Tuesday, March 24, 2009

US Financial Melt down; A humerous Genesis Account

The US investors today seemed to give a vote of confidence to Obama's plan to rescue the financial market by injecting trillions of dollars in buying back the so called toxic assets. The Dow Jones rallied 7%, the largest rise in a single day in a long while, vindicating Finance Secretary Geithners action which was criticized by some Nobel prize winner in economics who came up with some theory as to why the plan would not work. I stumbled upon another skeptic whose style I found very interesting and humorous but very educative on the genesis of the meltdown. In between I invariably burst into laughter, please enjoy yourselves like I did

http://www.rollingstone.com/politics/story/26793903/the_big_takeover


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The Big Takeover
The global economic crisis isn't about money - it's about power. How Wall Street insiders are using the bailout to stage a revolution

MATT TAIBBI

Posted Mar 19, 2009 12:49 PM

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It's over — we're officially, royally fucked. no empire can survive being rendered a permanent laughingstock, which is what happened as of a few weeks ago, when the buffoons who have been running things in this country finally went one step too far. It happened when Treasury Secretary Timothy Geithner was forced to admit that he was once again going to have to stuff billions of taxpayer dollars into a dying insurance giant called AIG, itself a profound symbol of our national decline — a corporation that got rich insuring the concrete and steel of American industry in the country's heyday, only to destroy itself chasing phantom fortunes at the Wall Street card tables, like a dissolute nobleman gambling away the family estate in the waning days of the British Empire.

The latest bailout came as AIG admitted to having just posted the largest quarterly loss in American corporate history — some $61.7 billion. In the final three months of last year, the company lost more than $27 million every hour. That's $465,000 a minute, a yearly income for a median American household every six seconds, roughly $7,750 a second. And all this happened at the end of eight straight years that America devoted to frantically chasing the shadow of a terrorist threat to no avail, eight years spent stopping every citizen at every airport to search every purse, bag, crotch and briefcase for juice boxes and explosive tubes of toothpaste. Yet in the end, our government had no mechanism for searching the balance sheets of companies that held life-or-death power over our society and was unable to spot holes in the national economy the size of Libya (whose entire GDP last year was smaller than AIG's 2008 losses).

So it's time to admit it: We're fools, protagonists in a kind of gruesome comedy about the marriage of greed and stupidity. And the worst part about it is that we're still in denial — we still think this is some kind of unfortunate accident, not something that was created by the group of psychopaths on Wall Street whom we allowed to gang-rape the American Dream. When Geithner announced the new $30 billion bailout, the party line was that poor AIG was just a victim of a lot of shitty luck — bad year for business, you know, what with the financial crisis and all. Edward Liddy, the company's CEO, actually compared it to catching a cold: "The marketplace is a pretty crummy place to be right now," he said. "When the world catches pneumonia, we get it too." In a pathetic attempt at name-dropping, he even whined that AIG was being "consumed by the same issues that are driving house prices down and 401K statements down and Warren Buffet's investment portfolio down."

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Liddy made AIG sound like an orphan begging in a soup line, hungry and sick from being left out in someone else's financial weather. He conveniently forgot to mention that AIG had spent more than a decade systematically scheming to evade U.S. and international regulators, or that one of the causes of its "pneumonia" was making colossal, world-sinking $500 billion bets with money it didn't have, in a toxic and completely unregulated derivatives market.

Nor did anyone mention that when AIG finally got up from its seat at the Wall Street casino, broke and busted in the afterdawn light, it owed money all over town — and that a huge chunk of your taxpayer dollars in this particular bailout scam will be going to pay off the other high rollers at its table. Or that this was a casino unique among all casinos, one where middle-class taxpayers cover the bets of billionaires.

People are pissed off about this financial crisis, and about this bailout, but they're not pissed off enough. The reality is that the worldwide economic meltdown and the bailout that followed were together a kind of revolution, a coup d'état. They cemented and formalized a political trend that has been snowballing for decades: the gradual takeover of the government by a small class of connected insiders, who used money to control elections, buy influence and systematically weaken financial regulations.

The crisis was the coup de grâce: Given virtually free rein over the economy, these same insiders first wrecked the financial world, then cunningly granted themselves nearly unlimited emergency powers to clean up their own mess. And so the gambling-addict leaders of companies like AIG end up not penniless and in jail, but with an Alien-style death grip on the Treasury and the Federal Reserve — "our partners in the government," as Liddy put it with a shockingly casual matter-of-factness after the most recent bailout.

The mistake most people make in looking at the financial crisis is thinking of it in terms of money, a habit that might lead you to look at the unfolding mess as a huge bonus-killing downer for the Wall Street class. But if you look at it in purely Machiavellian terms, what you see is a colossal power grab that threatens to turn the federal government into a kind of giant Enron — a huge, impenetrable black box filled with self-dealing insiders whose scheme is the securing of individual profits at the expense of an ocean of unwitting involuntary shareholders, previously known as taxpayers.

I. PATIENT ZERO

The best way to understand the financial crisis is to understand the meltdown at AIG. AIG is what happens when short, bald managers of otherwise boring financial bureaucracies start seeing Brad Pitt in the mirror. This is a company that built a giant fortune across more than a century by betting on safety-conscious policyholders — people who wear seat belts and build houses on high ground — and then blew it all in a year or two by turning their entire balance sheet over to a guy who acted like making huge bets with other people's money would make his dick bigger.

That guy — the Patient Zero of the global economic meltdown — was one Joseph Cassano, the head of a tiny, 400-person unit within the company called AIG Financial Products, or AIGFP. Cassano, a pudgy, balding Brooklyn College grad with beady eyes and way too much forehead, cut his teeth in the Eighties working for Mike Milken, the granddaddy of modern Wall Street debt alchemists. Milken, who pioneered the creative use of junk bonds, relied on messianic genius and a whole array of insider schemes to evade detection while wreaking financial disaster. Cassano, by contrast, was just a greedy little turd with a knack for selective accounting who ran his scam right out in the open, thanks to Washington's deregulation of the Wall Street casino. "It's all about the regulatory environment," says a government source involved with the AIG bailout. "These guys look for holes in the system, for ways they can do trades without government interference. Whatever is unregulated, all the action is going to pile into that."

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The mess Cassano created had its roots in an investment boom fueled in part by a relatively new type of financial instrument called a collateralized-debt obligation. A CDO is like a box full of diced-up assets. They can be anything: mortgages, corporate loans, aircraft loans, credit-card loans, even other CDOs. So as X mortgage holder pays his bill, and Y corporate debtor pays his bill, and Z credit-card debtor pays his bill, money flows into the box.

The key idea behind a CDO is that there will always be at least some money in the box, regardless of how dicey the individual assets inside it are. No matter how you look at a single unemployed ex-con trying to pay the note on a six-bedroom house, he looks like a bad investment. But dump his loan in a box with a smorgasbord of auto loans, credit-card debt, corporate bonds and other crap, and you can be reasonably sure that somebody is going to pay up. Say $100 is supposed to come into the box every month. Even in an apocalypse, when $90 in payments might default, you'll still get $10. What the inventors of the CDO did is divide up the box into groups of investors and put that $10 into its own level, or "tranche." They then convinced ratings agencies like Moody's and S&P to give that top tranche the highest AAA rating — meaning it has close to zero credit risk.

Suddenly, thanks to this financial seal of approval, banks had a way to turn their shittiest mortgages and other financial waste into investment-grade paper and sell them to institutional investors like pensions and insurance companies, which were forced by regulators to keep their portfolios as safe as possible. Because CDOs offered higher rates of return than truly safe products like Treasury bills, it was a win-win: Banks made a fortune selling CDOs, and big investors made much more holding them.

The problem was, none of this was based on reality. "The banks knew they were selling crap," says a London-based trader from one of the bailed-out companies. To get AAA ratings, the CDOs relied not on their actual underlying assets but on crazy mathematical formulas that the banks cooked up to make the investments look safer than they really were. "They had some back room somewhere where a bunch of Indian guys who'd been doing nothing but math for God knows how many years would come up with some kind of model saying that this or that combination of debtors would only default once every 10,000 years," says one young trader who sold CDOs for a major investment bank. "It was nuts."

