Re: Bankers' Paradise

[David Farber <dave () farber net>]

Begin forwarded message:

From: "Ronald J Riley \(RJR Com\)" <rjr () rjriley com>
Date: May 24, 2009 11:12:40 PM EDT
To: <dave () farber net>
Subject: RE: [IP] Bankers' Paradise

I thank Charles Brown <cbrown () flyingcircuit com> for this.  It is a  
great piece of work.

I do take exception to the bit about entrepreneurs.  I started my  
first business when I was 19 years old.  I ran my own businesses until  
I was in my mid twenties and then went to work for others, most of  
which were small businesses. While working for others I usually ran a  
side business.  During this time, I worked long hours and I had no  
debt and owned my house by my mid thirties.

When I was forty, I pursued a career as an independent inventor, a  
business much like the Wild West where corporate gunslingers pick off  
most of us.

When dealing with infringers I made a distinction between those who  
tried to steal and those who accidentally infringed.  Most were  
willful infringers, companies whom I had offered the invention to who  
said they were not interested and then used it.

One company who was a accidental infringer whom I had offered a  
license to came back and agreed that they were infringing but  
expressed a desire to negotiate a lower fee.

The number they mentioned was ten fold what my offer was.  I then  
asked if they would accept half of the larger number they cited.   
While the CEO was considering this, I asked him when the last time was  
he had looked at the original offer.  His response was that it had  
been a few months.

I then explained to him that he was off by a factor of ten but that if  
he insisted we could work from that number.  He quickly accepted the  
lower amount.

My point is that I probably could have taken this company for at least  
five times what I originally sought.  I did not do so.

My business philosophy has always been to deliver fair value with good  
service and that sustainable business models are built on fair and  
mutual profit.  This has served me well throughout my career.

The other side of my business model is that when someone steals from  
me I adjust their attitudes.  While I am not an attorney, I have  
learned through hard experience that there are many shysters and  
developed many of the characteristics of a litigator.  We are all  
products of our environments.  It has also been my experience that big  
business is far more likely to try to shaft someone than small business.

Ronald J. Riley,


Speaking only on my own behalf.
Affiliations:
President - www.PIAUSA.org - RJR at PIAUSA.org
Executive Director - www.InventorEd.org - RJR at InvEd.org
Senior Fellow - www.PatentPolicy.org
President - Alliance for American Innovation
Caretaker of Intellectual Property Creators on behalf of deceased  
founder Paul Heckel
Washington, DC
Direct (810) 597-0194 / (202) 318-1595 - 9 am to 8 pm EST.


From: David Farber [mailto:dave () farber net]
Sent: Sunday, May 24, 2009 6:36 PM
To: ip
Subject: [IP] Bankers' Paradise



Begin forwarded message:

From: Charles Brown <cbrown () flyingcircuit com>
Date: May 24, 2009 5:59:36 PM EDT
To: David Farber <dave () farber net>
Cc: Brown Charles <cbrown () flyingcircuit com>, Dewayne Hendricks <dewayne () warpspeed com 
>
Subject: Bankers' Paradise

Dave,

I have been conducting an experiment on some of the financial blogs  
operated and read by Wall Street "experts" and "operators", with a  
focus on discussions about the derivatives markets.  I have never done  
this before and since I have something more than a basic understanding  
of the situation, I thought I would test some of my previous  
assumptions regarding the financial/economic/political system and the  
people in it.

I thought I would share some of the responses, paraphrased as well as  
direct quotes, that I encountered in the various discussions.

- Viciously attacked for postings where the blog owner made the  
decision to post my comments as "anonymous."  After repeated attempts  
to have the blog owner correct this mistake by posting my name, email  
address and telephone number, and further, to post a more lengthly  
response to other points previously made in a separate, specious  
attacks, he has refused to do.  "Anonymous" was left to be a punching  
bag and was unable to respond, directly or indirectly.   This was a  
blog-lynching.

- I will be much better informed if I take the philosophy of "Atlas  
Shrugged" to heart and live by those simple rules.  I nearly fell off  
my chair laughing at this one.  I responded that Atlas Shrugged was  
one of the grocery rack best sellers of all-time.  I lack education  
and culture for attacking this sacred tome as a piece of Wall Street,  
populist trash.

