It is utterly impossible, as this country has demonstrated again and again, for the rich to save as much as they have been trying to save, and save anything that is worth saving. They can save idle factories and useless railroad coaches; they can save empty office buildings and closed banks; they can save paper evidences of foreign loans; but as a class they can not save anything that is worth saving, above and beyond the amount that is made profitable by the increase of consumer buying. It is for the interests of the well to do – to protect them from the results of their own folly – that we should take from them a sufficient amount of their surplus to enable consumers to consume and business to operate at a profit. This is not “soaking the rich”; it is saving the rich. Incidentally, it is the only way to assure them the serenity and security which they do not have at the present moment
- 1933 Senate testimony of Mariner Eccles, later first chairman of Federal Reserve.
via the excellent London Banker
Archive for the 'Banking' Category
If you’ve found your way to this page, there’s a good chance that you’re a journalist who has just had the pleasure of meeting an unusually aggressive PR flak named Jim McCarthy.
Don't let me scare you
First off, relax. If anything, the fact that you’ve run into Jim may be a good thing. This guy has represented some major league Wall Street crooks, so there’s a chance that you’re on to something.
CounterPoint’s current and former clients include:
- Elliott Broidy, a wealthy California investor who pleaded guilty to paying $1 million in bribes to influence former New York State Comptroller Alan Hevesi.
- Ira Rennert’s Renco Group and its Doe Run subsidiary St. Louis, the largest lead producer in the Western hemisphere. Jim does not want you to watch this video about the company’s operations in Peru.
- The Formaldehyde Council
- The National Fisheries Institute (Think mercury)
- Bond insurer MBIA.
- The College Sports Council
- Hedge fund founder Raj Rajaratnam, who was convicted of securities fraud. (Update: Raj Rajaratnam was sentenced to 11 years in prison.)
- Dallas-based Kosmos Energy, majority-owned by private-equity firms Blackstone Group and Warburg Pincus.
I had the pleasure of dealing with Mr. McCarthy a few times when I was investigating one of those crooks, a guy named Elliot Broidy, so I decided to put together this handy-dandy guide for the perplexed:
Jim is president of CounterPoint Strategies, a public relations firm in Washington, D.C. that specializes in an aggressive, combative style of crisis management. Jim is the real-life version of the fictional tobacco flak in Christopher Buckley’s novel Thank You For Smoking. His job is to make your story about you.
He’s the son of liberal journalist and peace activist Colman McCarthy. The acorn fell pretty far from the tree in this case. Young Jim registered as a Republican at age 18.
Early in his PR career, Jim handled a variety of Fortune 500 and foreign government accounts for two public relations agencies in Washington, Ruder-Finn and Nichols-Dezenhall, the “brass-knuckled boys” of DC’s PR world.
Ready to pounce
In 1994, McCarthy started a boutique public relations agency, McCarthy Communications. McCarthy Communications reportedly billed one client, the Saginaw Chippewa Indian tribe of central Michigan, $280,000 for a media campaign designed to force out the head of the Bureau of Indian Affairs. Replying to a BIA spokesman who said he had never seen such tactics, McCarthy said, “I say to Mr. Hackler, welcome to the Beltway.”
A confidential McCarthy Communications proposal was obtained by The Washington Post. (See William Claiborne, “Tribe PR Drive Targeted BIA Head”, The Washington Post, Aug. 16, 1999)
McCarthy was hired by the Augusta National Golf Club in 2002 when the men-only club was under pressure by activist [[Martha Burk]] to admit women. McCarthy advised a “pugnacious” approach. “My clients appreciate that I like to get in the arena, take off the gloves and throw down,” McCarthy told Alan Shipnuck, who wrote a book about Augusta’s battle to keep women out. (See Taking on the Times”, Sports Illustrated, April 6, 2004.)
It’s the first time I’ve done this kind of media criticism as part of an overall strategy for a client, and I don’t know of any other PR firm that has done it. It’s pretty cutting-edge. Big PR firms are like large corporations in that they have always been afraid to take on the press directly, because there is this belief if you create an adversarial relationship, you will never be treated fairly again. But for a venerable institution like Augusta National to embrace that strategy, well, that has certainly opened some eyes. Now I’m trying to build media-crit-driven crisis management into stand-alone business. Who knows? Maybe I’ll be snapped up by a big, deep-pocketed PR firm.
