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Goldman Spy Case: Bank Frets Over 'Doomsday Machine' Trading Codes

2009-07-10T15:45:01Z

July 9 (Bloomberg) -- Never let it be said that the Justice Department can't move quickly when it gets a hot tip about an alleged crime at a Wall Street bank. It does help, though, if the party doing the complaining is the bank itself, and not merely an aggrieved customer.

AIG Bonuses: Consulting With Obama Administration On Plans To Pay Out Millions Of Dollars

2009-07-10T15:17:42Z

NEW YORK — American International Group Inc. is consulting with the federal government about its plans to pay millions of dollars in retention incentives and bonuses, a person familiar with the situation said.

AIG is working with the Obama administration's compensation czar, Kenneth R. Feinberg, to ensure the government and the insurer are on the same page before it pays out remaining bonuses due to employees tied to 2008 contracts, according to the person, who requested anonymity because of the sensitive nature of the talks.

New York-based AIG faced intense public and Congressional criticism in March when it paid out hundreds of millions of dollars in retention bonuses to employees months after receiving a bailout from the government.

Some of the bonuses AIG is planning to pay out were promised to employees in 2008, before the government stepped in to ensure AIG would not collapse. Additional retention payments were awarded in an effort to keep executives from leaving the company after the government's initial bailout.

In September, the government provided AIG with an $85 billion rescue package amid the mushrooming credit crisis. In return, the government took about an 80 percent stake in the New York-based insurance giant. Since then, the government has provided additional rounds of support. AIG's available loan package now totals $182.5 billion, though it has not tapped all of the funds.

The latest round of bonus payments will include about $235 million for employees at AIG's financial products unit, according to a Wall Street Journal report. AIG's near collapse was not due to its traditional insurance operations, but instead risky derivatives contracts written by the financial products division. AIG is in the processing of winding down that unit.

AIG is also scheduled to pay out another portion of a much smaller set of bonuses to 40 high-ranking AIG executives. The 40 executives were awarded about a combined $9 million in bonuses for 2008. The insurer paid out half of the bonuses in March and is supposed to pay out the remainder in two installments, the first of which is scheduled for next week.

AIG is among the companies whose pay practices the government now oversees. But while AIG is discussing the outstanding bonuses with Feinberg, he cannot ultimately veto the upcoming payments.

Feinberg does have the power to reject pay plans he deems excessive at companies that benefited from large infusions from the government's $700 billion bank bailout fund. However, those powers only begin with pay packages for 2009 and can't be retroactively applied to 2008 compensation.

Feinberg also now has authority to review compensation for the top 100 salaried employees at those firms.

Hundreds of financial firms received money as part of the government's $700 billion program. Many of the largest banks have been repaying those funds quickly, in part, to enable avoiding scrutiny and restrictions on how they pay top executives.

AIG has been selling assets to raise cash in an effort to repay the government loans. It is also planning to spin off three of its major insurance subsidiaries into separate companies to raise capital necessary to pay back the government.

Jill Schlesinger: GM Bankruptcy: 40 Days and 40 Nights to a New Era

2009-07-10T15:15:57Z

Noah endured 40 days and 40 nights on his ark, the Hebrews traveled for 40 days and nights before the parting of the Red Sea and now, after 40 days and nights, General Motors has emerged from bankruptcy as of 6:30 this morning.

The new GM is leaner: it's exiting bankruptcy with $48 billion in debt, a massive reduction from the $176 billion it was carrying when it started the process; it will have four brands (Chevrolet, Buick, Cadillac and GMC) versus the eight it had before; the number of manufacturing facilities will now be 34 from 47; and the number of employees eventually will be reduced by nearly a third from the end of 2008.

In a press conference this morning, CEO Frederick "Fritz" Henderson said that the new GM would focus on three things: customers, cars and culture. That's a nice slogan, but now the hard work begins. GM must now create and produce cars that consumers want to buy. Maybe they're on the way--GM sold 9,300 Chevrolet Camaros in June.

Henderson said that the goal "is to make each and every General Motors car, truck and crossover the best-in-class." I would settle for the company producing vehicles at a profit, which would be a welcome new development for a company that lost $80 billion over the last four years.

