Articles of the week (15/2009 & 16/2009)

Posted on April 17, 2009 in Finance

Articles of the week (15/2009 & 16/2009)

I didn’t post an financial article last week because of Easter holiday’s so this time around there will be three main articles and a few more runner ups:

Last week’s article is How Bernanke Staged a Revolution by Neil Irwin in The Washington Post. Following is a small excerpt and link to the print friendly version of the article. I recommend reading the print friendly version since it’s easier to read instead of having to continuously load a new page:

Every six weeks or so, around a giant mahogany table in an ornate room overlooking the National Mall, 16 people, one after another, give their take on how the U.S. economy is doing and what they, the leaders of the Federal Reserve, want to do about it.

Then there’s a coffee break. While most of the policymakers make small talk in the hallway, their chairman, Ben S. Bernanke, pops into his office next-door and types out a few lines on his computer.

When the Federal Open Market Committee reconvenes, Bernanke speaks from the notes he printed moments earlier. “Here’s what I think I heard,” he’ll say, before running through the range of views. He sometimes articulates the views of dissenters more persuasively than they did.

“Did I get it right?” he says.

The answer, in recent months, has been a resounding yes. And Bernanke’s ability to understand and synthesize the views of his colleagues goes a long way toward explaining how he has revolutionized the Federal Reserve, which under his leadership has deployed trillions of dollars to try to contain the worst economic downturn in 80 years.

Famously soft-spoken, Bernanke is an unlikely revolutionary. He is, after all, a career economics professor who lacks the charisma of a skilled politician. He also happens to run an organization designed for inertia: Decision-making authority is shared with four other governors in Washington appointed by the president; the heads of regional Fed banks in 12 cities who answer to their own boards of directors; and a staff of 2,000 that is led by economists who spent decades working their way through a rigid hierarchy.

….

 
 

This week’s first article is actually a blog post: How to Puff Up Earnings, Goldman Sachs Style by Barry Ritholtz at The Big Picture:

Leave it to the clever boys at Goldman Sachs to turn dross into gold: They have come up with a way to hide massive losses so clever, it requires special comment: The Orphan Month.

Yesterday, we noted that the bulk of their profits had come from AIG transfer payments — the theft from taxpayers AIG 100% payouts funded via bailout monies that saw Goldie as one of the largest recipients. Floyd Norris notes that most of the AIG effect was in December. “For the first quarter, the total A.I.G. effect on earnings was, in round numbers, zero.”

How is it possible that this occurred? Isn’t GS on a December to February calendar? Well, there is a small asterisk about that. It seems that GS is moving from a December to a quarterly calendar. Meaning their latest Q is January thru March.

But what of December, with all t he AIG monies and the comparison to the strong December 2007 and all?

In a word, Orphaned:

Goldman’s 2008 fiscal year ended Nov. 30. This year the company is switching to a calendar year. The leaves December as an orphan month, one that will be largely ignored. In Goldman’s news release, and in most of the news reports, the quarter ended March 31 is compared to the quarter last year that ending in February.

The orphan month featured — surprise — lots of writeoffs. The pre-tax loss was $1.3 billion, and the after-tax loss was $780 million.

Would the firm have had a profit if it stuck to its old calendar, and had to include December and exclude March?

Truly astounding . . . the word Chutzpah simply does not do it justice . . .

 
 

This week’s second article is AIG head’s $3M in Goldman stock raises apparent conflict of interest by Timothy P. Carney for The Washington Examiner:

Edward Liddy, CEO of government-run AIG, still owns more than $3 million of stock in Goldman Sachs, which has pocketed $13 billion or more of the $170 billion federal officials have spent bailing out the ailing Wall Street insurance giant.

Liddy is managing a company that receives taxpayer dollars to pay other financial firms, with Goldman Sachs the top recipient. While there is no reason to believe Liddy is influencing AIG actions to unfairly benefit Goldman, the situation represents a potential conflict of interest that would never be allowed in a government agency, but is permitted in the strange public-private chimeras like AIG spawned in this age of bailouts.

Liddy, according to an AIG spokeswoman, “views his role as CEO in essence as a public service.” Liddy has been charged, in effect, with protecting the unstable American economy and taking care of the taxpayers’ money.

As we saw with the political eruption over the bonuses his company paid out last month, Liddy needs government approval for his actions. The federal government owns 79.9% of AIG, and so Liddy, in effect, works for the government. In theory, then, Liddy works for the American people.

. . .

Runner-ups:

- Is That Recovery We See? by John Mauldin on The Big Picture
- Bernanke Bet on Keynes Has Meltzer Seeing 1970s-Style Inflation on Bloomberg
- Four Questions about the Financial Crisis by Ben S. Bernanke
- MP’s Answers Raise More Questions About Glitnir’s Fund 9 by Daði Rafnsson
- SEC: Credit-Rating Agencies Require More Oversight by Barry Ritholtz


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