In 2004, McCarthy co-founded Public Interest Watch, a Washington nonprofit heavily funded by Exxon Mobil. According to BusinessWeek, McCarthy’s ex-employer, renamed Dezenhall Resources, helped create PIW in 2002 specifically to prod the IRS to go after Greenpeace.
David "Nick" Nichols
Just as McCarthy had hoped, deep pockets did find him. McCarthy Communications was hired in 2004 to represent investor Kenneth Langone, who was named in a lawsuit by then-New York State Attorney General Elliot Spitzer. On Langone’s behalf, McCarthy has repeatedly attacked the credibility of Gretchen Morgenson, a Pulitzer Prize winning business journalist for The New York Times, saying businesspeople regarded her with “pure contempt.” Apparently, Langone didn’t like it that Morgenson pointed out how Langone was a poster boy for executive overcompensation.
In 2008, McCarthy co-founded CounterPoint Strategies. McCarthy is the oversized face of CounterPoint, but behind the scenes is CounterPoint’s chairman, David “Nick” Nichols, a former investigative journalist who went on to found Nichols-Dezenhall, McCarthy’s old stomping grounds.
Before forming Nichols-Dezenhall, Nichols served as a campaign press secretary for New York City Mayor John Lindsay and then headed to Wisconsin where he served as a legislative staffer. Nichols also served for several as a senior media spokesperson for the Cuban-Haitian Task Force, which was charged with dealing with the thousands of refugees from Castro’s Cuba in the Mariel boat lift.
Share your McCarthy horror stories below:
Pacific Western Bank of San Diego is picking up 11 new California branches north of LA and $770 million in fresh deposits following the failure of Los Padres Bank in Solvang, California.
As part of the deal, Pacific Western Bank has agreed to purchase essentially all of Los Padres’ assets (loans) of $870.4 million. The FDIC will assume up to 80 percent of the losses on most of Los Padres’ bad mortgages and commercial loans.
Also included in the acquisition was the Harrington Wealth Management subsidiary of Los Padres Bank, headquartered in Fishers, Indiana, which provides trust and investment management services to individuals and institutional clients.
Los Padres was another casualty of the bursting of the housing bubble and overleveraged mortgage-backed securities markets.
Federal bank regulators slapped Los Padres with a cease-and-desist order last year after the bank was deemed to be insufficiently capitalized.
The bank was a sinking ship, but it struggled to stay afloat by jettisoning bad loans and securities overboard and praying for better times ahead that never arrived.
Los Padres wasn’t the only victim of Friday’s bank failures. Rabobank, a Dutch bank that is one of the world’s biggest, is using its toehold in El Centro to expand even further into California by acquiring 23 branches and deposits totaling $777 million from two failed banks in Chico and Stockton.
Everyone loves an early inflation. The effects at the beginning of an inflation are all good. There is steepened money expansion, rising government spending, increased government budget deficits, booming stock markets, and spectacular general prosperity, all in the midst of temporarily stable prices. Everyone benefits, and no one pays. That is the early part of the cycle. In the later inflation, on the other hand, the effects are all bad. The government may steadily increase the money inflation in order to stave off the later effects, but the later effects patiently wait. In the terminal inflation, there is faltering prosperity, tightness of money, falling stock markets, rising taxes, still larger government deficits, and still roaring money expansion, now accompanied by soaring prices and ineffectiveness of all traditional remedies. Everyone pays and no one benefits. That is the full cycle of every inflation.
— Dying of Money: Lessons of the Great German and American Inflations, Jens O. Parsson, 1974
Following my recent post on Goldline, a precious metals coin dealer and sponsor of conservative gasbag Glenn Beck, I decided to poke around a bit in the company’s history, which is pretty fascinating.
As I wrote earlier, Goldline is drawing heat from its bait-and-switch pratices of selling rare gold coins like the 20 Swiss Franc. Beck is definitely taking notice of the attention he is bringing to Goldline following reports by ABC News and Media Matters:
It turns out that the company known today as Goldline has been a source of intrigue and controversy for years.
It was founded a half-century ago by Nicholas Deak, a spy-turned-banker, whom Time magazine called “the James Bond of the world of money.”
Born to a family of Transylvanian bankers, Deak joined the U.S. Army as a paratrooper and later became a senior intelligence officer in the Office of Strategic Services, the forerunner of the CIA. After the war, he helped launch an exchange firm that grew to 70 offices worldwide. By the late 1970s, Deak & Co. was handling 20 percent of all U.S. retail gold sales.