Now that even the crappiest mortgages could be sold to conservative investors, the CDOs spurred a massive explosion of irresponsible and predatory lending. In fact, there was such a crush to underwrite CDOs that it became hard to find enough subprime mortgages — read: enough unemployed meth dealers willing to buy million-dollar homes for no money down — to fill them all. As banks and investors of all kinds took on more and more in CDOs and similar instruments, they needed some way to hedge their massive bets — some kind of insurance policy, in case the housing bubble burst and all that debt went south at the same time. This was particularly true for investment banks, many of which got stuck holding or "warehousing" CDOs when they wrote more than they could sell. And that's were Joe Cassano came in.

Known for his boldness and arrogance, Cassano took over as chief of AIGFP in 2001. He was the favorite of Maurice "Hank" Greenberg, the head of AIG, who admired the younger man's hard-driving ways, even if neither he nor his successors fully understood exactly what it was that Cassano did. According to a source familiar with AIG's internal operations, Cassano basically told senior management, "You know insurance, I know investments, so you do what you do, and I'll do what I do — leave me alone." Given a free hand within the company, Cassano set out from his offices in London to sell a lucrative form of "insurance" to all those investors holding lots of CDOs. His tool of choice was another new financial instrument known as a credit-default swap, or CDS.

The CDS was popularized by J.P. Morgan, in particular by a group of young, creative bankers who would later become known as the "Morgan Mafia," as many of them would go on to assume influential positions in the finance world. In 1994, in between booze and games of tennis at a resort in Boca Raton, Florida, the Morgan gang plotted a way to help boost the bank's returns. One of their goals was to find a way to lend more money, while working around regulations that required them to keep a set amount of cash in reserve to back those loans. What they came up with was an early version of the credit-default swap.

In its simplest form, a CDS is just a bet on an outcome. Say Bank A writes a million-dollar mortgage to the Pope for a town house in the West Village. Bank A wants to hedge its mortgage risk in case the Pope can't make his monthly payments, so it buys CDS protection from Bank B, wherein it agrees to pay Bank B a premium of $1,000 a month for five years. In return, Bank B agrees to pay Bank A the full million-dollar value of the Pope's mortgage if he defaults. In theory, Bank A is covered if the Pope goes on a meth binge and loses his job.

When Morgan presented their plans for credit swaps to regulators in the late Nineties, they argued that if they bought CDS protection for enough of the investments in their portfolio, they had effectively moved the risk off their books. Therefore, they argued, they should be allowed to lend more, without keeping more cash in reserve. A whole host of regulators — from the Federal Reserve to the Office of the Comptroller of the Currency — accepted the argument, and Morgan was allowed to put more money on the street.

What Cassano did was to transform the credit swaps that Morgan popularized into the world's largest bet on the housing boom. In theory, at least, there's nothing wrong with buying a CDS to insure your investments. Investors paid a premium to AIGFP, and in return the company promised to pick up the tab if the mortgage-backed CDOs went bust. But as Cassano went on a selling spree, the deals he made differed from traditional insurance in several significant ways. First, the party selling CDS protection didn't have to post any money upfront. When a $100 corporate bond is sold, for example, someone has to show 100 actual dollars. But when you sell a $100 CDS guarantee, you don't have to show a dime. So Cassano could sell investment banks billions in guarantees without having any single asset to back it up.

Secondly, Cassano was selling so-called "naked" CDS deals. In a "naked" CDS, neither party actually holds the underlying loan. In other words, Bank B not only sells CDS protection to Bank A for its mortgage on the Pope — it turns around and sells protection to Bank C for the very same mortgage. This could go on ad nauseam: You could have Banks D through Z also betting on Bank A's mortgage. Unlike traditional insurance, Cassano was offering investors an opportunity to bet that someone else's house would burn down, or take out a term life policy on the guy with AIDS down the street. It was no different from gambling, the Wall Street version of a bunch of frat brothers betting on Jay Feely to make a field goal. Cassano was taking book for every bank that bet short on the housing market, but he didn't have the cash to pay off if the kick went wide.

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In a span of only seven years, Cassano sold some $500 billion worth of CDS protection, with at least $64 billion of that tied to the subprime mortgage market. AIG didn't have even a fraction of that amount of cash on hand to cover its bets, but neither did it expect it would ever need any reserves. So long as defaults on the underlying securities remained a highly unlikely proposition, AIG was essentially collecting huge and steadily climbing premiums by selling insurance for the disaster it thought would never come.

Initially, at least, the revenues were enormous: AIGFP's returns went from $737 million in 1999 to $3.2 billion in 2005. Over the past seven years, the subsidiary's 400 employees were paid a total of $3.5 billion; Cassano himself pocketed at least $280 million in compensation. Everyone made their money — and then it all went to shit.

II. THE REGULATORS

Cassano's outrageous gamble wouldn't have been possible had he not had the good fortune to take over AIGFP just as Sen. Phil Gramm — a grinning, laissez-faire ideologue from Texas — had finished engineering the most dramatic deregulation of the financial industry since Emperor Hien Tsung invented paper money in 806 A.D. For years, Washington had kept a watchful eye on the nation's banks. Ever since the Great Depression, commercial banks — those that kept money on deposit for individuals and businesses — had not been allowed to double as investment banks, which raise money by issuing and selling securities. The Glass-Steagall Act, passed during the Depression, also prevented banks of any kind from getting into the insurance business.

But in the late Nineties, a few years before Cassano took over AIGFP, all that changed. The Democrats, tired of getting slaughtered in the fundraising arena by Republicans, decided to throw off their old reliance on unions and interest groups and become more "business-friendly." Wall Street responded by flooding Washington with money, buying allies in both parties. In the 10-year period beginning in 1998, financial companies spent $1.7 billion on federal campaign contributions and another $3.4 billion on lobbyists. They quickly got what they paid for. In 1999, Gramm co-sponsored a bill that repealed key aspects of the Glass-Steagall Act, smoothing the way for the creation of financial megafirms like Citigroup. The move did away with the built-in protections afforded by smaller banks. In the old days, a local banker knew the people whose loans were on his balance sheet: He wasn't going to give a million-dollar mortgage to a homeless meth addict, since he would have to keep that loan on his books. But a giant merged bank might write that loan and then sell it off to some fool in China, and who cared?

The very next year, Gramm compounded the problem by writing a sweeping new law called the Commodity Futures Modernization Act that made it impossible to regulate credit swaps as either gambling or securities. Commercial banks — which, thanks to Gramm, were now competing directly with investment banks for customers — were driven to buy credit swaps to loosen capital in search of higher yields. "By ruling that credit-default swaps were not gaming and not a security, the way was cleared for the growth of the market," said Eric Dinallo, head of the New York State Insurance Department.

The blanket exemption meant that Joe Cassano could now sell as many CDS contracts as he wanted, building up as huge a position as he wanted, without anyone in government saying a word. "You have to remember, investment banks aren't in the business of making huge directional bets," says the government source involved in the AIG bailout. When investment banks write CDS deals, they hedge them. But insurance companies don't have to hedge. And that's what AIG did. "They just bet massively long on the housing market," says the source. "Billions and billions."

In the biggest joke of all, Cassano's wheeling and dealing was regulated by the Office of Thrift Supervision, an agency that would prove to be defiantly uninterested in keeping watch over his operations. How a behemoth like AIG came to be regulated by the little-known and relatively small OTS is yet another triumph of the deregulatory instinct. Under another law passed in 1999, certain kinds of holding companies could choose the OTS as their regulator, provided they owned one or more thrifts (better known as savings-and-loans). Because the OTS was viewed as more compliant than the Fed or the Securities and Exchange Commission, companies rushed to reclassify themselves as thrifts. In 1999, AIG purchased a thrift in Delaware and managed to get approval for OTS regulation of its entire operation.

Making matters even more hilarious, AIGFP — a London-based subsidiary of an American insurance company — ought to have been regulated by one of Europe's more stringent regulators, like Britain's Financial Services Authority. But the OTS managed to convince the Europeans that it had the muscle to regulate these giant companies. By 2007, the EU had conferred legitimacy to OTS supervision of three mammoth firms — GE, AIG and Ameriprise.

That same year, as the subprime crisis was exploding, the Government Accountability Office criticized the OTS, noting a "disparity between the size of the agency and the diverse firms it oversees." Among other things, the GAO report noted that the entire OTS had only one insurance specialist on staff — and this despite the fact that it was the primary regulator for the world's largest insurer!

