TI's the Latest in Line to the Courthouse Over $524 Million in Auction Rate Securities

• TI Story: Yes, selling and re-selling worthless "securities" may sound familiar, because it is. Soon we will be ready about documents that have been sliced and diced and sold and re-sold. Except this time, there is no house or condo that can be reclaimed. Just some college kids.

• OMG I had no idea that was that long, sorry

• On a related note there are two terrific articles I'd like to post, one from the Asia Times, "Giethner's dirty little secret" Geithner's dirty little secret By F William Engdahl US Treasury Secretary Tim Geithner, in unveiling his long-awaited plan to put the US banking system back in order, has refused to tell the dirty little secret of the present financial crisis. By refusing to do so, he is trying to save de facto bankrupt US banks that threaten to bring the entire global system down in a new more devastating phase of wealth destruction. The Geithner proposal, his so-called Public-Private Partnership Investment Program, or PPPIP, is not designed to restore a healthy lending system that would funnel credit to business and consumers. Rather it is yet another intricate scheme to pour even more hundreds of billions of dollars directly to the leading banks and Wall Street firms responsible for the current mess in world credit markets, without demanding they change their business model. Yet, one might say, won't this eventually help the problem by getting the banks back to health? Not the way the Barack Obama administration is proceeding. In defending his plan on US TV recently, Geithner, a protege of Henry Kissinger and before his present posting president of the New York Federal Reserve Bank, argued that his intent was "not to sustain weak banks at the expense of strong". Yet this is precisely what the PPPIP does. The weak banks are the five largest banks in the system. The "dirty little secret" that Geithner is going to great degrees to obscure from the public is very simple. There are only at most perhaps five US banks that are the source of the toxic poison causing such dislocation in the world financial system. What Geithner is desperately trying to protect is that reality. The heart of the present problem, and the reason ordinary loan losses are not the problem as in prior bank crises, is a variety of exotic financial derivatives, most especially credit default swaps. In the Bill Clinton administration of 2000, the Treasury secretary was Larry Summers, who had just been promoted from number two under former Goldman Sachs banker Robert Rubin to be number one when Rubin left Washington to take up the post of Citigroup vice chairman. As I describe in detail in my new book, Power of Money: The Rise and Fall of the American Century, to be released this summer, Summers convinced president Clinton to sign several Republican bills into law that opened the floodgates for banks to abuse their powers. The fact that the Wall Street big banks spent some US$5 billion in lobbying for these changes after 1998 was likely not lost on Clinton. One significant law was the repeal of the 1933 Depression-era Glass-Steagall Act, which prohibited mergers of commercial banks, insurance companies and brokerage firms such as Merrill Lynch or Goldman Sachs. A second law backed by Treasury secretary Summers in 2000 was an obscure but deadly important Commodity Futures Modernization Act of 2000. That law prevented the responsible US government regulatory agency, Commodity Futures Trading Corporation (CFTC), from having any oversight over the trading of financial derivatives. The new CFMA law stipulated that so-called over-the-counter (OTC) derivatives like credit default swaps, such as those involved in the AIG insurance disaster, (and which investor Warren Buffett once called "weapons of mass financial destruction"), be free from government regulation. At the time Summers was busy opening the floodgates of financial abuse for the Wall Street Money Trust, his assistant was none other than Tim Geithner, the man who today is US Treasury Secretary, while Geithner's old boss, the self-same Summers, is President Obama's chief economic adviser as head of the White House Economic Council. To have Geithner and Summers responsible for cleaning up the financial mess is tantamount to putting the proverbial fox in to guard the henhouse. What Geithner does not want the public to understand, his "dirty little secret", is that the repeal of Glass-Steagall and the passage of the Commodity Futures Modernization Act in 2000 allowed the creation of a tiny handful of banks that would virtually monopolize key parts of the global "off-balance sheet" or OTC derivatives issuance. Today, five US banks, according to data in the just-released Federal Office of Comptroller of the Currency's Quarterly Report on Bank Trading and Derivatives Activity, hold 96% of all US bank derivatives positions in terms of nominal values, and an eye-popping 81% of the total net credit risk exposure in event of default. The top three are, in declining order