It's been a long road (pardon the pun) for GM and much has gone wrong over the years. But on the dawn of GM's new era, I want to believe that the company can succeed. Sure, that might be wishful thinking, but considering that US taxpayers now own 60.8% of GM, we should all root for its success.

Image by Flickr User Stomashek, cc 2.0

For more on GM, continue on moneywatch.com

Madoff Mail: Website Solicits Angry Letters For Bernie

2009-07-10T15:03:46Z

A new website wants you to tell Bernie Madoff exactly how you feel. The e-newsletter Thrillist today pointed to "Madoff Mail," a kind of web experiment that's asking for user-submitted letters, cards and posters that will be sent to Madoff in prison.

Every six months, Madoff Mail will deliver what presumably will be a boatload of angry missives to Bernie's prison address. The Madoff Mail website says that they'll also be hosting a gallery show of some of the better submissions in late 2009.

There are already some rather creative takes -- think Madoff as The Fonz and Madoff as Mini-Me. One handwritten note reads:

"Dear Bernie, Honestly, that was pretty damn impressive. If only the global financial system hadn't collapsed. Tough break..."

Visit the Madoff Mail website here.

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William White: Canadian Economist Warned Of Coming Crisis, And Was Ignored

2009-07-10T14:38:52Z

William White predicted the approaching financial crisis years before 2007's subprime meltdown. But central bankers preferred to listen to his great rival Alan Greenspan instead, with devastating consequences for the global economy.

Warren Buffett's Recession Investment Tips (VIDEO)

2009-07-10T14:01:09Z

In an interview this week with Good Morning America Warren Buffett, the legendary investor and CEO of Berkshire Hathaway, said that Americans had been on "a binge" prior to the recession. The Oracle of Omaha also gave some broad, but characteristically wise, advice for investing in this new era.

For one, Buffett said, debt can be a killer:

"The U.S. public as a whole has gotten into problems from leverage, financial institutions have gotten into problems through leverage," he said. "A long, long time ago a friend said to me about leverage, 'If you're smart you don't need it, and if you're dumb, you got no business using it.'"

For more of Warren Buffett's investment tips, WATCH:

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Government Giving The Go Ahead On Stimulus Money For Renewables

2009-07-10T13:48:02Z

The Treasury and the Energy Department today unveiled long-awaited new rules under which the government will pay up to 30 percent of the cost of renewable energy projects.

Goldman Sachs Poised To Earn Record Profits

2009-07-10T13:34:53Z

July 10 (Bloomberg) -- Goldman Sachs Group Inc. is poised to report the largest profit since it set earnings records in 2007, marking the return of a business model that was the envy of Wall Street before the financial crisis devastated competitors and spurred a government bailout.

Wall Street Haggles Over Cost Of Bailout

2009-07-10T06:17:59Z

WASHINGTON -- Several Wall Street firms seeking to buy back warrants held by the government as part of the $700 billion financial bailout are complaining that the Treasury Department is demanding too high a price, according to people familiar with the matter.

GM exits bankruptcy, CEO vows better performance

2009-07-10T06:02:02Z

DETROIT — A leaner General Motors arose on Friday, making an unusually quick exit from bankruptcy with ambitions of making money and building cars people are eager to buy.

Once the world's largest and most powerful automaker, new GM is now cleansed of massive debt and burdensome contracts that would have sunk it without federal loans. The U.S. government owns a majority stake although the Obama administration says it has no plans to run the automaker.

The new GM also emerges amid the worst sales slump in a quarter-century.

At a news conference, CEO Fritz Henderson said the new GM will be faster and more responsive to customers than the old one and it will make money and repay government loans faster than required.

Henderson said GM completed its 40-day stay under court supervision far faster than anyone thought it could. He said it would repay about $50 billion in government loans ahead of a 2015 deadline.

He said the company now will focus more on customers, including a partnership with eBay to test auctioning vehicles online.

The new GM will also build more cars and trucks that consumers want and launch them faster than in the past, the CEO said.

"We recognize that we've been given a rare second chance at GM, and we are very grateful for that. And we appreciate the fact that we now have the tools to get the job done," he said.

The new company arose Friday as the bulk of General Motors Corp.'s assets were transferred to a company controlled by the U.S. government.

Henderson said the company would reduce its overall U.S. salaried employment by 20 percent by the end of 2009. He said management ranks will be cut by 35 percent, or 450 executives, including the elimination of its North American president position. Henderson said he will take responsibility for North American operations.

