Obama hobbles corporate borrowing to foster reliance on bailouts and force firms to "come crawling to the government"

At the 1986 White House Conference on Small Business, President Ronald Reagan offered these famous remarks about politicians' views on business in the 1970s. Reagan said, "Back then, government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it."

Amazingly, in that speech nearly 25 years ago, Reagan also summed up perfectly the Obama administration's view of the economy in the present. On Thursday, President Obama announced that the government is providing a loan guarantee of $250 million to Ford Motor Co. from the Export-Import Bank. In making the announcement, at a Ford assembly plant in Chicago, Obama also defended billions of dollars in TARP bailouts to Ford rivals, General Motors and Chrysler, that he continued from the Bush administration.

Not mentioned by Obama, and not picked up in media coverage of the new $250 million loan, is a new regulatory measure signed into law by Obama just three weeks ago, which nearly stopped a $1 billion bond offering by Ford

Just days after Obama signed the Dodd-Frank so-called financial reform bill (here is my general overview for TAS of the Dodd-Frank monstrosity), Ford found that it couldn't issue a bond to allow it to finance more credit for its customers. The reason, as reported by AOL Daily Finance, is that Dodd-Frank "fixed" the problem of poorly researched credit ratings by designating the three big rating agencies as "experts" subject to the same liability as professionals such as auditors. Since the Securities and Exchange Commission requires that bond offerings have a credit rating, Ford's venture became a no-go.

The SEC fixed this problem temporarily by allowing Ford and other companies to issue bonds without rating for six months. But after that, according to experts quoted in the article, the trouble will resume unless there is a permanent fix to Dodd-Frank's "fixing" of the credit rating system.

It is not known if Ford's decision to take this government money -- after honorably refusing a TARP bailout when it was offered two years ago -- is related to expected regulatory troubles in the bond market.

But what is predictable is that the more frustrating the obstacles the government puts in front of businesses, the more some firms will come crawling to the government for bailouts -- and the more that firms will kowtow to the prevailing government's agenda and be politically connected, should they ever need this lifeline.

Europeans blaming rating agencies, not leftist government, for debt debacle in Greece

The one good thing about witch hunts is that they occasionally catch guilty people. In the trans-Atlantic war on prosperity, governments have finally settled on a common enemy: the investment rating agencies that have been downgrading government debt in Europe and the United States.

Olli Rehn, European Commissioner for Economic and Financial Affairs, says the agencies were "behind the curve and reinforced the curve." That sounds a little like grabbing yourself by the hair and holding yourself at arm's length, and it's typical of the illogical complaints being made by European leaders against Fitch and Standard & Poor's for their rapid downgrading of Greece's sovereign debt.

On this side of the pond, the Securities and Exchange Commission is putting pressure on Moody's, and Sen. Al Franken (D-Minnesota) is introducing regulation of rating agencies into the stalled finance bill.

Note that the rating agencies are not getting dinged in response to their legitimate failures -- the famously too-high ratings awarded to Enron, Lehman Brothers and the universe of junk debt instruments. They're being punished for doing the right thing: sounding the alarm on Europe's manifest sovereign debt crisis and America's looming one. By coincidence, Moody's recently issued a widely publicized warning that the U.S. could be looking at a serious public debt emergency by 2013. No wonder Franken wants to rein in the raters that were considered jim-dandy back when President Obama first introduced his financial regulation bill. The agencies have gotten themselves into trouble by trespassing on government property.

SEC staff used government computers to watch porn

At the SEC, all they thought about was SEX.

The country's top financial watchdogs turned out to be horndogs who spent hours gawking at porn Web sites as the economy teetered on the brink, according to a memo released Thursday night.

The shocking findings include Securities and Exchange Commission senior staffers using government computers to browse for booty and an accountant who tried to access the raunchy sites 16,000 times in one month.

Their titillating pastime was discovered during 33 probes of employees looking at explicit images in the past five years, said the memo obtained by The Associated Press.

It says 31 of those probes occurred in the 2-1/2 years since the country's financial system nearly crashed.

The report was written by SEC Inspector General David Kotz in response to a request from Sen. Charles Grassley (R-Iowa).

Among the startling findings:

- A senior attorney at the SEC's Washington headquarters spent up to eight hours a day looking at and downloading pornography. When his government computer ran out of hard drive space, he burned the files to CDs or DVDs. He later agreed to resign.

- An accountant was blocked more than 16,000 times in a single month from visiting "sex" or "pornography" sites, but still managed to amass a collection of "very graphic" material by using Google to bypass the SEC's internal filter. He wound up with a 2-week suspension.

