High Def meets Low Set

This is the weekend where the TV broadcast channels are cutting over to high def. Maureen Dowd, who has an excellent biting style, wrote an entertaining Op-Ed in the NYT- Pixilated Over Pixels, wherein she talks about high-def eye glasses, high def make-up and other entertaining high-def inventions.

In the same NYT, however, Barbara Ehrenreich writes in her piece titled "Too Poor to Make the News" that "The recession of the ’80s transformed the working class into the working poor, as manufacturing jobs fled to the third world, forcing American workers into the low-paying service and retail sector. The current recession is knocking the working poor down another notch — from low-wage employment and inadequate housing toward erratic employment and no housing at all. Comfortable people have long imagined that American poverty is far more luxurious than the third world variety, but the difference is rapidly narrowing. Maybe “the economy,” as depicted on CNBC, will revive again, restoring the kinds of jobs that sustained the working poor, however inadequately, before the recession. Chances are, though, that they still won’t pay enough to live on, at least not at any level of safety and dignity. In fact, hourly wage growth, which had been running at about 4 percent a year, has undergone what the Economic Policy Institute calls a “dramatic collapse” in the last six months alone. In good times and grim ones, the misery at the bottom just keeps piling up, like a bad debt that will eventually come due."

It's partly a question of priorities. Someone carrying an iPhone and complaining about not finding a job does not evoke much compassion. For decades, really smart, hardworking young people in the so called "developing" or "underdeveloped" countries have had to struggle mightily to make ends meet, while the laziest of the people in the developed world had better standard of living. My father was a good example of one who had a Master's degree, worked extraordinarily hard, sacrificed a lot, and did not accumulate much assets when he died. He led a hard life while plenty of others with less effort made a lot more money and enjoyed more luxuries. No one called it an ethical problem then. As this writer has mentioned before, the current problem is not due to a credit crisis, but due to an ethics crisis. There is something lacking in the "liberal education" model that is prevalent at Harvard and at many other schools including my own- an opportunity for the students discuss ethics, equality, and social justice deeply.

Capital Friends in High Places...Jobless in Low Places

Wall Street has been moving up in recent weeks, confident that its allies will always come to its rescue, irrespective of the consequences for the general public. The latest data point comes from the reports in the press about Stephen Friedman, the chairman of the Federal Reserve Bank of New York, who abruptly resigned on Thursday, days after questions arose about his ties to Goldman Sachs.

Mr. Friedman was chairman of the New York Fed at the same time that he was a member of Goldman’s board. He also had a substantial stake in the firm as the Fed was devising a solution to keep Wall Street banks afloat. Denis M. Hughes, deputy chairman of the board, will take over as the interim chairman, the New York Fed said in a statement. (Read Mr. Friedman’s letter after the jump.)

Because the New York Fed approved a request by Goldman to become a bank holding company, the chairman’s involvement in Goldman was a violation of Fed policy, The Wall Street Journal said in an article earlier this week.

The New York Fed asked for a waiver, which, after about two and a half months, the Fed granted, the newspaper said. During that time, Mr. Friedman bought 37,300 more Goldman shares in December, which have since risen $1.7 million in value.

*** Mr. Friedman, who enriched himself this way, has not given back the loot, but instead has claimed that “I followed the rules, as I always have.”***

WSJ has an interesting report on the 'stress test results' titled "Banks Won Concessions on Tests- Fed Cut Billions Off Some Initial Capital-Shortfall Estimates; Tempers Flare at Wells."

This piece makes for good reading.

***The Federal Reserve significantly scaled back the size of the capital hole facing some of the nation's biggest banks shortly before concluding its stress tests, following two weeks of intense bargaining.

In addition, according to bank and government officials, the Fed used a different measurement of bank-capital levels than analysts and investors had been expecting, resulting in much smaller capital deficits.

The overall reaction to the stress tests, announced Thursday, has been generally positive. But the haggling between the government and the banks shows the sometimes-tense nature of the negotiations that occurred before the final results were made public.

Government officials defended their handling of the stress tests, saying they were responsive to industry feedback while maintaining the tests' rigor.

When the Fed last month informed banks of its preliminary stress-test findings, executives at corporations including Bank of America Corp., Citigroup Inc. and Wells Fargo & Co. were furious with what they viewed as the Fed's exaggerated capital holes. A senior executive at one bank fumed that the Fed's initial estimate was "mind-numbingly" large. Bank of America was "shocked" when it saw its initial figure, which was more than $50 billion, according to a person familiar with the negotiations.

At least half of the banks pushed back, according to people with direct knowledge of the process. Some argued the Fed was underestimating the banks' ability to cover anticipated losses with revenue growth and aggressive cost-cutting. Others urged regulators to give them more credit for pending transactions that would thicken their capital cushions.

At times, frustrations boiled over. Negotiations with Wells Fargo, where Chairman Richard Kovacevich had publicly derided the stress tests as "asinine," were particularly heated, according to people familiar with the matter. Government officials worried San Francisco-based Wells might file a lawsuit contesting the Fed's findings.

The Fed ultimately accepted some of the banks' pleas, but rejected others. Shortly before the test results were unveiled Thursday, the capital shortfalls at some banks shrank, in some cases dramatically, according to people familiar with the matter.

Bank of America's final gap was $33.9 billion, down from an earlier estimate of more than $50 billion, according to a person familiar with the negotiations.