He said Bob Lutz, a legendary industry executive, was "unretiring" to become a vice chairman responsible for all creative elements of products, marketing and customer relationships. Lutz had previously planned to retire at the end of the year after more than four decades in the auto business.

The automaker is launching a "Tell Fritz" Web site to allow owners and the public to share their concerns with senior management and he planned to go out on the road every month, Henderson said.

"We need to listen to the questions, ideas and the concerns of the people who matter the most," Henderson said.

The new company will focus on three top priorities, customers, cars and culture, Henderson said.

"If we don't get this right, nothing else is going to work," he said during a morning news conference at GM's Downtown Detroit headquarters. "Business as usual is over at General Motors."

New Chairman Edward Whitacre Jr. said the 40-day period had been extremely challenging. "There have been a lot of long hours, there have been a shuttering of plants, there have been painful layoffs," he said. Whitacre cited the "strong leadership" of Henderson and the management team, giving the CEO who replaced Rick Wagoner a vote of confidence.

"We all want to win and we are going to win," Whitacre said.

The company's logo will emain blue with white underlined GM letters. Henderson said GM has no plans to change the background color to green. "It's not in my plans actually," he said.

GM has considered the change to represent its new environmental focus.

Concessions made by the United Auto Workers union just before the company entered bankruptcy protection have brought GM's labor costs down to where they are fully competitive with Toyota Motor Corp., Henderson said.

Henderson also said the U.S. government has urged them to form a "world-class board" and has vowed that it would not get involved in day-to-day decisions. Steve Rattner, the head of the Obama administration's auto task force, "wants the company to perform," Henderson said.

GM ranked as the top global automaker in terms of sales for 77 years before Japan's Toyota Motor Corp. snatched its crown in 2008. The company sold nearly 8.4 million cars and trucks around the world in 2008, falling short of Toyota's nearly 9 million.

Once the largest corporation in America, GM held the top spot in the Fortune 500 ranking for 20 years before being pushed out of the top spot in 1973 by Exxon Mobil Corp. It reclaimed No. 1 status in 1985 and held it for another 15 years.

Turning a profit will not be easy. GM has piled up losses and survives only because it expects to receive $50 billion in U.S. government loans. Without the loans, its executives have said the company would have been sold off in pieces.

In addition to the U.S. government's 61 percent controlling interest, the United Auto Workers union gets a 17.5 percent stake of the company through its retiree health care trust, and the Canadian government will control 11.7 percent. The remaining shares went to bondholders of the old company.

The parts of GM not moving to the new company will become part of "old GM," a collection of assets and liabilities that will be sold to pay creditors.

___

Associated Press Writers Ken Thomas in Washington, D.C., and Kimberly S. Johnson and Jeff Karoub in Detroit contributed to this report.

US Could Lose $2B In TARP, Warns Oversight Panel

2009-07-10T05:42:22Z

The government could lose out on more than $2 billion if federal officials continue to undervalue part of the financial bailout package, a government watchdog panel will say on Friday.

The Congressional Oversight Panel, working with a team of Harvard Business School professors, estimated that taxpayers had lost one-third of the value of the very small number of warrants that had already been sold by the Treasury Department.

Jonathan Littman: The Ten Office Disruptors

2009-07-10T03:56:00Z

Summer time is here, and when you manage to make it into the office you find that the Disruptors get on your nerves even more than usual. The best defense? A coffee run, closing the door, or blocking your cube. Our favorite strategy: working from your beach shack.

1. Unprepared
Never brings a pen to meetings. Forgot to read the memo. It's not just that he's an occasional dimwit -- we all have those moments when we suffer a mind leak. The problem is that Unprepared always seems to want to borrow your pen.

2. Cud
That crud a cow works over in its massive mandible all day long. Remind you of anyone? Like maybe your office's endless eater? It's bad enough that they eat more than the Three Little Pigs, but you are doomed to suffer the horrid accompanying sound effects.

3. Bad Comedian
Jokes spew from him like bees from a broken hive. The stand-up routine around the water cooler. E-mails. They're lame. Tasteless. A few are funny. Don't laugh, you're only encouraging him. There's no easy out -- except maybe the fire escape.