- Seventeen of the randy employees were "at a senior level" earning salaries of up to $222,418.

- The number of cases jumped from two in 2007 to 16 in 2008. The cracks in the financial system emerged in mid-2007 and spread into full-blown panic by the fall of 2008.

California Rep. Darrell Issa, the top Republican on the House Committee on Oversight and Government Reform, said it was "disturbing that high-ranking officials within the SEC were spending more time looking at porn than taking action to help stave off the events that put our nation's economy on the brink of collapse." An SEC spokesman declined to comment last night.

Goldman Sachs helped to blow up a 33-year-old social engineering project; now it must pay

Why is the Obama administration pursuing Goldman Sachs for enabling financial transactions between sophisticated, consenting adults?

Because the financial instruments at issue blew up a 33-year-old social engineering project that destroyed markets in pursuit of an unreachable liberal objective: universal home ownership.
Goldman Sachs devised those complex investments.

The campaign for universal home ownership began in 1977, when President Jimmy Carter secured enactment of the Community Reinvestment Act, which prohibited lenders from red-lining, a practice that denied home mortgages to residents of high-risk neighborhoods.

Over time, the CRA movement spilled out of its original constituency, the conspicuously compassionate, as radicals from ACORN and other activist organizations joined the fray, gaining legal sanction to browbeat bankers and picket lenders who refused to confirm to the growing demands for mortgage accomodation.

Still, the CRA remained a modest effort by federal government standards, From 1977 through 1991, only $8.8 billion was committed under the CRA. Then Democrat Bill Clilnton became president and business picked up. From 1992 through 2005, the first year of George Bush's second term, $4.2 trillion in CRA loans went out the door.

The concept of risk apparently had been erased from the mortgage industry. Local lenders could bend to pressure for loans and then wash their hands of risk by immediately selling those loans to Freddie Mac or Fannie Mae, which were backed by the federal treasury and supported by the political class. That was the first step in the process of bundling mortgages as securities, a process that resulted in mortgages from Pequot Lakes and Tuscaloosa finding eager buyers in Madrid.

The U.S. housing market sizzled.

But one savvy investor, a hedge fund operator in New York, wasn't buying it. John Paulson studied records of the bundled mortgages and made a list of the ones he considered most likely to go bad through default. Then he persuaded Goldman Sachs to craft securities based on the suspect mortgages and bet against the market by selling them short. That is, he sold securities without first buying them.

Paulson's trading was prophetic. When the housing market collapsed, Paulson earned billions of dollars, closing out his transactions by buying back the Goldman Sachs securities for pennies on the dollar. He sold high, then bought low, reversing the usual process.

What troubles sophisticated observers is this. The securities that Paulson shorted were bought by sophisticated, willing investors. Neophytes don't participate in short sale transactions. So what's the problem? Why did the Securities and Exchange Commission vote, 3 to 2, in favor of legal action  against Goldman?

Here's a thought. In essence, the CRA was a colossal social engineering project. When it was enacted, and for many years thereafter, a high-risk borrower could get a loan only by paying a higher-than-average interest rates. In recent years, however, the CRA and subsequent legislation, court decisions and rabble rousing tactics reduced the reliance on interest rates as compensation for high risk.

During the Bush administration the Federal Reserve kept interest rates so low that more and more high-risk borrowers could get loans. As social engineering, the CRA was a success story.

Now, the Obama agenda is largely made up of social engineering projects designed to overcome market forces and make scarce resources available to all, whether they want them or not, whether they can afford them or not. Obamacare, for instance, would force the young and healthy to buy health care insurance even though many would prefer to take their chances and spend their money on something else. One result will be more generational theft, with the young forced to buy insurance they will not need.

Coming soon: cap and trade, which will require consumers to alter preferences and manufacturers to bear increased costs, even though the science behind global warming theory has been thoroughly discredited. In recent years, global warming has become the most powerful social engineering project of our time.

But that project runs counter to market forces, which require least cost solutions. Cap and trade would raise costs, and prices, for many of the things people buy and use. To secure enactment, the Obama administration will have to use thuggish tactics, as it did to pass Obamacare, bribing members of congress to vote against the desires of their constituents.

The SEC's lawsuit against Goldman Sachs may cause opponents to think twice about going up against the White House.

GOPers question immaculate timing of action against Goldman & rollout of financial overhaul

Rep. Darrell Issa, the top Republican on the House Oversight committee, is demanding a slew of documents from the Securities and Exchange Commission, asserting that the timing of civil charges against Goldman Sachs raises “serious questions about the commission’s independence and impartiality.”

