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Friday, October 10, 2008

Where are the watchdogs in our Governments?

The present financial crisis in the world, has to be examined carefully by experts, politicans, bureaucrats within the government, by consumer groups and consumers so that it never will occcur to the magnitude that it has occurred. Regulators of banks in the United States and other World countries have to be scruntinized so that explanations for their willingness to allow banks to operate as they have been are given, and acted upon.

Anyone who has taken any economics courses in an education system, knows that the World economic structure is such that cycles in the World economy exist. However, when the head of a bank in this World states the following, I have to wonder, who is watching over these banks for the sake of investors and consumers?

"Richard S. Fuld Jr., chief executive officer of Lehman Brothers, declared to the
United States Government House Oversight and Government Reform Committee
that "I take full responsibility for the decisions that I made and for the actions that I took." He defended his actions as "prudent and appropriate" based on information he had at the time.

"I feel horrible about what happened," he said.

When Rep. Henry Waxman, D-Calif., chairman of the House Oversight and Government Reform Committee questioned Fuld on whether it was true he took home some $480 million in compensation since 2000, and asked: "Is that fair?"

Fuld took off his glasses, held them, and looked uncomfortable. He said his compensation was not quite that much.

"We had a compensation committee that spent a tremendous amount of time making sure that the interests of the executives and the employees were aligned with shareholders," he said. Fuld said he took home over $300 million in those years -- some $60 million in cash compensation.

Waxman read excerpts from Lehman documents in which a recommendation that top management should forgo bonuses was apparently brushed aside. He also cited a Sept. 11 request to Lehman's compensation board that three executives leaving the company be given $20 million in "special payments."

"In other words, even as Mr. Fuld was pleading with Secretary Paulson for a federal rescue, Lehman continued to squander millions on executive compensation," Waxman said before Fuld appeared as a witness."

When someone in the position Fuld is in,formally states: "In the end, despite all our efforts, we were overwhelmed, others were overwhelmed, and still other institutions would have been overwhelmed had the government not stepped in to save them," he said.

If the head of a bank admits he and his employees are incapable of handling the demands of his occupation, we can only ask why was he and his staff permitted to be in these positions in the first place? Why did these business leaders not have plans in place to deal with the circumstances which occurred in the economic structure of their country?

Source:http://www.businessweek.com/ap/financialnews/D93L5G002.htm?chan=top+news_top+news+index+-+temp_news+%2B+analysis


According to the article, "They Warned Us About the Mortgage Crisis":

"More than five years ago, in April 2003, the attorneys general of two small states traveled to Washington with a stern warning for the nation's top bank regulator. The AGs from North Carolina and Iowa said lenders were pushing increasingly risky mortgages. Their host, John D. Hawke Jr., expressed skepticism.

Roy Cooper of North Carolina and Tom Miller of Iowa headed a committee of state officials concerned about new forms of "predatory" lending. They urged Hawke to give states more latitude to limit exorbitant interest rates and fine-print fees. "People out there are struggling with oppressive loans," Cooper recalls saying.

Hawke, a veteran banking industry lawyer appointed to head the OCC by President Bill Clinton in 1998, wouldn't budge. He said he would reinforce federal policies that hindered states from reining in lenders. The AGs left the tense hour-long meeting realizing that Washington had become a foe in the nascent fight against reckless real estate finance. The OCC "took 50 sheriffs off the job during the time the mortgage lending industry was becoming the Wild West," Cooper says.

This was but one of many instances of state posses sounding early alarms about the irresponsible lending at the heart of the current financial crisis.North Carolina and Georgia, passed laws aimed at deterring rash loans only to have federal authorities undercut them. In Iowa and other states, mortgage mills arranged to be acquired by nationally regulated banks and in the process fended off more-assertive state supervision. In Ohio the story took a different twist: State lawmakers acting at the behest of lenders squelched an attempt by the Cleveland City Council to slow the subprime frenzy.

The Bush Administration and many banks clung to what is known as "preemption." It is a legal doctrine that can be invoked in court and at the rulemaking table to assert that, when federal and state authority over business conflict, the feds prevail—even if it means little or no regulation.

There is no question that preemption was a significant contributor to the subprime meltdown," says Kathleen E. Keest, a former assistant attorney general in Iowa who now works for the Center for Responsible Lending, a nonprofit in Durham, N.C. "It pushed aside state laws and state law enforcement that would have sent the message that there were still standards in place, and it was a big part of the message to the industry that it could regulate itself without rules."

(source:http://www.businessweek.com/magazine/content/08_42/b4104036827981.htm?chan=top+news_top+news+index+-+temp_news+%2B+analysis)

The crisis in the banks was not confined to within the borders of the United States. In Iceland, despite the government's seizure of top banks, the country may face bankruptcy, with dire effects for huge Icelandic investments overseas."Iceland is emerging as the biggest casualty of the global financial crisis. On Oct. 9, the government took control of the country's largest bank, Kaupthing (KAUP.ST), and halted trading on the Reykjavik stock exchange until Oct. 13. the vast majority of Iceland's once-proud banking sector has been nationalized. The government has taken control of Kaupthing, Landsbanki, and the No. 3 bank, Glitnir. Kaupthing also was forced to take an emergency $702 million loan from Sweden to prop up its Swedish arm, while the Norwegian Banks' Guarantee Fund offered $819 million in liquidity support to the local unit of Glitnir.