"There's this notion that the regulators couldn't do anything to stop AIG," says a government official who was present during the bailout. "That's bullshit. What you have to understand is that these regulators have ultimate power. They can send you a letter and say, 'You don't exist anymore,' and that's basically that. They don't even really need due process. The OTS could have said, 'We're going to pull your charter; we're going to pull your license; we're going to sue you.' And getting sued by your primary regulator is the kiss of death."

When AIG finally blew up, the OTS regulator ostensibly in charge of overseeing the insurance giant — a guy named C.K. Lee — basically admitted that he had blown it. His mistake, Lee said, was that he believed all those credit swaps in Cassano's portfolio were "fairly benign products." Why? Because the company told him so. "The judgment the company was making was that there was no big credit risk," he explained. (Lee now works as Midwest region director of the OTS; the agency declined to make him available for an interview.)

In early March, after the latest bailout of AIG, Treasury Secretary Timothy Geithner took what seemed to be a thinly veiled shot at the OTS, calling AIG a "huge, complex global insurance company attached to a very complicated investment bank/hedge fund that was allowed to build up without any adult supervision." But even without that "adult supervision," AIG might have been OK had it not been for a complete lack of internal controls. For six months before its meltdown, according to insiders, the company had been searching for a full-time chief financial officer and a chief risk-assessment officer, but never got around to hiring either. That meant that the 18th-largest company in the world had no one checking to make sure its balance sheet was safe and no one keeping track of how much cash and assets the firm had on hand. The situation was so bad that when outside consultants were called in a few weeks before the bailout, senior executives were unable to answer even the most basic questions about their company — like, for instance, how much exposure the firm had to the residential-mortgage market.

III. THE CRASH

Ironically, when reality finally caught up to Cassano, it wasn't because the housing market crapped but because of AIG itself. Before 2005, the company's debt was rated triple-A, meaning he didn't need to post much cash to sell CDS protection: The solid creditworthiness of AIG's name was guarantee enough. But the company's crummy accounting practices eventually caused its credit rating to be downgraded, triggering clauses in the CDS contracts that forced Cassano to post substantially more collateral to back his deals.

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By the fall of 2007, it was evident that AIGFP's portfolio had turned poisonous, but like every good Wall Street huckster, Cassano schemed to keep his insane, Earth-swallowing gamble hidden from public view. That August, balls bulging, he announced to investors on a conference call that "it is hard for us, without being flippant, to even see a scenario within any kind of realm of reason that would see us losing $1 in any of those transactions." As he spoke, his CDS portfolio was racking up $352 million in losses. When the growing credit crunch prompted senior AIG executives to re-examine its liabilities, a company accountant named Joseph St. Denis became "gravely concerned" about the CDS deals and their potential for mass destruction. Cassano responded by personally forcing the poor sap out of the firm, telling him he was "deliberately excluded" from the financial review for fear that he might "pollute the process."

The following February, when AIG posted $11.5 billion in annual losses, it announced the resignation of Cassano as head of AIGFP, saying an auditor had found a "material weakness" in the CDS portfolio. But amazingly, the company not only allowed Cassano to keep $34 million in bonuses, it kept him on as a consultant for $1 million a month. In fact, Cassano remained on the payroll and kept collecting his monthly million through the end of September 2008, even after taxpayers had been forced to hand AIG $85 billion to patch up his fuck-ups. When asked in October why the company still retained Cassano at his $1 million-a-month rate despite his role in the probable downfall of Western civilization, CEO Martin Sullivan told Congress with a straight face that AIG wanted to "retain the 20-year knowledge that Mr. Cassano had." (Cassano, who is apparently hiding out in his lavish town house near Harrods in London, could not be reached for comment.)

What sank AIG in the end was another credit downgrade. Cassano had written so many CDS deals that when the company was facing another downgrade to its credit rating last September, from AA to A, it needed to post billions in collateral — not only more cash than it had on its balance sheet but more cash than it could raise even if it sold off every single one of its liquid assets. Even so, management dithered for days, not believing the company was in serious trouble. AIG was a dried-up prune, sapped of any real value, and its top executives didn't even know it.

On the weekend of September 13th, AIG's senior leaders were summoned to the offices of the New York Federal Reserve. Regulators from Dinallo's insurance office were there, as was Geithner, then chief of the New York Fed. Treasury Secretary Hank Paulson, who spent most of the weekend preoccupied with the collapse of Lehman Brothers, came in and out. Also present, for reasons that would emerge later, was Lloyd Blankfein, CEO of Goldman Sachs. The only relevant government office that wasn't represented was the regulator that should have been there all along: the OTS.

"We sat down with Paulson, Geithner and Dinallo," says a person present at the negotiations. "I didn't see the OTS even once."

On September 14th, according to another person present, Treasury officials presented Blankfein and other bankers in attendance with an absurd proposal: "They basically asked them to spend a day and check to see if they could raise the money privately." The laughably short time span to complete the mammoth task made the answer a foregone conclusion. At the end of the day, the bankers came back and told the government officials, gee, we checked, but we can't raise that much. And the bailout was on.

A short time later, it came out that AIG was planning to pay some $90 million in deferred compensation to former executives, and to accelerate the payout of $277 million in bonuses to others — a move the company insisted was necessary to "retain key employees." When Congress balked, AIG canceled the $90 million in payments.

Then, in January 2009, the company did it again. After all those years letting Cassano run wild, and after already getting caught paying out insane bonuses while on the public till, AIG decided to pay out another $450 million in bonuses. And to whom? To the 400 or so employees in Cassano's old unit, AIGFP, which is due to go out of business shortly! Yes, that's right, an average of $1.1 million in taxpayer-backed money apiece, to the very people who spent the past decade or so punching a hole in the fabric of the universe!

"We, uh, needed to keep these highly expert people in their seats," AIG spokeswoman Christina Pretto says to me in early February.

"But didn't these 'highly expert people' basically destroy your company?" I ask.

Pretto protests, says this isn't fair. The employees at AIGFP have already taken pay cuts, she says. Not retaining them would dilute the value of the company even further, make it harder to wrap up the unit's operations in an orderly fashion.

The bonuses are a nice comic touch highlighting one of the more outrageous tangents of the bailout age, namely the fact that, even with the planet in flames, some members of the Wall Street class can't even get used to the tragedy of having to fly coach. "These people need their trips to Baja, their spa treatments, their hand jobs," says an official involved in the AIG bailout, a serious look on his face, apparently not even half-kidding. "They don't function well without them."

IV. THE POWER GRAB
So that's the first step in wall street's power grab: making up things like credit-default swaps and collateralized-debt obligations, financial products so complex and inscrutable that ordinary American dumb people — to say nothing of federal regulators and even the CEOs of major corporations like AIG — are too intimidated to even try to understand them. That, combined with wise political investments, enabled the nation's top bankers to effectively scrap any meaningful oversight of the financial industry. In 1997 and 1998, the years leading up to the passage of Phil Gramm's fateful act that gutted Glass-Steagall, the banking, brokerage and insurance industries spent $350 million on political contributions and lobbying. Gramm alone — then the chairman of the Senate Banking Committee — collected $2.6 million in only five years. The law passed 90-8 in the Senate, with the support of 38 Democrats, including some names that might surprise you: Joe Biden, John Kerry, Tom Daschle, Dick Durbin, even John Edwards.

The act helped create the too-big-to-fail financial behemoths like Citigroup, AIG and Bank of America — and in turn helped those companies slowly crush their smaller competitors, leaving the major Wall Street firms with even more money and power to lobby for further deregulatory measures. "We're moving to an oligopolistic situation," Kenneth Guenther, a top executive with the Independent Community Bankers of America, lamented after the Gramm measure was passed.

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The situation worsened in 2004, in an extraordinary move toward deregulation that never even got to a vote. At the time, the European Union was threatening to more strictly regulate the foreign operations of America's big investment banks if the U.S. didn't strengthen its own oversight. So the top five investment banks got together on April 28th of that year and — with the helpful assistance of then-Goldman Sachs chief and future Treasury Secretary Hank Paulson — made a pitch to George Bush's SEC chief at the time, William Donaldson, himself a former investment banker. The banks generously volunteered to submit to new rules restricting them from engaging in excessively risky activity. In exchange, they asked to be released from any lending restrictions. The discussion about the new rules lasted just 55 minutes, and there was not a single representative of a major media outlet there to record the fateful decision.