- It seems that these folks, hanging-out on CDS and other unregulated  
derivatives blogs, have never owned or invested in any of the stuff.   
However, they are very interested in being there and discussing  
whether the CDS market will retain some of it's core trading  
characteristics;  principally, obfuscation and complexity.  But no,  
they wouldn't touch the stuff.  And horrors, it can't possibly be  
regulated and all contracts standardized, can it?  What about  
customization?  Complexity?

-  Don't need mark-to-market accounting rules;  "consensus" is enough  
to value any financial derivative.  After all, who knows better what  
those bank and hedge fund assets are worth than the banks and shadow  
finance operators themselves?   The accountants were definitely not  
"strong-armed" or politically bullied to change the FASB rules, they  
just saw the error of their ways.  I have misinterpreted the rationale  
and structure of the entire process.  Wall Street does not have undue  
influence over Congress, regardless of the campaign contribution  
numbers, what Sen. Durbin stated a few weeks ago, and what my own  
Congressional representative said in a small group.  I am a  
"conspiracy theorist" looking for ghosts.

- Make any statement that is near 10% off in terms of published  
numbers accepted by this community, which gave me the opportunity to  
demonstrate the bogus nature of the published numbers bandied about in  
their discussions, and I was gang-labeled "uninformed", lack of  
"critical thinking" and "unable to appreciate the complexity" of CDS  
instruments.  This was the, "We will assimilate you" threat.

-  CDS contracts are inviolate and not subject to governmental or  
interference by the courts.  It doesn't matter that the counterparties  
on the losing side of many of these contracts are bankrupt banks (they  
aren't bankrupt, of course), they are still legitimate contracts that  
must be honored to uphold the integrity of markets in a capitalist  
system.  The gov't is doing the right thing in this regard, i.e.,  
covering the bets in the Casino (my word).  My argument that a  
contract is only as good as the parties' capabilities to perform its  
terms, and that the taxpayer, although not being an original party to  
these contracts is nevertheless being forced to guarantee performance,  
was dismissed as "illegal."  No alternatives, no discussion;  it was  
just illegal, and since some of the posters were Wall Street lawyers,  
I just needed to accept that as fact.

-  I am wrong to state that the CDS market has no value to the  
economy, or any value proposition outside of Wall Street  
counterparties' gambling interests, and that other derivatives venues  
existed for legitimate hedging.   What the value of the CDS market is  
no one seems to be able to explain.  It is "too complex" and can only  
be understood by the "experts."

-  I reminded one person of a former girlfriend of his who drew an  
insane connection between engaging in immoral and corrupt activity vs.  
making money and satisfying one's appetites.  I was told that these  
notions are mutually exclusive in all respects, and that I am naive.   
This proves one of my previous points about how they are "acquiring  
animals" - prehistoric.

- My entrepreneuer friends would have done the same thing had they  
been in their position to make large amounts of easy money;  millions  
upon millions.  They have not been presented with the same choices but  
would have done the same thing; assuredly so.  They don't know many  
entrepreneurs, but "Many of them would have started feeling entitled  
to receive that kind of money, considering it to be a reward for their  
hard work and intellectual superiority over people in other  
industries, etc."  This demonstrates what I call the "apparatchik  
effect" - mindless loyalty to a supposedly superior moral or political  
force.

- GM and Chrysler deserve to be liquidated;  if the banks are not  
bailed out the result will be chaos.  The Wall Street banks in  
particular are a different situation and their unique status defies  
economic theory.  A Schumpeterian, creative destruction cycle may be  
appropriate for the technology or other industries, but it is an  
absurd notion as applied to Wall Street.  No one could say if they had  
any thoughts of what might happen if certain derivatives markets had  
been allowed to collapse, but could only exclaim in fear and horror,  
"Look at Lehman, it would be catastrophic", and,  "There was fear and  
panic taking hold, they had to do it."  My response was that Hank  
Paulson did the best favor anyone could have done for them by letting  
Lehman fail in the way that he did.  In spite of Lehman, King Hank is  
A-OK in their book.  Further, even at this late date, they don't know  
what a compressed CDS market is really worth - their estimates range  
from $1 to $10 trillion, and the numbers trail a wake of recent,  
opaque transactions.  Any externalities generated by the activities in  
the Casino (my word) are trivialities.

-  Many of these folks do not agree that the primary rationale for the  
existence of Wall Street, and the broader financial markets in a  
capitalist  socio-economic-political structure, is the efficient  
allocation of capital and orderly transaction of daily commerce.  They  
remind me of that saying that the mob uses to describe their  
activities:  "Our thing."  Wall Street is "their thing."

