economies of scale."
How did Paulson's recommendation to let investment banks borrow much, much more work out?
The Securities and Exchange Commission can blame itself for the current crisis. That is the allegation being made by a former SEC official, Lee Pickard, who says "a rule change in 2004 led to the failure of Lehman Brothers (NYSE:LEH - News), Bear Stearns, and Merrill Lynch (NYSE:MER - News)." The SEC allowed five firms - the three that have collapsed plus Goldman Sachs and Morgan Stanley - to more than double the leverage they were allowed to keep on their balance sheets and remove discounts that had been applied to the assets they had been required to keep to protect them from defaults.
The so-called net capital rule was created in 1975 to allow the SEC to oversee broker-dealers...The net capital rule also requires that broker dealers limit their debt-to-net capital ratio to 12-to-1. In 2004, the European Union passed a rule allowing the SEC's European counterpart to manage the risk both of broker dealers and their investment banking holding companies. In response, the SEC instituted a similar, voluntary program for broker dealers with capital of at least $5 billion, enabling the agency to oversee both the broker dealers and the holding companies.
This alternative approach, which all five broker-dealers that qualified - Bear Stearns, Lehman Brothers, Merrill Lynch, Goldman Sachs (NYSE:GS - News), and Morgan Stanley (NYSE:MS - News) - voluntarily joined, altered the way the SEC measured their capital. Using computerized models, the SEC, under its new Consolidated Supervised Entities program, allowed the broker dealers to increase their debt-to-net-capital ratios, sometimes, as in the case of Merrill Lynch, to as high as 40-to-1. It also removed the method for applying haircuts, relying instead on another math-based model for calculating risk that led to a much smaller discount.
So when you hear Paulson and Bush (AKA THE BOLSHEVIKS) tell you that the reason for the problem we are in is HOUSING, please realize they are lying to you. They are not just mistaken. They are lying to you. They know better. Any investment can drop 20, 30, 40% without causing catastrophe. It is the leveraging up of these declining assets that cause the problem. "Hank Paulson was the pointman in creating this leverage...and no one seems to care. And no one seems to care that he is now in charge of fixing this problem by creating the largest hedge fund in history...managed by who? Yup...Goldman Sachs!"
While I am no fan of the NY Times, I urge you to read yesterday's article about how Goldman Sachs is now taking everything over...all brought to you by Hank Paulson. I still don't get how this guy, who came from leverage land, could persuade so many to vote for a bill so quickly. All I keep hearing is that the markets would have been much worse without the passing of the bill. "Who is convincing these people of this? Yup...Hank Paulson." I guess we will never know what would have happened without such a bill.
I wanted to give you a little history lesson as there remains so much misinformation and so much dart throwing by pundits who have been bullish all the way down and magically converted into bears out of nowhere in recent weeks. On top of that, those same people who have been calling bottoms all the way down, continue with their nonsensical stance of the market being cheap...the market is a value...the economy is soft but will be ok...and if you sell now, you are going to miss the buy of a lifetime...and lots more of the blah blah blah. The latest excuse to buy is that Warren Buffett bought stock. Even though he said his timing could be off by a year and even though this man is worth $50 billion, just follow Warren and dive right in. Here are the facts.
The market has been bearish for many areas starting back in early '07, with other areas topping in July...with major indices topping in October...with NDX-types topping in January...with flopping and chopping most of '08 before commodities topped July 2 and have crashed along with the rest of the market recently. But again, that does not stop the pundits.
My first problem: I am hearing this will be a small recession. HMMM! If it is going to be small, why did the market drop almost 50%?
My second problem: I am hearing all kinds of calls of bottom...still...as well as the worst is over. The question I have been asked several hundred times this week has been: is the worst over? My answer...MAYBE! COULD BE! I WILL LET YOU KNOW!
Those calling the worst over have not studied history. Bear markets do not just bottom...especially bad bear markets. Going all the way back to the bear that ended in '32, there was a double bottom formed with the first low in June of '32 and the second in February of '33. In 1956, the first low was in May with the second low in November. During '62, the first low occurred in June with the second low in October. There was also a double bottom in the nightmarish '73-'74 bear market (which in my opinion, has now been passed by this one) where the first low came in October with the second low in December. Fast forward to 1982 where that bear ended with a double bottom with the first low occurring in March and the second low coming in August.
In 1987, the first low occurred in October with the second low in December. The market then sat around for a good year before moving up. Even the quick bear market in 1998 traced out a double bottom. Lastly, in the last bear of 2000-03, the first low was put in October of '02 before the final low in March of '03. We know anything can happen...but we have our studies of history on our side. Remember, fear and greed are emotions for the ages. They do not change, regardless of the decade. They just have different degrees to how far they go. So while most continue to just yap, we have some forensic evidence of what odds favor will occur.