Donaldson OK'd the proposal, and the new rules were enough to get the EU to drop its threat to regulate the five firms. The only catch was, neither Donaldson nor his successor, Christopher Cox, actually did any regulating of the banks. They named a commission of seven people to oversee the five companies, whose combined assets came to total more than $4 trillion. But in the last year and a half of Cox's tenure, the group had no director and did not complete a single inspection. Great deal for the banks, which originally complained about being regulated by both Europe and the SEC, and ended up being regulated by no one.

Once the capital requirements were gone, those top five banks went hog-wild, jumping ass-first into the then-raging housing bubble. One of those was Bear Stearns, which used its freedom to drown itself in bad mortgage loans. In the short period between the 2004 change and Bear's collapse, the firm's debt-to-equity ratio soared from 12-1 to an insane 33-1. Another culprit was Goldman Sachs, which also had the good fortune, around then, to see its CEO, a bald-headed Frankensteinian goon named Hank Paulson (who received an estimated $200 million tax deferral by joining the government), ascend to Treasury secretary.

Freed from all capital restraints, sitting pretty with its man running the Treasury, Goldman jumped into the housing craze just like everyone else on Wall Street. Although it famously scored an $11 billion coup in 2007 when one of its trading units smartly shorted the housing market, the move didn't tell the whole story. In truth, Goldman still had a huge exposure come that fateful summer of 2008 — to none other than Joe Cassano.

Goldman Sachs, it turns out, was Cassano's biggest customer, with $20 billion of exposure in Cassano's CDS book. Which might explain why Goldman chief Lloyd Blankfein was in the room with ex-Goldmanite Hank Paulson that weekend of September 13th, when the federal government was supposedly bailing out AIG.

When asked why Blankfein was there, one of the government officials who was in the meeting shrugs. "One might say that it's because Goldman had so much exposure to AIGFP's portfolio," he says. "You'll never prove that, but one might suppose."

Market analyst Eric Salzman is more blunt. "If AIG went down," he says, "there was a good chance Goldman would not be able to collect." The AIG bailout, in effect, was Goldman bailing out Goldman.

Eventually, Paulson went a step further, elevating another ex-Goldmanite named Edward Liddy to run AIG — a company whose bailout money would be coming, in part, from the newly created TARP program, administered by another Goldman banker named Neel Kashkari.

V. REPO MEN

There are plenty of people who have noticed, in recent years, that when they lost their homes to foreclosure or were forced into bankruptcy because of crippling credit-card debt, no one in the government was there to rescue them. But when Goldman Sachs — a company whose average employee still made more than $350,000 last year, even in the midst of a depression — was suddenly faced with the possibility of losing money on the unregulated insurance deals it bought for its insane housing bets, the government was there in an instant to patch the hole. That's the essence of the bailout: rich bankers bailing out rich bankers, using the taxpayers' credit card.

The people who have spent their lives cloistered in this Wall Street community aren't much for sharing information with the great unwashed. Because all of this shit is complicated, because most of us mortals don't know what the hell LIBOR is or how a REIT works or how to use the word "zero coupon bond" in a sentence without sounding stupid — well, then, the people who do speak this idiotic language cannot under any circumstances be bothered to explain it to us and instead spend a lot of time rolling their eyes and asking us to trust them.

That roll of the eyes is a key part of the psychology of Paulsonism. The state is now being asked not just to call off its regulators or give tax breaks or funnel a few contracts to connected companies; it is intervening directly in the economy, for the sole purpose of preserving the influence of the megafirms. In essence, Paulson used the bailout to transform the government into a giant bureaucracy of entitled assholedom, one that would socialize "toxic" risks but keep both the profits and the management of the bailed-out firms in private hands. Moreover, this whole process would be done in secret, away from the prying eyes of NASCAR dads, broke-ass liberals who read translations of French novels, subprime mortgage holders and other such financial losers.

Some aspects of the bailout were secretive to the point of absurdity. In fact, if you look closely at just a few lines in the Federal Reserve's weekly public disclosures, you can literally see the moment where a big chunk of your money disappeared for good. The H4 report (called "Factors Affecting Reserve Balances") summarizes the activities of the Fed each week. You can find it online, and it's pretty much the only thing the Fed ever tells the world about what it does. For the week ending February 18th, the number under the heading "Repurchase Agreements" on the table is zero. It's a significant number.

Why? In the pre-crisis days, the Fed used to manage the money supply by periodically buying and selling securities on the open market through so-called Repurchase Agreements, or Repos. The Fed would typically dump $25 billion or so in cash onto the market every week, buying up Treasury bills, U.S. securities and even mortgage-backed securities from institutions like Goldman Sachs and J.P. Morgan, who would then "repurchase" them in a short period of time, usually one to seven days. This was the Fed's primary mechanism for controlling interest rates: Buying up securities gives banks more money to lend, which makes interest rates go down. Selling the securities back to the banks reduces the money available for lending, which makes interest rates go up.

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If you look at the weekly H4 reports going back to the summer of 2007, you start to notice something alarming. At the start of the credit crunch, around August of that year, you see the Fed buying a few more Repos than usual — $33 billion or so. By November, as private-bank reserves were dwindling to alarmingly low levels, the Fed started injecting even more cash than usual into the economy: $48 billion. By late December, the number was up to $58 billion; by the following March, around the time of the Bear Stearns rescue, the Repo number had jumped to $77 billion. In the week of May 1st, 2008, the number was $115 billion — "out of control now," according to one congressional aide. For the rest of 2008, the numbers remained similarly in the stratosphere, the Fed pumping as much as $125 billion of these short-term loans into the economy — until suddenly, at the start of this year, the number drops to nothing. Zero.

The reason the number has dropped to nothing is that the Fed had simply stopped using relatively transparent devices like repurchase agreements to pump its money into the hands of private companies. By early 2009, a whole series of new government operations had been invented to inject cash into the economy, most all of them completely secretive and with names you've never heard of. There is the Term Auction Facility, the Term Securities Lending Facility, the Primary Dealer Credit Facility, the Commercial Paper Funding Facility and a monster called the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (boasting the chat-room horror-show acronym ABCPMMMFLF). For good measure, there's also something called a Money Market Investor Funding Facility, plus three facilities called Maiden Lane I, II and III to aid bailout recipients like Bear Stearns and AIG.

While the rest of America, and most of Congress, have been bugging out about the $700 billion bailout program called TARP, all of these newly created organisms in the Federal Reserve zoo have quietly been pumping not billions but trillions of dollars into the hands of private companies (at least $3 trillion so far in loans, with as much as $5.7 trillion more in guarantees of private investments). Although this technically isn't taxpayer money, it still affects taxpayers directly, because the activities of the Fed impact the economy as a whole. And this new, secretive activity by the Fed completely eclipses the TARP program in terms of its influence on the economy.

No one knows who's getting that money or exactly how much of it is disappearing through these new holes in the hull of America's credit rating. Moreover, no one can really be sure if these new institutions are even temporary at all — or whether they are being set up as permanent, state-aided crutches to Wall Street, designed to systematically suck bad investments off the ledgers of irresponsible lenders.

"They're supposed to be temporary," says Paul-Martin Foss, an aide to Rep. Ron Paul. "But we keep getting notices every six months or so that they're being renewed. They just sort of quietly announce it."

None other than disgraced senator Ted Stevens was the poor sap who made the unpleasant discovery that if Congress didn't like the Fed handing trillions of dollars to banks without any oversight, Congress could apparently go fuck itself — or so said the law. When Stevens asked the GAO about what authority Congress has to monitor the Fed, he got back a letter citing an obscure statute that nobody had ever heard of before: the Accounting and Auditing Act of 1950. The relevant section, 31 USC 714(b), dictated that congressional audits of the Federal Reserve may not include "deliberations, decisions and actions on monetary policy matters." The exemption, as Foss notes, "basically includes everything." According to the law, in other words, the Fed simply cannot be audited by Congress. Or by anyone else, for that matter.

VI. WINNERS AND LOSERS

Stevens isn't the only person in Congress to be given the finger by the Fed. In January, when Rep. Alan Grayson of Florida asked Federal Reserve vice chairman Donald Kohn where all the money went — only $1.2 trillion had vanished by then — Kohn gave Grayson a classic eye roll, saying he would be "very hesitant" to name names because it might discourage banks from taking the money.

"Has that ever happened?" Grayson asked. "Have people ever said, 'We will not take your $100 billion because people will find out about it?'"