Now some believe that Iceland, which has transformed itself from one of Europe's poorest countries to one of its wealthiest in the space of a generation, could face bankruptcy (BusinessWeek.com, 10/8/08). To avert financial disaster, the country—which is a founding member of NATO—may turn to Russia for help. The Russian government has said it would consider lending Iceland $5.5 billion. "We have not received the kind of support that we were requesting from our friends," Haarde said. "So in a situation like that one has to look for new friends." (Haarde was adamant, though, that any deal did not extend to military cooperation, refuting the suggestion that Russia might be given access to an airbase vacated by the U.S. Air Force in 2006.)

In just five years, the banks went from being almost entirely domestic lenders to becoming major international financial intermediaries. In 2000, says Richard Portes, a professor of economics at London Business School, two-thirds of their financing came from domestic sources and one-third from abroad. More recently—until the crisis hit—that ratio was reversed. But as wholesale funding markets seized up, Iceland's banks started to collapse under a mountain of foreign debt. (Source:http://www.businessweek.com/globalbiz/content/oct2008/gb2008109_947306.htm?chan=top+news_top+news+index+-+temp_news+%2B+analysis)


If all of these circumstances are happening in more than one place simultaneously, to me it suggests that it points out a fact about our world. In order for all of us to survive on this planet in the future, the governments, and peoples of this world are going to have to cooperate and work together.If we donot begin to work together,then we can only expect more "crises" like this to happen.

Ben Steverman in an article entitled, "Stock Market Crash: Understanding the Panic." states, " The (recent) day-after-day declines in the stock market are unprecedented.
Normally even falling stock markets take a break from time to time, as the vultures swoop in to pick up stocks at bargain prices.

But now, the market's psychology is anything but normal. Every time the stock market rallies—as it did on the morning of Oct. 9—"there are tons of sellers everywhere," says Dave Rovelli, managing director of equity trading at Canaccord Adams. "People just want out."

Panic in financial markets—just as in everyday life—is explained by the fight-or-flight instinct. "That makes people overreact," says Avanidhar Subrahmanyam, a professor and expert on market psychology at the UCLA Anderson School of Management. Not only are stock traders running scared, so are financial institutions. "You've got panics not only among individual investors but panic in the industry itself," says John Merrill, chief investment officer at Tanglewood Capital Management.

Dysfunction in the credit markets means financial firms lack the confidence to transact business with each other. Subrahmanyam is more convinced the markets are behaving irrationally. It's not as if we've had a nuclear war and "real" assets were destroyed, he says. Rather, problems are in the financial sector, not the "real" activity in the rest of the economy. "The real, nonfinancial base of the economy is still fairly strong," he says—far stronger than during, for example, the Great Depression."

Steverman concludes, "By its nature, a crisis is a time of uncertainty. It could be months before we know whether markets are crashing because of irrational fear or because of real economic problems. And that's scary." ( Ben Steverman is a reporter for BusinessWeek's Investing channel.)

(source:http://www.businessweek.com/investor/content/oct2008/pi2008109_360708.htm?chan=top+news_top+news+index+-+temp_news+%2B+analysis)


Yes it is scary,for those of us who rely on financial experts to manage our money. If those of us who are investors cannot have faith in financial experts to come to some sort of understanding of why the present financial crisis has happened,then is it not a natural reaction on the part of investors, to want to withdraw our money from the World Financial market altogether?

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Thoughts worth thinking about

"Our subconscious minds have no sense of humor, play no jokes and cannot tell the difference between reality and an imagined thought or image. What we continually think about eventually will manifest in our lives."-Sidney Madwed



Laws alone can not secure freedom of expression; in order that every woman and man present their views without penalty, there must be spirit of tolerance in the entire population.- Albert Einstein Too often we underestimate the power of a touch, a smile, a kind word, a listening ear, an honest compliment, or the smallest act of caring, all of which have the potential to turn a life around. - Leo Buscaglia



A person's true wealth is the good he or she does in the world. - Mohammed



Our task must be to free ourselves... by widening our circle of compassion to embrace all living creatures and the whole of nature and its beauty. -Albert Einstein



The best way to find yourself, is to lose yourself in the service of others. - Ghandi



The unselfish effort to bring cheer to others will be the beginning of a happier life for ourselves. - Helen Keller



Aim for success, not perfection. Never give up your right to be wrong, because then you will lose the ability to learn new things and move forward with your life. Remember that fear always lurks behind perfectionism. Confronting your fears and allowing yourself the right to be human can, paradoxically, make yourself a happier and more productive person. - Dr. David M. Burns



Life is as dear to a mute creature as it is to man. Just as one wants happiness and fears pain, just as one wants to live and not die, so do other creatures. -His Holiness The Dalai Lama



Mankind's true moral test, its fundamental test (which lies deeply buried from view), consists of its attitude towards those who are at its mercy: animals. And in this respect mankind has suffered a fundamental debacle, a debacle so fundamental that all others stem from it. -



Milan Kundera, The Unbearable Lightness of Being



The worst sin towards our fellow creatures is not to hate them, but to be indifferent to them. That's the essence of inhumanity. -George Bernard Shaw

Ego's trick is to make us lose sight of our interdependence. That kind of ego-thought gives us a perfect justification to look out only for ourselves. But that is far from the truth. In reality we all depend on each other and we have to help each other. The husband has to help his wife, the wife has to help the husband, the mother has to help her children, and the children are supposed to help the parents too, whether they want to or not.-Gehlek Rinpoche Source: "The Best Buddhist Writing 2005 pg. 165

The hostile attitude of conquering nature ignores the basic interdependence of all things and events---that the world beyond the skin is actually an extension of our own bodies---and will end in destroying the very environment from which we emerge and upon which our whole life depends.