Issa’s letter, addressed to SEC Chairwoman Mary Schapiro and signed by eight other House Republicans, asks whether the commission had any contact about the case, prior to its public release, with White House aides, Democratic Party committee officials, or members of Congress or their staff.

“[W]e are concerned that politics have unduly influenced the decision and timing of the commission’s controversial enforcement action against Goldman,” Issa writes.

Issa implied that the timing was a bit too convenient, saying President Barack Obama’s push on Wall Street reform “neatly coincided with the commission’s announcement of the suit.”

The letter is also signed by Republican Reps. Jim Jordan of Ohio, Jason Chaffetz of Utah, Patrick McHenry of North Carolina, Dan Burton of Indiana, John Mica of Florida, Blaine Luetkemeyer of Missouri, Aaron Schock of Illinois and Anh “Joseph” Cao of Louisiana.

From the New York Times: New details on how one investor's insight popped the housing bubble

Three and half years ago, a New York hedge fund manager with a bearish view on the housing market was pounding the pavement on Wall Street.

Eager to increase his bets against subprime mortgages, the investor, John A. Paulson, canvassed firm after firm, looking for new ways to profit from home loans that he was sure would go sour.

Only a few investment banks agreed to help him. One was Deutsche Bank. The other was the mighty Goldman Sachs.

Mr. Paulson struck gold. His prescience made him billions and transformed him from a relative nobody into something of a celebrity on Wall Street and in Washington.

But now his brassy bets have thrust Mr. Paulson into an uncomfortable spotlight. On Friday, the Securities and Exchange Commission filed a civil fraud lawsuit against Goldman for neglecting to tell its customers that mortgage investments they were buying consisted of pools of dubious loans that Mr. Paulson had selected because they were highly likely to fail.

By betting against the pool of questionable mortgage bonds, Mr. Paulson made $1 billion when they collapsed just a few months later, the S.E.C. said. Investors, who bought what regulators are essentially calling a pig in a poke, lost the same amount.

Mr. Paulson, 54, was not named as a defendant in the S.E.C. suit, but his role in devising the instrument that caused $1 billion in losses for Goldman’s customers is detailed in the complaint. Robert Khuzami, the director of enforcement at the S.E.C., explained that, unlike Goldman, the manager of the hedge fund, Paulson & Company, had not made misrepresentations to investors buying the security, known as a collateralized debt obligation.

“While it’s unfortunate that people lost money investing in mortgage-backed securities, Paulson has never been involved in the origination, distribution or structuring of such securities,” said Stefan Prelog, a spokesman for Mr. Paulson, in a statement. “We have always been forthright in expressing our opinion as to the quality of the underlying mortgages. Paulson has never misrepresented our positions to any counterparties.

“There’s no question we made money in these transactions. However, all our dealings were through arm’s-length transactions with experienced counterparties who had opposing views based on all available information at the time. We were straightforward in our dislike of these securities, but the vast majority of people in the market thought we were dead wrong and openly and aggressively purchased the securities we were selling.”

Still, the details unearthed by the S.E.C. in its investigation show a deep involvement by Mr. Paulson in the creation of the investment, known as Abacus 2007-AC1. For example, he approached Goldman about constructing and marketing the debt security.

After analyzing risky mortgages made on homes in Arizona, California, Florida and Nevada, where the housing markets had overheated, Mr. Paulson went to Goldman to talk about how he could bet against those loans. He focused his analysis on adjustable-rate loans taken out by borrowers with relatively low credit scores and turned up more than 100 loan pools that he considered vulnerable, the S.E.C. said.

Mr. Paulson then asked Goldman to put together a portfolio of these pools, or others like them that he could wager against. He paid $15 million to Goldman for creating and marketing the Abacus deal, the complaint says.

One of a small cohort of money managers who saw the mortgage market in late 2006 as a bubble waiting to burst, Mr. Paulson capitalized on the opacity of mortgage-related securities that Wall Street cobbled together and sold to its clients. These instruments contained thousands of mortgage loans that few investors bothered to analyze.

Instead, the buyers relied on the opinions of credit ratings agencies like Moody’s, Standard & Poor’s and Fitch Ratings. These turned out to be overly rosy, and investors suffered hundreds of billions in losses when the loans underlying these securities went bad.

Mr. Paulson personally made an estimated $3.7 billion in 2007 as a result of his hedge fund’s performance, and another $2 billion in 2008.