"Well, we said we would not publish the names of the borrowers, so we have no test of that," Kohn answered, visibly annoyed with Grayson's meddling.

Grayson pressed on, demanding to know on what terms the Fed was lending the money. Presumably it was buying assets and making loans, but no one knew how it was pricing those assets — in other words, no one knew what kind of deal it was striking on behalf of taxpayers. So when Grayson asked if the purchased assets were "marked to market" — a methodology that assigns a concrete value to assets, based on the market rate on the day they are traded — Kohn answered, mysteriously, "The ones that have market values are marked to market." The implication was that the Fed was purchasing derivatives like credit swaps or other instruments that were basically impossible to value objectively — paying real money for God knows what.

"Well, how much of them don't have market values?" asked Grayson. "How much of them are worthless?"

"None are worthless," Kohn snapped.

"Then why don't you mark them to market?" Grayson demanded.

"Well," Kohn sighed, "we are marking the ones to market that have market values."

In essence, the Fed was telling Congress to lay off and let the experts handle things. "It's like buying a car in a used-car lot without opening the hood, and saying, 'I think it's fine,'" says Dan Fuss, an analyst with the investment firm Loomis Sayles. "The salesman says, 'Don't worry about it. Trust me.' It'll probably get us out of the lot, but how much farther? None of us knows."

When one considers the comparatively extensive system of congressional checks and balances that goes into the spending of every dollar in the budget via the normal appropriations process, what's happening in the Fed amounts to something truly revolutionary — a kind of shadow government with a budget many times the size of the normal federal outlay, administered dictatorially by one man, Fed chairman Ben Bernanke. "We spend hours and hours and hours arguing over $10 million amendments on the floor of the Senate, but there has been no discussion about who has been receiving this $3 trillion," says Sen. Bernie Sanders. "It is beyond comprehension."

Count Sanders among those who don't buy the argument that Wall Street firms shouldn't have to face being outed as recipients of public funds, that making this information public might cause investors to panic and dump their holdings in these firms. "I guess if we made that public, they'd go on strike or something," he muses.

And the Fed isn't the only arm of the bailout that has closed ranks. The Treasury, too, has maintained incredible secrecy surrounding its implementation even of the TARP program, which was mandated by Congress. To this date, no one knows exactly what criteria the Treasury Department used to determine which banks received bailout funds and which didn't — particularly the first $350 billion given out under Bush appointee Hank Paulson.

The situation with the first TARP payments grew so absurd that when the Congressional Oversight Panel, charged with monitoring the bailout money, sent a query to Paulson asking how he decided whom to give money to, Treasury responded — and this isn't a joke — by directing the panel to a copy of the TARP application form on its website. Elizabeth Warren, the chair of the Congressional Oversight Panel, was struck nearly speechless by the response.

"Do you believe that?" she says incredulously. "That's not what we had in mind."

Another member of Congress, who asked not to be named, offers his own theory about the TARP process. "I think basically if you knew Hank Paulson, you got the money," he says.

This cozy arrangement created yet another opportunity for big banks to devour market share at the expense of smaller regional lenders. While all the bigwigs at Citi and Goldman and Bank of America who had Paulson on speed-dial got bailed out right away — remember that TARP was originally passed because money had to be lent right now, that day, that minute, to stave off emergency — many small banks are still waiting for help. Five months into the TARP program, some not only haven't received any funds, they haven't even gotten a call back about their applications.

"There's definitely a feeling among community bankers that no one up there cares much if they make it or not," says Tanya Wheeless, president of the Arizona Bankers Association.

Which, of course, is exactly the opposite of what should be happening, since small, regional banks are far less guilty of the kinds of predatory lending that sank the economy. "They're not giving out subprime loans or easy credit," says Wheeless. "At the community level, it's much more bread-and-butter banking."

Nonetheless, the lion's share of the bailout money has gone to the larger, so-called "systemically important" banks. "It's like Treasury is picking winners and losers," says one state banking official who asked not to be identified.

This itself is a hugely important political development. In essence, the bailout accelerated the decline of regional community lenders by boosting the political power of their giant national competitors.

Which, when you think about it, is insane: What had brought us to the brink of collapse in the first place was this relentless instinct for building ever-larger megacompanies, passing deregulatory measures to gradually feed all the little fish in the sea to an ever-shrinking pool of Bigger Fish. To fix this problem, the government should have slowly liquidated these monster, too-big-to-fail firms and broken them down to smaller, more manageable companies. Instead, federal regulators closed ranks and used an almost completely secret bailout process to double down on the same faulty, merger-happy thinking that got us here in the first place, creating a constellation of megafirms under government control that are even bigger, more unwieldy and more crammed to the gills with systemic risk.

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In essence, Paulson and his cronies turned the federal government into one gigantic, half-opaque holding company, one whose balance sheet includes the world's most appallingly large and risky hedge fund, a controlling stake in a dying insurance giant, huge investments in a group of teetering megabanks, and shares here and there in various auto-finance companies, student loans, and other failing businesses. Like AIG, this new federal holding company is a firm that has no mechanism for auditing itself and is run by leaders who have very little grasp of the daily operations of its disparate subsidiary operations.

In other words, it's AIG's rip-roaringly shitty business model writ almost inconceivably massive — to echo Geithner, a huge, complex global company attached to a very complicated investment bank/hedge fund that's been allowed to build up without adult supervision. How much of what kinds of crap is actually on our balance sheet, and what did we pay for it? When exactly will the rent come due, when will the money run out? Does anyone know what the hell is going on? And on the linear spectrum of capitalism to socialism, where exactly are we now? Is there a dictionary word that even describes what we are now? It would be funny, if it weren't such a nightmare.

VII. YOU DON'T GET IT

The real question from here is whether the Obama administration is going to move to bring the financial system back to a place where sanity is restored and the general public can have a say in things or whether the new financial bureaucracy will remain obscure, secretive and hopelessly complex. It might not bode well that Geithner, Obama's Treasury secretary, is one of the architects of the Paulson bailouts; as chief of the New York Fed, he helped orchestrate the Goldman-friendly AIG bailout and the secretive Maiden Lane facilities used to funnel funds to the dying company. Neither did it look good when Geithner — himself a protégé of notorious Goldman alum John Thain, the Merrill Lynch chief who paid out billions in bonuses after the state spent billions bailing out his firm — picked a former Goldman lobbyist named Mark Patterson to be his top aide.

In fact, most of Geithner's early moves reek strongly of Paulsonism. He has continually talked about partnering with private investors to create a so-called "bad bank" that would systemically relieve private lenders of bad assets — the kind of massive, opaque, quasi-private bureaucratic nightmare that Paulson specialized in. Geithner even refloated a Paulson proposal to use TALF, one of the Fed's new facilities, to essentially lend cheap money to hedge funds to invest in troubled banks while practically guaranteeing them enormous profits.

God knows exactly what this does for the taxpayer, but hedge-fund managers sure love the idea. "This is exactly what the financial system needs," said Andrew Feldstein, CEO of Blue Mountain Capital and one of the Morgan Mafia. Strangely, there aren't many people who don't run hedge funds who have expressed anything like that kind of enthusiasm for Geithner's ideas.

As complex as all the finances are, the politics aren't hard to follow. By creating an urgent crisis that can only be solved by those fluent in a language too complex for ordinary people to understand, the Wall Street crowd has turned the vast majority of Americans into non-participants in their own political future. There is a reason it used to be a crime in the Confederate states to teach a slave to read: Literacy is power. In the age of the CDS and CDO, most of us are financial illiterates. By making an already too-complex economy even more complex, Wall Street has used the crisis to effect a historic, revolutionary change in our political system — transforming a democracy into a two-tiered state, one with plugged-in financial bureaucrats above and clueless customers below.

The most galling thing about this financial crisis is that so many Wall Street types think they actually deserve not only their huge bonuses and lavish lifestyles but the awesome political power their own mistakes have left them in possession of. When challenged, they talk about how hard they work, the 90-hour weeks, the stress, the failed marriages, the hemorrhoids and gallstones they all get before they hit 40.

"But wait a minute," you say to them. "No one ever asked you to stay up all night eight days a week trying to get filthy rich shorting what's left of the American auto industry or selling $600 billion in toxic, irredeemable mortgages to ex-strippers on work release and Taco Bell clerks. Actually, come to think of it, why are we even giving taxpayer money to you people? Why are we not throwing your ass in jail instead?"