4. Yackety Yak
His constant chattering gives other people license to talk and then the volume rachets up exponentially. You can cough. Clear your throat. Nothing short of a brazen "Shut up!" clamps Yackety Yak's voice hole.

5. Swipe
That sticky fingered culprit who helps himself to things with every intention of never returning them. Staplers, pencils, notepads -- stuff from your desk vanishes. Even when you've deduced the identity of the Swipe, you still can't figure out what happened to the missing items. And Swipe never has anything worth swiping in return.

6. Buzzsaw
Loves to pepper his office jawing with buzzwords, heaping the latest terms and clichés on top of the old. A slang compost heap composed of "Shoot you an email," "Touch base," "Circle back," "Let's take that one offline," "Mission Critical," "Raising the bar," "Drill down." It's all just office filler. Pinned to the dingy carpet Buzzsaw probably couldn't explain half of their spewage. We're sure you'd agree "110 percent."

7. Space Invader
Crashes your personal space. If they're close enough to strangle you, they're too close. If you can make out the rotting molars, pitted acne and are overcome by the halitosis -- they're way too close.

8. Sound FX
Everyone has a Clicker, the frustrated musician who must click one object on their desk against another, like a pen against a coffee mug. Slurper can't seem to drink anything -- coffee, water, soup -- without that obtrusive sucking noise. And Squeaker, whose desk chair squeals every time he moves.

9. Vulture
Crashes any and all meetings that feature food. Many of these corporate parasites are so lousy for calories that they'll gladly stomach an extra meeting that has nothing to do with their work for an impromptu feed.

10. Play By Play
Can't make a move without broadcasting it: "I'm going to refill the toner!" "I'm off to the Mexican place for lunch!" "I'll be in the bathroom if anyone calls!" These phrases are rhetorical, you quickly learn -- no response is expected. And there's no way to stop the announcements. should bother us -- they just do.

Jonathan Littman is the co-author of the new book I HATE PEOPLE! (Little, Brown and Company; June 2009) with Marc Hershon. A Contributing Editor at Playboy, Jonathan is the co-author of the best selling Art of Innovation.

Jacob Frydman: The Case for Public-Private Partnerships

2009-07-10T02:55:06Z

California is the world's 10th largest economy. The mansions of Beverly Hills, tech giants of Silicon Valley, and stars of Hollywood all evoke thoughts of wealth and success. Simply put, California is a giant.

In the wake of the sub-prime mortgage crisis however, this giant is being brought to its knees -- straddled with a mind-blowing 23.4 billion dollar budget shortfall and no relief within sight. Its cities are declaring bankruptcy, the most recent being the city of Vallejo, located in the affluent San Francisco Bay area. State and local governments are desperate for capital -- a shrinking tax base and the lack of credit has resulted in an inability to meet budgetary needs and has forced cash constrained governments to look for new ways to raise cash.

Simultaneously, it has become increasingly obvious at the Federal, State and local levels, that aging infrastructure in our country cannot continue to be properly serviced. Maintenance costs are prohibitively high while replacement is financially unthinkable. The American Society of Civil Engineers has estimated the un-met need for such maintenance costs to be $2.2 trillion over the next five years. Political infighting in many states makes decisive action impossible, leaving most constituencies with outdated, underfunded and overused infrastructure.

Given these realities, many governments are looking to privatize their infrastructure, including tolls roads and parking systems, to provide capital and eliminate costly maintenance and operational burdens. The privatization of public infrastructure is not a novel concept; however the recent economic downturn may well be the accelerant which takes this process from an orderly transition to a needs-based avalanche.

In today's world, private investors and local and state governments, through public-private partnerships (P3's), have the unique opportunity to satisfy each other's needs. Through this arrangement, the skills and assets of each are shared to affect a joint undertaking to provide facilities or services to the general public. In New York State alone, over $51 billion of infrastructure assets are being reviewed for possible infrastructure P3's.

There are some who challenge this idea and suggest that private entities should not operate or profit from public infrastructure. Yet the facts are compelling in pointing towards such public-private partnerships. In the first instance the assets typically remain owned by the government, and are only leased to the private entity. Moreover, the asset continues to be available to all the same users who previously benefited from that asset.

