Friday, December 2, 2011

Crony Capitalism

I just wrote this to a trader friend of mine. Some personal stuff has been redacted.

Here are two examples of how the current extreme corporate influence over our government winds up hurting you. And I mean YOU, xxxxxxxx. This first story xxxxxxxxxxxxxx found this appalling, calling this, if not illegal, than certainly something that is extralegal - A July 2008 meeting with Hank Paulson giving top money managers inside information on potential future Treasury plans for Fannie and Freddie.

Here's the link:

And here's the juiciest stuff (with bolding added):

Over sandwiches and pasta salad, he delivered that information to a group of men capable of profiting from any disclosure.
Around the conference room table were a dozen or so hedge-fund managers and other Wall Street executives -- at least five of them alumni of Goldman Sachs Group Inc. (GS), of which Paulson was chief executive officer and chairman from 1999 to 2006. In addition to Eton Park founder Eric Mindich, they included such boldface names as Lone Pine Capital LLC founder Stephen Mandel, Dinakar Singh of TPG-Axon Capital Management LP and Daniel Och of Och-Ziff Capital Management Group LLC.
After a perfunctory discussion of the market turmoil, the fund manager says, the discussion turned to Fannie Mae and Freddie Mac. Paulson said he had erred by not punishing Bear Stearns shareholders more severely. The secretary, then 62, went on to describe a possible scenario for placing Fannie and Freddie into “conservatorship” -- a government seizure designed to allow the firms to continue operations despite heavy losses in the mortgage markets.
Paulson explained that under this scenario, the common stock of the two government-sponsored enterprises, or GSEs, would be effectively wiped out. So too would the various classes of preferred stock, he said.
The fund manager says he was shocked that Paulson would furnish such specific information -- to his mind, leaving little doubt that the Treasury Department would carry out the plan. The managers attending the meeting were thus given a choice opportunity to trade on that information.

That was under Bush. And under Obama? Here we go again!
From yesterday's WSJ (no link due to paywall). I'm bolding the important stuff.

Thursday, December 1, 2011

Wall Street Pushed Federal Reserve for Europe Action .


Wall Street executives, in a private meeting with a top Federal Reserve official in late September, recommended a coordinated effort by central banks to remedy the European financial crisis, according to Fed documents received in an open-records request.

The meeting, led by Louis Bacon, founder of hedge fund Moore Capital Management, preceded a joint action Wednesday by the world's major central banks, which banded together to provide liquidity to the markets through cheap U.S. dollar loans.

The Fed, ECB and other central banks took coordinated action to support the global financial system as Europe's rolling debt crisis continues to trouble markets. Vincent Cignarella and Charles Forelle discuss details on Markets Hub. Wednesday's moves involved central-bank coordination to lend to European banks, and it couldn't be determined what precisely prompted the Fed and the other central bankers to act. In the September meeting, the Wall Street executives suggested a different kind of coordination by central banks-boosting the global economy by buying securities or through other methods of injecting liquidity. Coordinated lending to European banks wasn't among their suggestions.

But analysts say Wednesday's broad stock-market rally was partly fueled by investors' expectations that central banks will do more to ease the crisis, such as the kind of central-bank coordination recommended by the members at the September meeting.

Mr. Bacon is one of 12 Wall Street members of a 14-member Fed panel, the Investor Advisory Committee on Financial Markets, set up in the wake of the financial crisis to give New York Federal Reserve Bank President William Dudley a pipeline into investors' thinking.

The Sept. 27 meeting with Mr. Dudley exemplifies the private meetings some Wall Street investors have with top Fed officials, in which they can gain access to potential early clues about Fed actions. Hedge funds have been pushing to get more information about the inner workings of the Fed, according to people familiar with the situation, as detailed in a Wall Street Journal page-one article Nov. 23.

The Fed's meetings with investors present a delicate situation for U.S. officials. They must balance the need for information from investors about the markets against the Fed's internal policy discouraging employees from arranging meetings with investors that would confer a commercial advantage.