But before you even finish saying that, they're rolling their eyes, because You Don't Get It. These people were never about anything except turning money into money, in order to get more money; valueswise they're on par with crack addicts, or obsessive sexual deviants who burgle homes to steal panties. Yet these are the people in whose hands our entire political future now rests.

Good luck with that, America. And enjoy tax season.

[From Issue 1075 — April 2, 2009]

Monday, February 16, 2009

Incase we forget

Today 16th February 2009 is exactly 19 years since the then Moi Government announced to a tense Nation about the death of then popular Foreign Affairs Minister, John Robert Ouko, and the discovery of his charred body on a hill, Got Alila near his Koru Home. Many of us have short memories and easily forget facts and those we vilify today quickly becomes our allies a few years down the line. I have copied verbatim a story which I stumbled within the net which hopefully shall entomb "facts", innuendos, beliefs which hit the rumor mills then around the Bizarre death.

Minister killed in 'Operation Bikini succession'�

Minister killed in 'Operation Bikini succession' the inside story, By a Correspondent in Nairobi, as published in "Weekly Topic" of Uganda, September 6, 1991, (Reproduced verbatim)

Through errors of omissions and commission the late Kenya's minister of Foreign Affairs and International Co-operation Dr. Robert John Ouko caused his murder on February 12, 1990.

Ouko's problems are said to have started in 1983 when he fell out with Hezekiah Oyugi the then Permanent Secretary in the Office of the President in charge of Internal Security and Provincial Administration. Oyugi was then a Provincial Commissioner in Moi's home province of Rift Valley and was said to enjoy powers beyond even his boss, Permanent Secretary J. Mathenge whom the former later succeeded. Having been business associates in a number of commercial ventures, Ouko and Oyugi parted ways. The immediate consequence was the demotion of Ouko from the glamourous Foreign Office to an obscure Labour Ministry in October 1983. Ouko's relegation was due to advice from Oyugi, who is the only personality from Nyanza who enjoys Moi's total confidence.

In the next four-and-a-half years, Ouko was kept "on his toes". He shuffled around in every reshuffle to ministries of labour, industry and economic planning - an average of a new ministry every 18 months. Meanwhile, Oyugi and his mentor were busy looking for a replacement in Ouko's Kisumu Rural Constituency. The only man who was ready to challenge Ouko anytime and anywhere was Joab Henry Onyango Omino, a popular former civil servant and a successful businessman-cum-sports administrator. Moi and Oyugi were not ready to back Omino since the latter had the "undesired" qualities of being popular and principled. But while Ouko was unpopular on the domestic front, internationally he had as a career diplomat, cultivated a likeable image and had many useful friends. It was on these friends that his temporary political survival and also his eventual demise would hinge.

Thatcher's role

As a family friend of the Thatcher's, Ouko saw his only hope on the assistance of Margaret Thatcher, then British Prime Minister, who had unlimited sway over the Moi government. So, when the election campaigns began and he saw his political coffin being made, Ouko flew to Britain and spent a night as the guest of Dennis and Margaret Thatcher in their country home. The purpose of the visit was to prevail upon Moi to return Ouko. The "Iron Lady", having her own imperialist designs in Kenya, went beyond what Bob Ouko had asked for. Her country having propelled Moi to presidency and her, personally, having sustained him, Thatcher was once again shopping for Moi's successor, as the Kenyan dictator is said to suffer from acute leukemia and cancer of the throat. Maggie was also aware that Moi was going to fire his Vice President Mwai Kibaki. She, therefore, not only asked Moi to rig Ouko to parliament, but also to appoint him (Ouko) the Vice President.

Moi complied only partly with the directive. He indeed rigged Ouko back to parliament despite Omino's landslide victory. As for the number Two slot, the Kenyan President had his own scheme. He was paving a succession path to the presidency for his nephew and long time manager of Moi's personal estate, Nicholas Kiprono arap Biwott. Instead, Ouko was handed back the Foreign Affairs portfolio. The Number two post went into the hands of Josephat Njuguna Karanja, a former Vice-Chancellor of the University of Nairobi, who had recently been imposed upon the people of Mathare as their Member of Parliament. Karanja's tenure as the VP was shortlived as he was removed in very humiliating manner only twelve months later. George Kinuthia Muthengi Saitoti, an associate professor of topology and former chairman of the Department of Mathematics at the University of Nairobi was appointed to take over the vice presidency.

Maggie Thatcher and her mentor Ronald Reagan (and later Reagan's successor George Bush) were not amused by Moi's refusal to take their orders. They were also not comfortable with Moi's continued association and reward for people who massively looted public coffers of billions of dollars. Whenever Moi sent Ouko on the numerous begging missions to solicit more aid, the donors showed concern about the diversion of the aid money to foreign secret accounts in Europe. Among the leading looters were Biwott; Saitoti ( who had headed the treasury since 1983); Eric Kotut, the Governor of Central Bank of Kenya (CBK); Kipng'eno arap Ng'eny, the Managing Director of Kenya Posts and Telecommunications Corporation (KPTC); Arthur Magugu, once the Minister for Finance; Bethwel Kiplagat, Permanent Secretary for Foreign Affairs; Benjamin Kipkorir, Chairman Kenya Commercial Bank; Sam Ongeri, Minister for Technical Training; Mark Too (Moi's son who is Deputy Chairman, Lonrho) and Hezekiah Oyugi, sarcastically known as "the Governor". As at the end of 1988, estimates by the International Monetary Fund (IMF) showed that more than US $4 billion was held in overseas accounts by Kenyans. Other sources indicated that in the first half of the year 1988, alone, US $175 million was siphoned out of Kenya into foreign accounts. Ouko confronted Moi the facts and that was his error number one. Moi was not amused by this hard evidence. This was in October 1989. Order was immediately issued that Ouko be shadowed round-the-clock.

The Washington 'debacle'

Things came to a climax when Moi and his team including Ouko visited the US on January 1990. The main purpose of the visit was to persuade President Bush to prevail upon the Congress not to suspend aid to Kenya. The Congress and a number of donor agencies had threatened to freeze assistance to Kenya due to Kenya's well known record gross violation of human rights, diversion of aid money to individuals' foreign accounts, corruption and lack of accountability in the government. While in Washington, Moi and his delegation met three congressmen Donald Tayne, Tonny Hall, and Paul Simon in an attempt to persuade them to convince the Congress not to block a US $60 million military aid Moi was soliciting from the US. They also held talks with high-ranking officials of the World Bank and IMF. The talks, however, did not bear much fruit and only ended in Moi being given stiffer conditions to fulfill before any assistance could come forth. A meeting with the US Assistant Secretary of State in charge of African Affairs, Michael Cohen was equally fruitless. Interpreting his president's public humiliation as a failure on his (Ouko's) part as a Foreign Affairs Minister, Ouko used his experience in the world of diplomacy to try and arrange a face-saving private meeting between Moi and Bush. In such a meeting, nobody would know whatever transpired between the two Heads of State, and would believe whatever is reported. He, therefore, secured an audience with the US Secretary of State James Baker and managed to persuade the latter to prevail upon President Bush. Ouko was, thus, invited to meet Bush.

The three - Bush, Baker and Ouko - are said to have met for forty minutes before President Bush agreed to grant Moi an audience, in the presence of Baker and Ouko. The meeting took only ten minutes, according to reports. During the ten minute talks, Moi is reported to have been given a number of conditions for continued assistance, including putting someone with knowledge of economics in charge of Treasury as opposed to topologist Saitoti; democratization of Kenya's politics; release of all political prisoners and improvement of Human Rights record; making Ouko his Vice President as well as ensuring that money smuggled out of Kenya was brought back. Moi was not particularly pleased with the apparent rapport between Bush and Ouko.
After the meeting, Moi addressed a news conference, where he was in-undated with a barrage of what he considered "embarassing" questions like torture of suspects at Nyayo House, mass imprisonment on trumped-up political charges, street shooting by the police, discrimination of ethnic Somali Kenyans, persecution of the clergy and rampant corruption. Moi had no ready answers to these questions. Once again, in a bid to save his boss from public embarassment, Ouko intervened time and again to "elaborate on His Excellency's self explanatory answer" and articulately, albeit untruthfully, answered the questions. The journalists in attendance were impressed by Ouko's articulate interventions and, as is typical with American scribes, some remarked that ought to have been the president. That was Ouko's mistake number two. Moi could not hide his rage. To be upstaged twice in half a day was not something he was accustomed to. Ouko's other detractors, chiefly Biwott and Oyugi, did not waste away this opportunity.