But there were persistent rumors that Deak’s work had a more sinister aspect. In his study of the infamous Nugan Hand bank of Australia, The Crimes of Patriots, journalist Jonathan Kwitny wrote:
For years, it was whispered that Deak had a close working relationship with the Central Intelligence Agency. Certainly the CIA would have been derelict not to try to keep tabs on Deak. And there would have been a lot for Deak to gain by trading off with the world’s biggest spy agency, because much of the company’s business involved speculation about the relative future value of the world’s currencies.
Deak & Co. had a hand in shady deals with shadowy figures, including its role as the conduit of Lockheed Corporation’s bribes to Japanese officials.
Federal prosecutors charged Deak & Co. of California with Bank Secrecy Act violations in 1977 for failing to report $11 million two Filipinos sent to the United States.
Ron Pulger-Frame, a courier who worked for both Deak and Nugan Hand, told the official bankruptcy receiver’s office in Hong Kong in 1981, “Deak’s had a system which was devised by me to circumvent Australian exchange regulations.”
Deak: The James Bond of money
President Reagan’s Commission on Organized Crime charged in 1984 that Deak & Co. had been involved in a multi-million dollar laundering operation for Colombian cocaine traffickers. Nearly $100 million was laundered through Deak by a single criminal. The company filed for bankruptcy before the year ended.
In 1985, a homeless woman from Seattle entered Deak’s Wall Street offices and opened fire with a .38-caliber revolver, killing the 80-year-old financier and a receptionist. (Time magazine on Deak’s slaying )
The Thomas Cook Group, best known for its brand of traveler’s checks, bought the company in 1988 and sold it three years later to A-Mark Precious Metals of Santa Monica, the largest private precious metals dealer in the United States and one of only a handful of companies authorized to purchase gold bullion coins directly from the U.S. Mint.
A-Mark was started in the 1960s by a California teenage coin buff named Steven C. Markoff, whose politics are the polar opposite of Glenn Beck’s. Markoff is a supporter of the ACLU, an avowed critic of U.S. marijuana policy, and a movie producer (all of which would make him a Hollywood leftist, in Beck’s view).
In 2005, Markoff sold A-Mark Precious Metals to its current owner, Irvine, California-based Spectrum Group International for $20 million cash.
The corporate history then gets very murky. In 2006, H.I.G. Capital in Miami, bought Goldline’s parent company, Goldline Holdings Inc., according to this Federal Trade Commission filing. This deal, as far as I can tell, received no other public announcement.
Goldline changed hands again in January 2009 when management and CIVC Partners, a Chicago-based private equity firm, acquired the firm in a transaction worth over $50 million. At the time, Goldline’s revenues were in excess of $300 million.
It’s the infusion of capital from CIVC that has apparently helped Goldline expand its presence through endorsements from conservative commentators and personalities like Glenn Beck and others.
Major Foreclosures and Defaults in Downtown San Diego
View Major San Diego Foreclosures in a larger map
When homeowners owe more than their home is worth and walk away, it’s called a “strategic default.” Fannie Mae warned potential strategic defaulters last month that they would never again get another mortgage.
But no one seems bothered that Sunstone Sunstone Hotel Investors Inc. is walking away from a $65 million mortgage on the 258-room W Hotel in downtown San Diego.
The San Diego Union-Tribune’s Lori Weisberg reports that the W Hotel was auctioned on the courthouse steps on June 29. The property is now in the hands of Bank of America, the lender.
Sunstone was underwater on the W Hotel. The Aliso Viejo-based real estate investment trust, concluded that it owed far more than the W Hotel was worth. Sunstone bought the W for $96 million in 2006 from a group led by developer Gatehouse Capital Corp., the Wall Street Journal reported last month.
But Sunstone is coming out ahead. Chief financial officer Ken Cruse crows to the U-T about “a significant gain” on the W San Diego because the hotel was recorded on Sunstone’s books at $35 million.
Thanks, assholes.
A decision by Fannie Mae and Freddie Mac to say no to a White House-backed solar energy program has a lot of people in California pretty upset. As much as I like solar power, I have to agree the regulators got this one right.
San Diego County Supervisors Pam Slater-Price and Dianne Jacob pleaded with President Obama and the region’s congressional delegation to save the program and called the Federal Housing Finance Agency’s statement on the matter “insulting.” Gov. Schwarzenegger was disappointed. California Sen. Barbara Boxer, NYC Mayor Mike Bloomberg and many others deluged the administration with letters.
The solar-financing program, known as “property assessed clean energy program” or PACE would have allowed homeowners in 13 San Diego County cities and unincorporated areas to write off the high up-front cost of solar panels — typically $25,000 or more — over 20 years.
