Mariner Kemper - We Do Not Need More Regulation

Roubini to CNBC - Yellow Weeds

Interview With Charles Munger (Buffetts VP at Berkshire)

Legal Matters With Munger

Publish at Scribd or explore others: School Work Other Books Non-fiction money world

As we look at the current situation, how much of the responsibility would you lay at the feet of the accounting profession?

Munger: I would argue that a majority of the horrors we face would not have happened if the accounting profession developed and enforced better accounting. They are way too liberal in providing the kind of accounting the financial promot-ers want. They’ve sold out, and they do not even realize that they’ve sold out.

Would you give an example of a particular accounting practice you find problematic?

Munger: Take derivative trading with mark-to-market accounting, which degenerates into mark-to-model. Two firms make a big derivative trade and the accountants on both sides show a large profit from the same trade.
And they can’t both be right. But both of them are fol-lowing the rules.
Yes, and nobody is even bothered by the folly. It violates the most elemental principles of common sense. And the reasons they do it are: (1) there’s a demand for it from the financial promoters, (2) fixing the system is hard work, and (3) they are afraid that a sensible fix might create new responsibilities that cause new litigation risks for accountants.

Can we fix the accounting profession?

Munger: Accounting is a big subject and there are huge forces in play. The entire momentum of existing thinking and existing custom is in a direction that allows these terrible follies to happen, and the terrible follies have terrible consequences. The economic crisis that we’re in now is, in its triggering circumstances, worse than anything that’s ever happened.

Ron Paul's HR 1207 - A Great Idea

Ron Paul is the man:

US to regulate OTC derivatives

This is long overdue. Of course the big banks are going to lobby against these measures, because any type of regulation/clearing house for OTC derivatives (especially credit derivatives) is going to severely cut into their future profits (bid-ask spreads will drop drop 100s of bps): From the WSJ:

Under a proposed raft of reforms, regulators could be given authority to force many standard over-the-counter derivatives to be traded on regulated exchanges and electronic-trading platforms. That would make it easier to see prices and make markets more transparent.

Firms with large derivative exposures or that trade more-complex derivatives would be subject to new reporting requirements. The proposal also calls for all standardized derivatives to go through clearinghouses that will guarantee trades and help cushion the impact of a collapse of a large financial institution.

The regulatory overhauls are in response to growing concerns of outsize risk and leverage among derivatives that trade directly between pairs of firms. Much trading in this market, estimated to total hundreds of trillions of dollars, now happens privately, and contracts are typically negotiated over the phone.

I suspect that if CDOs/CLOs/CMOs and CDSs move to a clearing house or electronic exchange, it will be considerably more difficult for the banks to apply mark-to-model on these assets. As their balance sheets become more transparent (no more Tier 3 assets), the public will regain there confidence.

The move, the latest step to tighten federal regulation of finance, is designed to address markets such as those for credit-default swaps, which many say exacerbated the financial crisis. Any such moves would require congressional approval.

"Reporting those positions will address the primary concerns of the market, about who is trading what derivatives," said Joel Telpner, a derivatives lawyer at Mayer Brown in New York.

Also Wednesday, Mr. Geithner said the Treasury would soon release a separate plan to simplify which agencies oversee financial markets, a move that could bring sweeping change to the alphabet-soup of regulatory bodies.

"I think the president believes we need to have a much more simplified, consolidated oversight structure," Mr. Geithner told the Independent Community Bankers of America trade group.

The plan to move some trades onto exchanges and electronic trading platforms could reduce profits for investment banks, which currently take fees for facilitating the trades.

The long term solution to credit default swaps may be the holder of the derivative has to have a position in the underlying asset. This will take most of the speculators out of the game, and although that will probably negatively affect liquidity, it will prevent speculators from taking down companies (equity prices are highly correlated with CDS rates).

Proposals for new financial regulations ... good stuff

Credit Suisse is forced to the back of the line

I do not really have an opinion on this article, besides the fact that it probably sets a bad precedent for future foreclosures down the road. To make a long story short, it appears CS was found guilty of predatory lending, in regards to the Yellowstone Club Ski resort, which is now in foreclosure. Their punishment is there they are going to have to step behind others lenders (they are now a subordinate debt holder behind the DIP financing) waiting to get their money (CS lent 370 million). From Rueters:

Credit Suisse Group AG (CSGN.VX), which lent $375 million to the exclusive Yellowstone Club ski and golf community before the club's bankruptcy, will have to step behind other creditors, after a judge ruled the loan "predatory".

"The only plausible explanation for Credit Suisse's actions is that it was simply driven by the fees it was extracting from the loans it was selling, and letting the chips fall where they may," wrote U.S. Bankruptcy Judge Ralph Kirscher in a preliminary ruling entered on Tuesday.

Credit Suisse lent the money to the club without requesting audited financial statements from Yellowstone Club, among other "curious" decisions, said the judge. The firm received fees of $7.5 million.

"We are disappointed in this ruling and disagree with the court's findings," said Credit Suisse spokesman Duncan King. "We are weighing our options at this time." King declined to comment further.

Credit Suisse has a lien of $232 million, which is now subordinated to the debtor-in-possession financing provided by CrossHarbor Capital Partners LLC, as well as the payment of administrative fees, costs of the bankruptcy and the claims of unsecured creditors.

"The only equitable remedy to compensate for Credit Suisse's overreaching and predatory lending practices in this instance is to subordinate Credit Suisse's first lien position to that of CrossHarbor's super-priority debtor-in-possession financing and to subordinate such lien to that of the allowed claims of unsecured creditors," wrote Judge Kirscher.