After that Press Conference of February 2, 1990 Biwott is said to have even sarcastically addressed Ouko as "Your Excellency the President". Moi on his part emotionally declared that he did not want even to set eyes on Ouko and that he would not travel with his foreign minister in the same plane. Ouko was, thus, left in Washington. Worried by the inexplicable behaviour of his President Ouko took the next flight and arrived in Nairobi two days later, only a few minutes after Moi's arrival. He infact found Moi still being entertained at the airport and asked his escorts who had come to the airport to meet him to show him where Moi was being entertained ("Kenya Times", October 23, 1990 page 18). That was Ouko's third blunder.

Nyanza exile

The following day, February 5, 1990, Ouko went to State House, Nairobi, understandably to plead with Moi to forgive him whatever sins he (Ouko) might have committed. His worry was even more compounded by the fact that upon his arrival at Jomo Kenyatta Airport, his passport was impounded "for adjustment". Instead of forgiving him, Moi ordered his Foreign minister to go to his Nyanza home and never to appear in Nairobi unless and until called back by Moi personally. Ouko left State House a shaken and confused man and extremely worried. From State House he went to his office along Harambee Avenue via his lawyers, Oraro and Rachier Advocates. From his office, he is reported to have taken his confidential file , bid his staff "Kwaheri ya kuonana" and left. He was convinced that he was going to be relieved of his ministerial post. The same day in the evening, Ouko, his wife and two youngest children went to Moi's Woodley residence, along Kabarnet Road. He was of the illusion that on seeing his two young children, Moi the "lover of children" Moi have pity. The mission badly aborted and Moi was uncompromising in his decision to send Ouko to Nyanza. Ouko is said to have been silent all the way as he drove his family back from Woodley to his Loresho Home. On arrival at Loresho, he found his driver and one of his security escorts waiting. One of the security escorts, George Otieno, had already been withdrawn. The other two, including driver, Joseph Yogo Otieno were under instruction to leave him as soon as (Ouko) arrives at his home in Nyanza (Nyahera or Koru).

On February 6, 1990 a meeting chaired by Biwott and attended by Saitoti, Kotut, Kipng'eno arap Ng'eny, Noah Too, Frederick Koskei (Saitoti's Aide de Camp) and Bethwel Kiplagat was held at Midwest Hotel, Kericho. It was at this meeting where the decision to deal with the 'Ouko problem' was taken. Noah Too was appointed to head the project. Moi was briefed about the meeting at his Woodley house on February 8 or 9 (Our informant could not get the exact date) in the evening around 9 p.m. Another meeting was held at Nyayo House, Nairobi, 24th Floor on Saturday February 11, 1990 where specific tasks were assigned. It was at this stage that Oyugi, Julius Kobia (the PC Nyanza), John Anguka (the DC Nakuru) and Philip Kilonzo (Commissioner of Police) were indoctrinated into the conspiracy, which had been codenamed "Operation Bikini Succession" - Bikini being Biwott's initials (BIwott, KIprono, NIcholas). Ouko, meanwhile went to the official residence of Peter Lagat, the Kericho District Commisioner, who is close kin of Biwott's on February 9 to ask Lagat to plead with Biwott to save Ouko's neck. He had arrived at the Kericho DC's house at 7.25 a.m. Lagat phoned Biwott who told him to leave Ouko's matter alone.

Ouko's worries multiplied as his earlier attempts to have Oyugi plead with Moi for him had only drawn the remark: "If you have collided with Nyayo, 'shauri yako'. I give you only two days". On Saturday February 10, 1990, while officiating at a function organized by Lions Club held at Kisumu's Imperial Hotel, Ouko attempted to "apologise" publicly by narrating how His Excellency had "articulately" answered Kenya's critics. Ouko was not a keen church goer. But on Sunday February 11, 1990, he surprised his family when he went with them to AIC Koru church and even asked for special prayers after volunteering to preach. During the week, Ouko had tried to get help from people like Kibaki and Dalmas Otieno, but they were not of much help. He, therefore, decided to fall back on Oyugi - this time asking the latter to provide him with a GK vehicle for his escape. Oyugi promised to oblige - and he indeed came in a white GK mercedes ! Ouko's mistake number 4 and 5.

Closing In

By Monday February 12, 1990 Ouko was properly isolated and focused on. By the directive from Managing Director Ng'eny, telephone links with Ouko's Nyahera and Koru home had been cut. His security escort had long been withdrawn and all his movements were closely monitored. Biwott and Kobia had been spotted together in Kisumu that Monday afternoon while Noah arap Too, Frederick Koskei and other high ranking security personnel were seen at Kapkelion in a white Subaru (KTN 865), light blue Volkswagen Kombi (KQC 039) and green Audi (KQC 041). Between 3 and 4 a.m. on Tuesday February 13, a white Mercedes Benz car from the Nyanza PC's office pulled at the gate of Ouko's Koru home. The occupants introduced themselves as Security Intelligence officers who had been sent to call Ouko as the president wanted to see him urgently. Within less than 2 minutes there were more than 15 men in GSU uniform at the minister's gate and all security personnel attached to Ouko had been whisked away. They were severely warned not to "talk". The only person the abductors forgot to lock up was Ouko's housegirl, Sebina Were who was sleeping in one of rooms in the main house. She was woken up by an unusual bang as the abductors dragged Ouko away. She rushed out, only in time to see the white car moving out of the main gate.

As he was confronted, Ouko asked his captors, who had told him Moi wanted to see him, for time to change from his pyjamas. Back in his bedroom Ouko wrote down the names of his captors, who included Oyugi, Biwott, Kobia, Koskei and Noah Too. He folded the note and put it behind a wall picture.

Missing genitals

Ouko was driven straight to Nakuru with a brief stop at Kericho, at Shell Petrol Station along the Kericho-Nakuru highway just opposite Kericho Police Station. One motorist who knew Ouko saw him and went greet him. He was immediately chased away but after he had gone close enough to notice that the minister was handcuffed. This man later wrote an "anonymous" letter to Ouko's Koru address, giving a clue as to how the New Scotland Yard detectives would trace him. Ouko was reportedly killed at Nakuru with a pistol shot after intensive torture. His naked body was later dumped at Nakuru mortuary, with genitals missing. By a twist of fate, a nurse at Nakuru General Hospital, who was a family friend of the Oukos recognised the body and telephoned Christobel, Ouko's wife. Mrs. Ouko immediately began enquiring from the government about the whereabouts of her husband. Alerted by this enquiry the murderers rushed to the mortuary and removed the body. They sprayed it with highly corrosive chemicals and then flew it in a Police Airwing helicopter for dumping at Got Alila, a few kilometers from the late minister's home where they "discovered" it two days later. The dumping of the body was done on Wednesday February 14 and the spot remained guarded by GSU personnel until Friday February 16 at 12.30 p.m. when an announcement was made through public address system at the scene that Ouko's remains had been found.

When this writer visited the scene at 3.00 p.m. he found the police had cordoned the spot and people, including the press, were kept about 20 metres away from the spot. No vegetation was burnt at the spot where the body was found despite the fact that the body was burnt beyond recognition. As Commissioner Kilonzo, Oyugi and Too collected the remains on a stretcher, Oyugi personally lit fire on the spot where the body had been found. Nobody understood the significance of this act but our guess is that the Nyanza butcher wanted to burn the grass and vegetation around that spot to sell the story that Ouko had shot himself and burnt himself there. Two days later, Oyugi issued a what he termed the preliminary findings of police investigations which tended to suggest that Ouko had committed suicide. What followed were massive demonstrations demanding that the truth be told. The government, through Moi himself, promised that "no stone would be left unturned" to bring the culprits to book.