The nascent program was dealt a major setback last week when the federal regulator overseeing Freddie Mac and Fannie Mae said that the federal mortgage giants will not buy or sell mortgages on homes enrolled in the program.
The Federal Housing Finance Agency said in a statement Tuesday that the liens created by the PACE program were senior to existing mortgages. FHFA said first liens “present significant risk to lenders .. and are not essential for successful programs to spur energy conservation.”
The second part of the statement is the one Jacob and Slater-Price found insulting. The first part of the statement — that first liens present significant risks — happens to be true.
San Diego County’s program was administered through the CaliforniaFIRST program. Here’s a sample Pace Agreement.
Homeowners who sign up for CaliforniaFIRST have a “contractual assessment lien” placed on each participating property covering the cost of installation plus interest.
A $25,000 solar panel retrofit would wind up costing $40,000 at 5% over 20 years. Assuming you pay $100 a month in electricity like I do, you wouldn’t save enough power to make it worthwhile.
The lien would be paid through property taxes, and liens would be bundled together and sold to investors as bonds. Communities often issue special tax assessments to cover the cost of infrastructure repairs or improvements, but PACE assessments uniquely cover improvements to a single residence.
For would-be buyers, a problem is that the lien follows the house, not the owner. It would have remained on the property even if the owner sold it.
But the real problem lies in the liens’ “super senior” status, which means it takes precedence over all other debts, including mortgages. So you could lose your house if you can’t or won’t pay. Take a look at this clause in the CaliforniaFIRST agreement.
The Property Owner acknowledges that if any Assessment installment is not paid when due, the Authority has the right to have the delinquent installment and its associated penalties and interest stripped off the secured property tax roll and immediately enforced through a judicial foreclosure action that could result in a sale of the Property for the payment of the delinquent installments, associated penalties and interest, and all costs of suit, including attorneys’ fees. The Property Owner acknowledges that, if bonds are sold to finance the Improvements, the Authority may obligate itself, through a covenant with the owners of the bonds, to exercise its foreclosure rights with respect to delinquent Assessment installments under specified circumstances.
Another of the FHLA’s concerns that hasn’t gotten much attention bears noting. Homeowners who can’t afford solar panel will now become targets for shady lenders in a repeat of the whole interest-only mortgage debacle that helped fuel the housing bubble. I’m not saying that PACE will create another housing bubble, but do we really need to be adding to personal debt levels right now, especially for people struggling at the margins?
I’d love to end the burning of fossil fuels and dependence on foreign oil too. Increasing debt burdens to pay for it isn’t the way to go about it.
“Ever feel like you’ve been cheated?” singer Johnny Rotten famously asked at the end of the Sex Pistols tour of America.
I sure did when I refinanced my home last year and I had to fork out $625 to Chicago Title for title insurance.
Title insurance for a refinanced home loan? This makes no sense.
I paid title insurance to ensure there were no issues when I first bought my home in 2002, so why was I paying for it again?
The answer is simple: Title insurance is a swindle. A scam. A shakedown, a hustle.
When Title Companies Compete, You Lose
Title insurance is less than 1 percent of the price of the home, so we tend to overlook it.
In economics, this is “inelastic” demand, meaning it is not sensitive to price.
Title insurers can virtually charge whatever they wants — even, as in my case, for doing nothing at all.
The result is an industry devoid of competition.
A 2005 report to California Insurance Commissioner John Garamendi found that competition for title insurance and escrow services in California “does not exist.”
A total of four companies control virtually the entire market for title insurance. Chicago Title is owned by Fidelity National Financial Inc., which is the nation’s biggest title company with more than 45 percent of the market.
In California — the big money maker for the industry — title insurance is marked by “reverse competition.” The title insurers don’t compete for business from homebuyers like me, the ones who actually pay for the service. Instead they pay illegal rebates and kickbacks to a real estate agent, a lender or homebuilder in exchange for business referrals.
The California Land Title Assocation’s Title Wizard service lets you compare prices for title insurers. Here is what the big four would have charged for my home refinance:
| Chicago Title | $625 |
| Old Republic | $645 |
| Stewart Title | $625 |
| First American | $605 |
This is a pretty clear cut picture of what collusion looks like.
A toll on the road to home ownership
Title insurers would do quite well in Afghanistan and Iraq or any place where nothing gets done unless certain people are paid.