There is simply no leadership. Most stocks remain way below longer term moving averages. There are zero bases. There are no sectors in an uptrend...though one sector, the AIRLINES is trying to emerge. WORLD MARKETS have been leading down...and I can go on and on. Shorter term, anything can happen. Last week's action is indicative of a market that is stretched to the norm, thus the ridiculous intraday swings. I have the sneaking suspicion we may now be tracing out a range between recent lows and recent highs...with the market making it tough for both short and long. I am taking my time. During Thursday's follow through day, I took a long proxy for the first time in months. I felt terrible on Friday's poor open...felt better midday, felt real good when market was up 300 and felt like a few shots of tequila were necessary by 4 p.m. EST...and that's just being a wee bit invested. To show you what I mean by this ridiculous intraday action, check these numbers out:
Posts: 4381 | From: houston | Registered: Mar 2006
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posted
Oh, Jan. 22nd will be his last day. Obama won't keep him around. The sad thing is I used to admire Paulson. He is one of the greatest business men of our generation.
Posts: 4381 | From: houston | Registered: Mar 2006
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quote:Originally posted by invester: Oh, Jan. 22nd will be his last day. Obama won't keep him around. The sad thing is I used to admire Paulson. He is one of the greatest business men of our generation.
He will probably return to business and do very well.
-------------------- Let's Go METS!!! Posts: 3317 | From: CT | Registered: Dec 2006
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quote:Originally posted by invester: Oh, Jan. 22nd will be his last day. Obama won't keep him around. The sad thing is I used to admire Paulson. He is one of the greatest business men of our generation.
He will probably return to business and do very well.
I have no doubt; he just muffed the big play like he did when he played football at Dartmouth.
Posts: 4381 | From: houston | Registered: Mar 2006
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quote:Originally posted by invester: Oh, Jan. 22nd will be his last day. Obama won't keep him around. The sad thing is I used to admire Paulson. He is one of the greatest business men of our generation.
He will probably return to business and do very well.
I have no doubt; he just muffed the big play like he did when he played football at Dartmouth.
Maybe this wasn't a muff. Maybe this was the plan all along and we were only being played for fools.
He's a Bushie and I heard the speech dubya just gave on the market. Suppose Paulson told the lies and dubya signed off knowing this was the plan.
Posts: 11304 | From: Fort Worth, Texas | Registered: Mar 2005
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I don't think it’s been the plan all along, but I do think for an individual to go to congress crying "WE NEED THE $700 BILLION AHHHHHHHHHHH MAYHAM, DIER STRAIGHTS" then back off the whole plan entirely is un friggen believable. If there aren't congressional hearings on this I'll hold my own on ALLSTOCKS, who's with me? LoL.
Posts: 4381 | From: houston | Registered: Mar 2006
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posted
The best Wall Street investor ever. I've followed his career during my career. I thought he was the best until this, either blunder, or absolutely calculated event
Posts: 4381 | From: houston | Registered: Mar 2006
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quote:Originally posted by invester: I don't think it’s been the plan all along, but I do think for an individual to go to congress crying "WE NEED THE $700 BILLION AHHHHHHHHHHH MAYHAM, DIER STRAIGHTS" then back off the whole plan entirely is un friggen believable. If there aren't congressional hearings on this I'll hold my own on ALLSTOCKS, who's with me? LoL.
well? he's GOP and the Congress is Dem, so they'll have committee hearings. they already are in fact.
if the banks getting this money give out bonuses this year? you can bet that will be investigated
the problem i HAD with the "original" plan was that it didn't have enough money, and there was no way to set a fair market value on the bad paper...
this way? they have to hold the bad paper, and that stock will be recorded at some point...
they aren't even telling who is getting how much for fear that it might cause more panic than there already is....
i've been pointing out that the country is bankrupt here for years, i KNOW for a fact that the the mark to market rules were changed several years ago and most of the banks ignored the rule changes. they just kept overstating their assets until the rule change finally took effect last Novemebr.
Merryl lynch was supposedly the most "conservative" amongst the mark-to market liars, and they got bought out in the open market...
if we don't start balancing our trade deficit? we are never going to recover...
a very weak dollar is the only way that's going to happen, and we can't seem to force it into "weakness" cuz everybody else just takes their currency down when we try...
people act as if globalisation is inevitable, and we have to live with it...
we have stop buying more foreign goods than we can sell overseas one way or another, it has to happen and fast.
anybody who tells you that protectionism is bad just doesn't understand how the global market really works.
all of Asia is protectionist.. and they might suffer when we do but that's cuz they depend on US to borrow money from them and use it to buy goods from them..
-------------------- Don't envy the happiness of those who live in a fool's paradise. Posts: 36378 | From: USA | Registered: Sep 2003
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quote:Originally posted by invester: The best Wall Street investor ever. I've followed his career during my career. I thought he was the best until this, either blunder, or absolutely calculated event
Guess you never heard of George Soros, Warren Buffett, Jesse Livermore etc.. lol
-------------------- Let the world change you... And you can change the world.
Ernesto "Che" Guevara de la Serna Posts: 4669 | Registered: Mar 2004
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quote:Originally posted by Peaser: I thought this should have its own thread as it has come to my attention that a lot of people didn't know this.
...including yourself.
Good thing you found this article since osu, glass, and I have been telling you these things for months now.
It's a good thing that this article has come to your attention, as you wouldn't listen to us.
I've know about this for years guy. This was the cause, not the effect. I only changed my view after he stated he wouldn't buy up the banks bad assets. The market had already fallen 40% when I made my call. Two separate thoughts. Oh, and nobody listens to your incomplete thoughts anyway. I'm able to read markets on my own.
Posts: 4381 | From: houston | Registered: Mar 2006
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