Archive for July, 2008

  • Grasso Wins
    , July 1st, 2008 at 2:51 pm

    It’s hard to see multi-millionaire as victims, but Eliot Spitzer’s (aka Client #9) crusade against Dick Grasso was contemptible and an abuse of the legal system. The case against him was thrown out today. Last week, the court threw out four of the six claims against Grasso. The other two were dismissed today.
    The New York Stock Exchange awarded Grasso a pay package worth $190 million. Is that too high? Probably. Is it illegal? Of course not.

    “My reaction is, I told you so,” Langone said today in a telephone interview. “There was never a case here. What more can we say? The enormous waste was a travesty.”

    One final note on Mr. Spitzer. When he checked in the Mayflower Hotel for his meetings with Ms. Dupree, he used the nom de bork, George Fox. That’s one his friend’s names.
    Classy guy.

  • I Think this Chart Sums It Up Well
    , July 1st, 2008 at 10:31 am

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  • Who’s to Blame?
    , July 1st, 2008 at 9:40 am

    Who’s responsible for all the problems in the financial sector? Stephen Schwarzman has an novel idea — blame the new accounting rule, FASB 157:

    FAS 157 represents the so-called fair value rule put into effect by the Federal Accounting Standards Board, the bookkeeping rule makers. It requires that certain assets held by financial companies, including tricky investments linked to mortgages and other kinds of debt, be marked to market. In other words, you have to value the assets at the price you could get for them if you sold them right now on the open market.
    The idea seems noble enough. The rule forces banks to mark to market, rather to some theoretical price calculated by a computer — a system often derided as “mark to make-believe.” (Occasionally, for certain types of assets, the rule allows for using a model — and yes, the potential for manipulation too.)
    But here’s the problem: Sometimes, there is no market — not for toxic investments like collateralized debt obligations, or C.D.O.’s, filled with subprime mortgages. No one will touch this stuff. And if there is no market, FAS 157 says, a bank must mark the investment’s value down, possibly all the way to zero.
    That partly explains why big banks had to write down countless billions in C.D.O. exposure. The losses are, at least in part, theoretical. Nonetheless, the banks, in response, are bringing down their leverage levels and running to the desert to raise additional capital, often at shareholders’ expense.