While many governments seek to operate their infrastructure efficiently, when they face crippling cash constraints, they simply don't have the money available to improve and enhance those assets. This creates a catch-22 in that the government doesn't have the money to improve the system in a fashion where additional revenue can be generated over time. Private enterprise does -- and by virtue of the private sector's willingness to invest in these assets, the public benefits from improved operations and services, not to mention the allocation of all current and future maintenance, repair, and replacement obligations to the private entity. Obviously, the private investor seeks to make a return on its investment, and generally does so with increased user fees. As a result, private investors are usually able to pay large up-front payments to the governmental entity for the right to collect revenues over a long-term lease, usually in excess of 50 years.

Even if the government had the capital necessary to make these improvements, the government does not hire entrepreneurial people who get paid to take risks. Typically, caretakers of infrastructure assets are risk adverse and preserve the assets without "rocking the boat". Individuals running Departments of Transportation or parking systems are not paid bonuses or increased revenue for taking risks. They are in fact incentivized to avoid risk and keep things going just as they are, especially in these difficult economic times.

Though private enterprise is in a position to bring about necessary and positive changes, it is also able to preserve the status quo where such maintenance benefits the community. Some private investors (including this author) believe that a successful private-public partnership demands the participation of organized labor. Public infrastructure, such as parking systems and toll roads are frequently staffed and maintained by union employees. These workers have invaluable experience in their respective positions and offer any private-public partnership the opportunity for a seamless transition of operations. Private investors have shown that a labor-friendly business model benefits both the private investor- by offering an experienced and capable workforce, and the general public-by providing high-paying local jobs.

Public-private partnerships should be embraced rather than feared. The recent economic downturn has left our economy reeling and forced state and local governments to rethink the way they do business. Fortunately, a unique opportunity has emerged in the form of public-private partnerships, an alliance which stands to benefit all parties involved. In these trying economic times, a government's success may well depend on its ability to explore non-traditional sources of revenue. California can be a giant again, but only if it maximizes its resources and harnesses the drive and ingenuity of America's entrepreneurs.

AIG Bonuses Are Back: Firm Preparing To Pay Out Millions

2009-07-10T01:58:52Z

After its bonus payments ignited a firestorm of criticism earlier this year, American International Group Inc. is asking the federal government to weigh in on the insurer's plan to resume paying millions in promised retention incentives next week, according to media reports.

AIG, once the world's largest insurer, has asked the Obama administration's compensation czar, Kenneth R. Feinberg, to approve the payments in order to head off any public outrage, The Washington Post reported Thursday evening.

While the company isn't required to get the government's blessing because the payments are actually for 2008 employment contracts, the newspaper said executives are reluctant to move forward with installments coming due next week without official approval.

Feinberg has the power to reject pay plans he deems excessive at companies which benefited from large infusions from the government's $700 billion bank bailout fund. Feinberg also has authority to review compensation for the top 100 salaried employees at those firms. AIG is among the companies whose pay practices the government now oversees.

New York-based AIG remains the focus of intense scrutiny, after becoming one in a string of corporate calamities and a touchstone for public fury. The huge volume of credit default swaps -- a form of insurance against bond defaults -- sold by AIG, coupled with rising levels of defaulted mortgage and other debt, threatened the company's existence and prompted the government to step in.

Government aid to AIG totals about $180 billion.

The $450 million in bonuses that AIG allocated in 2008 for employees, including to traders in the financial products unit that brought it to the brink of collapse, fueled public and congressional outrage. The first installment of those payments earlier this year sparked legislation in Congress to slap punishing taxes on big bonuses at AIG and other companies bailed out by taxpayers, though the Senate didn't act on that plan.

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Prosecutors Pass On Major Wall Street Players

2009-07-10T00:50:03Z

Ever heard of Sky Capital? Probably not. The CEO of that rinky-dink Wall Street firm and five of his employees were indicted this week over what the Securities and Exchange Commission described as a "trans-Atlantic boiler room scheme" to defraud investors. Maybe you have heard of Angelo Mozilo, the perpetually tanned former head of Countrywide Financial who faces civil fraud charges that he and two others knew many of their subprime loans were "toxic," as Mozilo allegedly described them in e-mails. Mozilo says he's innocent. Prosecutors believe he was one of many middlemen who fed one of the greatest confidence games of all time--the subprime-mortgage-backed securities scam--perpetuated by Wall Street.