You don’t get a mortgage without title insurance. It’s that simple. My title insurance “expired” when my first mortgage was paid off. If I wanted to refinance, I had to have title insurance.
Title insurers have managed to set up a toll booth at the entrance to the U.S. housing market, which at its peak was worth more than $20 trillion.
All those tolls add up: During the housing bubble, operating income for title insurers grew 270 percent, soaring $4.8 billion in 1995 to $17.8 billion in 2005.
The money pours in, but it doesn’t come back out. Do you know anyone who actually filed a title insurance claim?
Chicago Title paid out a meager 5 percent on nearly $4 billion worth of title premiums, according to the company’s SEC filing.
In the insurance world, this percentage is known as the “loss ratio.” The loss ratio for title insurance is among the very lowest in the insurance industry. Auto and home insurers pay 80 percent of premiums.
What is Chicago Title doing with my money? The biggest expense on Chicago Title’s 2009 income statement isn’t personnel costs. It’s the whopping $1.9 billion in commissions paid to agents who drum up business.
What you can do.
Title insurance is not required by law in California. However, it’s standard operating procedures as most lenders won’t fund a mortgage without it. But you can shop around.
One alternative is Entitle Direct, which sells title insurance direct to the consumer. Entitle Direct doesn’t pay agents so it is able to charge a third less than most of the big title firms.
I could have saved $268 if I had gone with Entitle Direct. If you don’t feel that it’s worth the trouble, well, I guess then Johnny Rotten had it right.
La Jolla Bank, which failed last week amid allegations of possible fraud, is the subject of a Nevada lawsuit that has a great cast of characters.
It involves a Republican Senate candidate, a flamboyant San Diego real estate broker, a basketball coach known for chewing towels, a horse farm that once belonged to Don Drysdale, and allegations of fraud.
The Tarkanian family sued La Jolla Bank in January to stop it from foreclosing on 13 acres of vacant land on south Las Vegas Boulevard. (See 1 and 2.)
The Tarkanians are a prominent Las Vegas family: Danny Tarkanian is a Republican who’s trying to unseat Senate Majority Leader Harry Reid. His dad, Jerry, is the former towel-chewing men’s basketball coach at UNLV; his mom, Lois, is a Las Vegas councilwoman.
La Jolla Bank lent $25.5 million in 2005 to the Tarkanians and their partners, with the Las Vegas land as security.
The Tarkanians planned to loan some of that money to Solana Beach broker-turned-developer Robert A. Dyson Jr. for an “equestrian destination resort” in Anza, California on land once owned by Dodgers great Don Drysdale.
Unbeknownst to the Tarkanians, however, Dyson already owed money to La Jolla Bank for the Anza project. He paid off some of his La Jolla Bank loans with the money that the Tarkanians borrowed from the same bank.
The North County Times reported last year that Dyson and his wife made a fortune selling high-end coastal real estate only to file for bankruptcy in 2008. Some juicy details:
“The trustee supervising their bankruptcy recommended in December that the couple abandon the Rancho Santa Fe home that they bought in June 2005 because debt and liens account for nearly its entire $7 million value. A later filing by the trustee recommended they give up a $90,000 leased Porsche sports car and their $3.2 million home in Palm Desert, which is in foreclosure.”
The Tarkanians’ lawsuit describes Dyson as friends with Rick Hall, La Jolla Bank’s president, and says he attended regular meetings and events at the bank.
The bank’s “main owner,” Frank Warren, served as the landlord for several of Dyson’s real estate offices, according to the Tarkanians’ lawsuit.
“Because of the close connection between Mr. Dyson and La Jolla Bank, La Jolla Bank was well aware of the perilous web created by Mr. Dyson in which it aided Mr. Dyson,” the suit states.
Congressman Darryl Issa has been on the warpath lately over the Fed’s September 2008 bailout of AIG.
In a letter to Congressman Edolphus Towns, chairman of the Committee on Oversight and Government Reform, Issa requests a subpoena based on information from an anonymous whistleblower:
According to the whistleblower, the documents reveal troubling details of Fed Chairman Ben Bernanke’s personal involvement in the decision to bail out AIG. These documents date to September 15, 2008 and are identified by the following electronic labels: sb-aig-01000092 to sb-aig-010000125 and “Draft Memo on AIG.pdf.”
Issa’s staff tried to get the documents, but the Fed never returned their calls.
The documents have not been released, although Bernanke responded in writing to some questions from Issa.
As Ken Silverstein of Harper’s notes, how bad must things be when Issa holds the moral high ground?
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