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alstry (< 20)

Tax Goldman 98%



October 19, 2009 – Comments (3)

This is good stuff by Janet Tavakoli on Zero Hedge for those of you Fools that actually like to attention to the beginning is infecting a lot more of our economy than just mobile Fools just don't know it yet....and nor does most of the country....just yet.

By Janet Tavakoli

October 20, 2009

In a January 2009 interview with NBC’s Tom Brokaw, Warren Buffett criticized leveraging “to the sky,” and creating “phony instruments [RMBSs, CDOs, et al.] that fool other people so you stick money in your pocket.” In 2002, he claimed over-the-counter derivatives are “financial weapons of mass destruction”1 and participants who account for them have “enormous incentives to cheat.” 2

Warren Buffett, the blogosphere’s “Oracle of Omaha,” often chastises the financial community. If you cost him money, he’s liable to write an expose. He posts annual shareholder letters on a low-tech website and seems to labor under the assumption that rational people eagerly read his blog. Congress and regulators are dismissive of Buffett’s hyperbolic rhetoric; it is fit only for a banana republic.

In 2003, Buffett wrote of the manufactured housing industry’s “business model centered on the ability…to unload terrible loans on naïve lenders…The consequence has been huge numbers of repossessions and pitifully low recoverie[s].” 3 Buffett alleged that the manufactured housing industry’s consumer financing practices were “atrocious,”4 and securitizations provided the money to fuel the financing.

Berkshire Hathaway’s investment in the distressed junk debt of Oakwood Homes lost money after the designer and manufacturer of modular homes went bankrupt in 2002. Buffett claimed “Oakwood participated fully in the insanity.” 5

Warren Buffett’s diatribe suggested that most of the manufactured housing industry was involved along with several Wall Street firms that underwrote the securitizations. Using money from new investors to pay returns to old investors in unsupportable investments is called a Ponzi scheme.

Oakwood’s loans to purchasers of manufactured homes were made possible by a line of credit from Credit Suisse First Boston (Credit Suisse). The credit line was similar to a credit card except that Oakwood had to put up the home loans as collateral. Credit Suisse earned fees for the loans and further fees when it packaged (securitized) Oakwood’s loans. Credit Suisse (the old investor) bought the securitized loans and then sold them to new so-called sophisticated investors.

Sales of manufactured homes declined. Loan delinquencies (late payments) and repossessions rose. Oakwood Homes had crushing debt and falling income for at least three years before it filed for bankruptcy in November 2002. But securitizations had temporarily inflated the bubble for the collapsing enterprise. A June 2008 court opinion said Oakwood’s aggressive lending practices led to the high number of repossessions and a debt load that Oakwood could not support. Oakwood’s liquidator said the transactions it did with Credit Suisse were “value destroying.”6

Someone should have muzzled Warren Buffett back in 2003. The Slumbering Esquires’ Club might have believed Buffett’s preposterous theory that after private securitizations became popular, the “industry’s conduct went from bad to worse.” 7 Buffett’s wacky warnings could have jeopardized Wall Street’s subsequent mortgage lending securitization Ponzi scheme.

The SEC might have investigated Lehman Brothers’ questionable shenanigans, especially after it was held liable in 2003 by a California jury for allegedly helping FAMCO cheat borrowers. The SEC might have looked into the unsavory practices at Goldman Sachs Alternative Mortgage Products, Bear Stearns, Merrill Lynch or the entire private securitization industry, and their mortgage lending subsidiaries.

While the SEC slept inside a collapsing debt bubble, the Omahaconspiracy theorist spooked Goldman Sachs into believing it needed his money. In the fall of 2008, Buffett closed a deal for $5 billion in Goldman Sachs’s preferred stock paying a 10% annual dividend. Goldman even gave Buffett warrants to buy $5 billion in common stock at a price of $115 anytime before October 1, 2013. [The Fed let Goldman buy back its warrants for chump change.9] Buffett’s warrants are now about $3 billion in-the-money and worth much more—a sweetener for his crispy calamari.

Hank Paulson, Ben Bernanke, and Tim Geithner10 ignored the historic ravings of the most successful living investor, and fueled some of the bombers piloted by Wall Street before finance’s Pearl Harbor. After they used taxpayer money to save the system and enriched the culpable with no strings attached, Buffett said “it could have turned out a lot differently,” and called each of them a four-letter word. The label was undeserved.

Four-letter words aside, Warren Buffett raised a good point. It could have—and should have—turned out a lot differently. But it’s not too late. Buffett called the crisis an economic Pearl Harbor and said that “Wall Street owes the American people one at this point.”8 During World War II, we imposed an excess profits tax. We should impose a 95% excess profits tax—or windfall profits tax—on certain financial institutions (including Goldman Sachs) enriching themselves with ongoing low-cost Fed funding and debt guarantees.

3 Comments – Post Your Own

#1) On October 19, 2009 at 10:34 PM, alstry (< 20) wrote:

When you loan a family more money than it can afford to pay back, the family goes bankrupt.

When you loan a company more money than it can afford to pay back, the company goes bankrupt and shuts down.

When you loan an industry more money than it can afford to pay back, than the industry goes bankrupt and slows way down.

When you loan a nation more money than it can afford to pay back, tens of millions of jobs will be lost and wages cut, services will be slashed, and revenues will evaporate.

October 19, 2009 (CHICAGO) (WLS) -- Letters have been sent out notifying more than 1,000 CTA workers that they will be losing their jobs in the next few months.

The layoffs are part of a plan to help the city fix a $300 million budget deficit.


Dollar Weakens as Risk Demand Rebounds; Aussie Hits 14-Month High on Rates

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#2) On October 19, 2009 at 10:43 PM, alstry (< 20) wrote:

Are you prepared????  It just doesn't stop until we restructure...50% unemployment is the best we can hope for...

Mohawk Industries will close its Waynesboro plant by the end of the year, leaving 120 employees without jobs, the company announced today.

Stung by the continued slump in the housing market and dwindling demand for carpet, Mohawk last eliminated 40 Waynesboro jobs in August, on the heels of 73 layoffs in January.

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#3) On October 19, 2009 at 11:19 PM, alstry (< 20) wrote:


NEW YORK (AP) -- Shannon Burdette tried to pay with her Shell Mastercard after filling up her gas tank this weekend but found the card rejected.

Confused, she called the customer service line on the back of the card, issued by Citibank, and was told the account was closed because of something that appeared on her credit report. But when the Sykesville, Md., resident got a copy of her credit report online, the only negative thing she saw was "closed at credit grantor's request" on the Shell MasterCard account.

"They said there was a routine review," said Burdette, who maintained that she and her husband, Brian, used the card regularly and always paid the bill on time.

Burdette isn't alone. People across the country have been reporting similar experiences in postings on various consumer Web sites.

Citi confirmed the basics. The bank said in a statement it "decided to close a limited number of oil partner co-branded MasterCard accounts." That includes not only Shell, but Citgo, ExxonMobil and Phillips 66-Conoco cards.

The close date was Wednesday, and letters were sent out Monday to customers informing them of the change, a Citi spokesman said. The bank would not say how many cards were shut down or how much available credit they represented.

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