Troons fears

Moi asked the British government to send him detectives from the New Scotland Yard hoping this would lull the people as he bought time for emotions to cool down. Troon (John) the leader of the team and his two colleagues began their work conscientiously briefing the press at every stage. The government was not impressed. Within two weeks of the detectives' work, the state ordered the Scotland Yard sleuths not to issue any more press statements. Later, Troon felt he could not proceed further without interviewing Biwott. On three occasions when they had appointments with the Energy minister, Biwott simply failed to turn up. Meanwhile, through the British High Commission, Kenya was asking Mrs. Thatcher to prevail upon the New Scotland sleuths to write their report without mentioning "sensitive" personalities. Mrs. Thatcher is reported to have been reluctant to help in this, fearing the consequences should the British people know. After several attempts to interview the 'Kabarak Syndicate' failed the British detectives saw no option other than packing their bags and returning home. Troon refused to come to Nairobi to deliver his incomplete report unless he was guaranteed of his security as it was rumored both in Nairobi and London that the "Kabarak Syndicate" was planning for him an "accident" the Kenya style.

As soon as the report was delivered to Attorney General Mathew Guy Muli, the government announced that the report was not to be made public. This was a 180-degree turn from the earlier assurances that the government had nothing to hide and would make the entire report public. To appease people – or so the Nairobi regime deludes itself - Moi has appointed a Commission of Inquiry to inquire into the "mysterious disappearance and subsequent death" of minister Ouko. Another attempt at diverting people's attention from the truth behind Ouko's murder was the arrest and torture of Ouko's younger brother, Barrack Easton Mbajah, a former District Commissioner for allegedly murdering his brother.

Ouko it would therefore seem fell victim to the bloodthirsty murderers of the Nairobi regime.

Friday, February 6, 2009

Ruto: Time is up

The Standard uncharacteristically tore into William Ruto and asked him to resign due to his actions in the current raging scandals in his Ministry around Maize.

http://www.eastandard.net/InsidePage.php?id=1144005896&cid=4&ttl=Agriculture%20minister%20should%20step%20aside

That Ruto sees it perfectly fine to write notes to NCPB officials to sell Maize to his buddies at a time when the National Stategic reserve was more than 2,000,000 bags below the absolute minimum of 4,000,000 is either the height of arrogance or extreme naivety.

One of those who were lucky enough to get these notes is one Maize Large scale farmer, Jackson Kibor. While it should be the other way round, that is Kibor selling to NCPB, when Ruto instructs NCPB to sell Kibor 150,000 bags, this reeks of rampant corruption especialy with a looming threat of famine. It literally amounted to stealing food from the mouths of dying folk. Bought at a subsidized Ksh 1750 from the NCPB, a total of about Ksh 262 Million and if sold to Southern Sudan where a bag is selling at Ks 6,000, this deal had capacity to return a whooping 900 Million.



As I am writing this in the background I am listening to

http://www.bbc.co.uk/worldservice/meta/dps/2008/01/nb/080130_kenyaviolence_au_nb.asx

After having read

http://kenyangenocide.blogspot.com/2008/02/kibor-we-will-divide-kenya.html

No wonder Kibor and his ilk were ready to kill for Ruto to acquire political power to help them raid national coffers.

I am remembering Ruto, while in opposition, chanting from rooftops on the need of any corruption suspect to step aside for investigations to be carried out and now trying to justify his acts as legal since all the maize allocated was paid for is an utter display of hypocrisy.

While I do not expect the coward in state house to force Ruto to resign while the other clown, Ruto's party leader might not have the balls to force Ruto out especially with the expected political fall out, or, possibility of complicity, I know soon, Kibor, Ruto and their likes might be making a not too pleasant trip to Hague for an an appointment with Ocampo Moreno, that no nonsense prosecutor at ICC. But that is story for another day

Sunday, January 25, 2009

Uhuru definitely not it

As days progress, my disappointment on the grand coalition continues to grow. Political expediency has taken a front row seat over functionality of Government.

Finance is a core ministry in govt and I believe political considerations should not be the overriding factor in appointing it's Minister. While I am not certain of Uhuru's training, I believe he did Political Science and hence even though the family has extensive business interests, balance sheets, economic policies, et al are not in his daily menu.

While the core functions in the ministry are run and driven by highly qualified professionals it causes no harm to have the guy who, even though symbolically, is it's head, with more than average understanding of the policies the professionals could be formulating and implementing. That Uhuru takes over preprogrammed to fail is not in doubt. While those on his own political side may have lingering doubts whether he will deliver, the other side must by gleefully rubbing their hands in anticipation of his expected failure and hence impending political crucifixion. And unfortunately all this at our expense.

Like the Cockers Commission verdict on Kimunya, a Minister must be on top of things in his ministry and should not be vindicated when those below him screw up. Commission or Omission both remains sins, pari passu.

Sunday, December 28, 2008

Phew!!! 2008 soon to be gone!!!!!

MainaT's tagging of my self at http://mjengakenya.blogspot.com/ has made me break my silence sooner than I had planned. In 2008 like Murphy's law says, everything that could go wrong did. After starting the year with Kenyans having been transformed from brother keepers to brother killers, the world's financial melt down, the collapse of most financial markets including our own NSE, hyper inflation, record fuel and energy costs, failing rains among others, 2008's end will surely be welcomed with a collective huge sigh of relief.

Like I had blogged earlier, I had summoned enough courage earlier and dumped most of my portfolio before the real massacre begun, so my losses were not as much as those of many Kenyan's I know of. Even though the NSE slide seems to have been temporarily checked, I have this gut feeling that the market has not hit rock bottom yet and I am safely giving it a wait and see approach.

As I compile my wish list for 2009, top on the list is a desire that the grand confusion government will sort out their priorities and ensure certain basics are sorted out. Surely asking that certain issues are resolved is not asking for too much, ie 1.IDPs are gotten out of the tents, 2.Unga is made available and affordable, and finally, 3. I should not think it's a miracle of sorts when I drive into any Petrol station and, Yes, amazing as it may be, get fuel in stock.

Tuesday, September 16, 2008

POLITICS: OUR CURSE?

Last evening as I shuffled through channels seeking business news, I noted that there seem to be a silent agreement between the NSE and the media houses not to accelerate the panic at the bourse with one just glossing over the days performance and another not even bothering to report on the days activity. However one station, which seems to relish on negatives news very much, gave a detailed report of the continuing massacre. The News anchor either out of ignorance or sadistic malice gleefully reported on the slide in a manner, such that, if one entered into the room midway, one would be forgiven to think that she was reporting about a massive bull run. Digressing, outside their pretty faces[depending on the eyes of the beholder], what other criteria do those who employ them consider for employment because in my honest opinion, some of them, fit the African version of the stereotype blond.

While there are many reasons as to why most exchanges in the world are bearish, Ours is also compounded by our politics. I wish there was a way where we could round up all these politicians, lock them up and throw away the key. Whether its the buffoon dully elected president, who lately, even junior civil servants seem to have very little respect for, the clownish right honorable Prime Minister, or the dwarfish president wannabe, the politics they played have put us in the current mess. And what is their loss? none!!!! They continue getting their obscene perks and continue to have have influence to even get more affluent even as, us ordinary mortals, continue fighting one another over them, as inflation continue to strangle us and our value continues getting eroded as the NSE slides, interest rates rises and property like homes keep getting out of our reach.

What is our curse that we allow these bunch of users to continue raping us. Exit the Duly elected, enters another bunch of clowns. One has the temerity to aspire to rule us after his Father grabbed with impunity all the land that ordinary folks died fighting for while another shamelessly embarks on political campaigns even when wounds caused by similar activities last year, have not had bandages removed.

Who, pray, shall lock lock up this crowd for us?

Saturday, September 6, 2008

NSE NIGHTMARES

After watching my value continue to slide in the last 2 months, this week I have taken a bold move which I never thought I could; I bailed out of all my counters.

I, like most investors come in strongly post KENGEN when the market was bullish, and therefore most of my portfolio was bought almost at their peak however I preyed on some stocks which I had handsome gain in capital. As a result factoring in all dividends received, bonus issue and Rights issue gains, my loss averaged to something like -8%

Counters contributing major loses include
Mumias
Kenya Airways
Barclays Bank
BAT

Counters with reasonable Capital gains include
CENTUM
EQUITY
KENGEN
NIC
CMC
KENYA RE

WAY FORWARD
After this bold move I can now watch the market with an opportunistic view than with the dread I have doing lately as I observed my value get eroded by the current bear. However I am a much more experienced player and the lessons I have learned iclude
1 Do not over diversify, concentrate on a maximum of 4 counters whose value you believe in and can provide future growth prospects.
2. Never follow the herd, Safaricom being my most bitter experience. In future I will not participate in very liquid IPO's, in short over supply in shares is counter productive for an an investor with an eye on capital gains