of importance: JPMorgan Chase, which holds $88 t. in derivatives; B of Am. with $38 t., and Citibank with $32 t. #4 is Goldman Sachs, with a mere $30 t. in derivatives; #5, the merged Wells Fargo-Wachovia, drops dramatically in size to $5 t. #6, Britain's HSBC Bank USA, has $3.7 t. After that the size of US bank exposure to these explosive off-balance-sheet unregulated derivative obligations falls off dramatically http://www.atimes.com/atimes/Global_Economy/KD03Dj02.html The other telling article is Dan Gross at the Big S who argues that it's not only the internet to blame for the demise of papers but debt. http://www.slate.com/id/2215154/ I feel sorry TI got burned, but I don't think tax-payers ought to make them whole. You'd think those analyst at TI could inquire into the soundness of these companies. This goes into my theory about suits, don't trust a man who wears a coat and tie in summer--he is incapable of following the most basic of instincts, he is literally washed in the robes of charade or impression. He's trying to sell you something. Lawyers are advocates, Bankers are salesmen, Insurers are sales men. These enterprises on a retail level shouldn't require the assistance of an expert. Banks used to be utilities and once again should be so. This directly relates to the repeal of Glass Stegal. Consistently, non-Profit institutions out preform and do so for less cost "private" institutions. Despite much of what you hear, Fannie and Freddie avoided many of the worst loans. They though compromised still held some strictures which were deliberately dodged with un-regulated lending. For most people banking should be operated as a non-profit. The consumer, even the geniuses at TI are powerless to assess the books of these institutions. Since 2000 Financial services have increased as a share of the total economy from 25% to 45%. Anyone wanna guess where that money went? The profits were illusory, the bonuses real, those increased tax revenues will be lost in write downs and bailouts. There's nothing free about this market. Again, in "free markets" you have total power as the consumer. You get service with a smile, and the customer is almost always right. But when you hire the expertise of a professional, you're like a fish in a kennel of cats. The last market is the utility market. These are monopolies and should be tightly regulated if not run as non-profits. The consumer here is powerless. I have USAA insurance and credit. They have not hit me with abusive fees and hiked my interest rate even as interest rates were rising/falling. USAA is a non profit insurer and investor. They consistently have the highest service ratings while offering lowest prices and fees. Better still, since they are non-profit, they often pay a dividend back to their customers every year. They are prudent in their investments simply following the rules. They don't pay for superstar investors, nor management. I find USAA to be a strong argument for nationalized or GSE enterprises. Selling electricity to Americans doesn't merit much of a commission, and it makes no sense to have many sales companies when the supply is essentially all from the same source. A Coke vendor works harder selling his non-essential competitive product than one does selling electricity. Isn't this bribery when there is one source for some service--let's say passports, and you have mercenaries taking money to get you access to that tax-payer supported service? With electricity we should pay for what we use, why are we having to have someone "hook us up" when most of us are "hooked" into the very wire that's bringing the juice. What leeches are these? Essential services that are tax-payer funded should be run as non-profits. Remember Hospitals used to all be non-profit. We missed and forget that many were bought-up, privatized and now they are taking their extra bit. Doctors should earn a good income, and I'm not talking about their offices. But when you need emergency services, and get moved up into the upper floors you don't really have the ability to shop around, find the best value relating to rates and amenities. Ironically, Zale-Lipshey (sp?) has capitalized on this and offers superior services for those who can afford it. I have no problem with Z-L and superior amenities for those who have the means. But, the fact that Z-L is there now is due to the fact that we indeed subsidize healthcare. Yet, RoB, if we had national healthcare we'd see a reduction in our property taxes. Since, many of the uninsured burdens on the county would have coverage. It's no accident that our system of shhh socialism cost so much, we're supporting an illusion privatization. This charade is costing doctors and hospitals 10-15% in direct overhead and it's said conservatively that the system bears a 25% burden just from paper shuffling. It's time we discuss these matters frankly, and be careful we don't get another electric deregulation where competition is illusory and the monopolies further insulated and indemnified.

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