-  They are all "appalled that the taxpayer has been put in a position  
to bail out banks AND industrial companies."  Don't forget the  
industrial companies, and they should be "given no quarter."  When  
cornered, change the subject and act outraged.

- I should be aware that, "To the extent that the problems are based  
on market liquidity issues, and the assistance is truly temporary -  
and includes interest for repayment...", except for that credit card  
bill (unnecessary), things are going along just fine, even if it takes  
another $5  trillion+ of taxpayer funds (the casino is still open).   
The value of the dollar?  It is relative and insignificant;  who cares  
if it's yuan, euros or dollars, they take their cut and move it into  
the currency or country of the month, while avoiding taxes of course.

-  So, I continued to press, what is the value proposition of Wall  
Street?  I pointed out that any value proposition they might wish to  
propose, given the nature of the activity in which they were engaged,  
must be based upon credibility and trust.  That clearly was not the  
case, even among themselves.  Was that not the case?  They responded  
with further attacks.

- Finally, my "brilliant wisecracks" are helpful in the same way that  
my "non-existent" alternative suggestions are.  But by the time the  
conversations had come to the point where I wanted to offer my  
alternative suggestions, in every situation, the blog owner/moderator  
would not post my comments.  One of the suggestions on my list was to  
shut-down the CDS market.  They don't want to hear an alternative  
viewpoint, and further, don't have to do so in their view.  This  
demonstrates the "herding" phenomenon I have alluded to before, and  
also the "narcissism" and "self-indulgent arrogance" other  
commentators have noted

How does our system survive with these Neanderthals controlling the  
economic and political levers of the Republic?

A sobering experience, even for me.  Our country, and the world, is  
being gutted by fools.

Charlie


Begin forwarded message:

From: dewayne () warpspeed com (Dewayne Hendricks)
Date: May 23, 2009 12:40:53 PM EDT
To: Dewayne-Net Technology List <xyzzy () warpspeed com>
Subject: [Dewayne-Net] Bankers' Paradise

Bankers' ParadiseCapitolism
by CHRISTOPHER HAYES
This article appeared in the June 8, 2009 edition of The Nation.
May 20, 2009
<http://www.thenation.com/doc/20090608/hayes>;

No matter how discredited and despised Wall Street executives may be
across the country, their clout remains unrivaled on Capitol Hill.
Judging from how much traction the American Bankers Association gets
with lawmakers, you'd think it was an organization devoted to the
interests of puppies and adorable children.
It's one thing for the banks to maintain a broken status quo, but it's
another for them to work to break things further, by pushing an
industry-friendly change through Congress in the midst of the crisis.
Recently, in the case of mark-to-market accounting, that's just what
they did.

The idea behind mark to market is pretty straightforward. If a bank
owns, say, a mortgage-backed security, it must enter the value of that
security in its books at the price the security can fetch on the
market. If the security can get 80 cents on the dollar, it goes down
as .80 in the books. If it can get only 20 cents, it goes down as .20.
The standard enforces transparency by making banks sync their internal
valuations with external prices.
Banks have whined about mark to market ever since it was codified in
2006. But it wasn't until last spring, as the subprime crisis gathered
steam, that they began beating the drums for a change. They complain
that the current panic has frozen the markets for many of their
esoteric securities, artificially depressing the prices and therefore
making their balance sheets look far worse than they really are.

The week after Lehman Brothers failed, as both conservative and
progressive House members balked at the initial TARP plan, a number of
lawmakers became convinced by onetime FDIC chair William Isaac that
mark-to-market accounting was the culprit and that simply suspending
or abolishing it was all that was needed to see us through.

They were ignored at the time, but the conservative noise machine ran
with the idea (op-eds in the Wall Street Journal, rants on CNBC) and
the banks kept working over Congress.

Finally, in a deft bit of bank-shot lobbying, the American Bankers
Association, the Chamber of Commerce and others pressured the House
Financial Services subcommittee on capital markets, insurance and
government-sponsored enterprises to convene a hearing in March on
accounting standards. There, members of both parties browbeat
representatives of the independent Financial Accounting Standards
Board for excessive fidelity to their precious rules. (Representative
Randy Neugebauer of Texas: "Don't make us tell you what to do. Just do
it. Just get it done.") Three weeks later, after a truncated process,
the five-member FASB voted 3 to 2 for changes that would relax mark-to-
market requirements. The two dissenting board members issued a
minority report warning that the new rules could help hide losses and
impair long-term economic growth.

[snip]
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