The Fed's Mr. Dudley declined to comment. In a statement, Mr. Bacon defended the meetings, saying, "The Fed and Treasury canvass market opinions extensively through a variety of private-sector committees, contacts and trading desks in their task to fund the nation's exploding debt load, stabilize markets and optimize economic outcomes."

Members of the Investor Advisory Committee on Financial Markets include some of the biggest names on Wall Street, including Keith Anderson of Soros Fund Management; Mohamed El-Erian of Allianz SE's Pacific Investment Management Co.; Peter Fisher of BlackRock Inc.; Joshua Harris of Apollo Management LP; Alan Howard of Brevan Howard Asset Management; Deryck Maughan, a former chief executive of Salomon Brothers who now is at Kohlberg Kravis Roberts & Co.; and David Tepper of Appaloosa Management LP.

There is no indication the meeting had any impact on the participants' own investments. Minutes of the meeting obtained by The Wall Street Journal include notes taken by Fed staff members-but no record of comments by Mr. Dudley or any Fed officials at the meeting.

Mr. Dudley previously has said in a statement that he is in "listening mode" during the meetings and that he is careful not to provide "insights into our thinking" during meetings with investors.

He also said it is important the Fed understand investors' thinking during periods of stress and that he filters out investors' suggestions on policy that reflect their own interests. Committee members have said the questions asked by the Fed in advance of the meeting can give clues to the Fed's thinking.

The bulk of the three-hour meeting with Mr. Dudley on Sept. 27 at the New York Fed headquarters addressed the fallout from the financial crisis in Europe. Mr. Bacon, who was asked by Fed staff members to lead the discussion, began by saying he felt a Greek default was "likely" and he believed there was a "sizable risk of an accelerated Greek bank run," according to meeting minutes.

Committee members also said they believed a default by Greece would lead to increased pressure on the already weak position of French banks and create funding strains for European banks, according to the minutes.

The group suggested a number of ways to address the European crisis, including "coordinated credit easing and/or quantitative easing by" the European Central Bank. The group also urged "central bank guarantees of sovereign debt," "investments in European sovereigns and banks," "implementation of capital controls" and "government guarantee of bank funding and/or depositors," as well as "recapitalization of the IMF," according to the minutes.

A draft agenda in advance of the September meeting included questions about U.S. fiscal and monetary policy as well as the crisis in Europe, according to the Fed documents.

The committee members held a conference call Sept. 14 to discuss the draft agenda, according to an email obtained through the open-records search. Following the call, the agenda items relating to Europe expanded, according to the records.

Among the questions of the final agenda: "What steps should policy-makers consider to cushion any adverse market and economic impacts in Europe and elsewhere of a credit event?"

Mr. Bacon has been asked to speak about Europe during meetings with the Fed a number of times. In an email exchange Sept. 20, a Fed official asked Mr. Bacon to lead the meeting. "I was wondering if you would consider leading off the discussion on Europe, as you did at a meeting last year," the official said in the email.

Mr. Bacon responded the same day in an email, saying: "Ok, I will take it on. All Europe, all the time-getting weary."

Write to Susan Pulliam at

Gee, xxxxx, I bet that could have helped you if the government let you attend these meetings. But since you're not the 1%, not part of Goldman, not in the Lucky Sperm Club, you get to make your trades not knowing what these guys know. And you thought there were laws against that!

For me (and it's different for everyone). #occupy isn't about welfare, race, stopping the war or saving the titmouse. We've become too much of a corporatocracy, skewing things too far to benefit the short-term needs of big corporations. Remember, despite the Supreme Court, corporations aren't people; they're just a bunch of legal documents and agreements locked up in a box in Delaware somewhere that say the people signing them are going to endeavor to make money for the owners. Corporations themselves aren't capable of balancing their short-term mandate for profit against the other needs this country has, so they probably should only have a little more influence on government affairs than my cat does.

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