A Bank of America spokesman wouldn't comment on how much the previous gap was reduced, though he said it resulted from an adjustment for first-quarter results and errors made by regulators in their analysis. "It wasn't lobbying," he said.

Wells Fargo's capital hole shrank to $13.7 billion, according to people familiar with the matter. Before adjusting for first-quarter results and other factors, the figure was $17.3 billion, according to a federal document.

"In the end we agreed with the number. We didn't necessarily like the number," said Wells Fargo Chief Financial Officer Howard Atkins. He said the company was particularly unhappy with the Fed's assumptions about Wells Fargo's revenue outlook.

At Fifth Third Bancorp, the Fed was preparing to tell the Cincinnati-based bank to find $2.6 billion in capital, but the final tally dropped to $1.1 billion. Fifth Third said the decline stemmed in part from regulators giving it credit for selling a part of a business line.

Citigroup's capital shortfall was initially pegged at roughly $35 billion, according to people familiar with the matter. The ultimate number was $5.5 billion. Executives persuaded the Fed to include the future capital-boosting impacts of pending transactions.

SunTrust Banks Inc. also persuaded the Fed to significantly reduce the size of its estimated capital gap to $2.2 billion, after identifying mathematical errors in the Fed's earlier calculations, according to a person familiar with the matter.

PNC Financial Services Group Inc., saw a capital hole materialize at the last minute. As recently as Wednesday, PNC executives were under the impression they wouldn't need to find any new capital, according to people familiar with the matter. Thursday morning, the Fed informed PNC that it had a $600 million shortfall.

Regulators said other banks also were told they needed more capital than initially projected.

The Fed's findings were less severe than some experts had been bracing for. A weeklong rally in bank stocks continued Friday, with the KBW Bank Stocks index surging 10%. Investors were especially relieved by the relatively small capital holes at regional banks. Shares of Fifth Third soared 59%, while Regions Financial Corp.'s $2.5 billion deficit led to a 25% leap in its stock.

With the stress tests, government officials were walking a fine line. If the regulators were too tough on banks, they risked angering their constituents and spooking markets. But if they were too soft, the tests could have lost credibility, defeating their basic confidence-building purpose.

All the back-and-forth is typical of the way regulators traditionally wrap up their examinations of banks: Regulators often present preliminary findings to lenders and then give them time to respond. The process can result in changes to the regulators' initial conclusions. Some of the stress-test revisions, for instance, were made to account for the beneficial impact of the industry's strong first-quarter profits.

On Friday, some analysts questioned the yardstick, known as Tier 1 common capital, that regulators chose to assess capital levels. Many experts had assumed the Fed would use a better-known metric called tangible common equity.

According to Gerard Cassidy, an analyst with RBC Capital Markets, the 19 banks' cumulative shortfall would have been more than $68 billion deeper if the government had used the latter metric, which accounts for unrealized losses....

Transparency- Necessary but not Sufficient...

I came across a sharp Op-Ed piece by Kris Gopalakrishnan, CEO of the Indian tech giant Infosys titled "Financial Transparency a Must- Only by embracing the principles of transparency can confidence be returned to the financial system." He outlines, in a succinct way, the progression of U.S. capitalistic enterprise system, and the greed that fueled the major catastrophes over the past hundred years. His key point is that "One common theme throughout the evolution of corporate governance is increased transparency. But there is only so much regulators can do, and trying to regulate for every possibility surely will stifle growth. Corporate leaders must seize this opportunity to prioritize openness in their organizations. Promoting transparency not only covers greater disclosure to regulators or the investing public; it also means that risk should be in plain sight to the institution's own management. If exposure to "hidden" risk must exist there should be good, quantitative estimates of that risk and an acknowledgement of what is unknowable. "

Mr. Gopalakrishnan is correct in stating that transparency is essential for affirming trust and confidence without which society cannot function. However, transparency by itself is not enough. Enron was an 'opaque' problem. But everyone knew what AIG, Merrill Lynch, Citi, and others were up to. Not many protested because most people 'thought they benefited' from the financial engineering, and self-serving greed blinded one to even 'transparent' shenanigans. The issue here is not one of transparency of the object, it is the observer/participator being blind. Being a citizen means having a sense of ethical values, societal values, and a sense of responsibility to the world at large. It should not be acceptable to "take and take" without concern for the world. This applies to the leaders of firms, the suppliers, the customers, shareholders, and everyone else- in short, it is a societal issue. Mr. Gopalakrishnan and Infosys would have been more trustworthy and transparent had they actually down business from these shady firms and stated the reasons for doing so.

"Lobby" is wide open...

One cannot escape the headlines about the current crises facing the United States. Some expect the conditions to get much worse before any recovery takes place.
The Credit Crisis Is Going to Get Worse

While a number of pundits, including Ben Stein, declare that the U.S. will come through the current crises just fine, the more thoughtful amongst us worry not just about the crisis du jour but about the future of 'effective' democracy in our country.

Increasingly the popular vote is becoming meaningless as Money does talk, and Big Money talks Very Loudly.

Recent headlines about lobbying in Washington are depressing. The Housing Industry is spending lots of $ to get Congress to pass a "bail-out bill."
Housing Industry Ramps Up Political Donations.

Se. Mccain is essentially encouraging his party to skirt the very rules that he and his colleagues wrote in the Campaign Finance Reform bill that became law.
McCain Allies Find Finance-Law Holes.

Sen. Barack Obama has announced that he would opt out of the public financing system for the general election and raise his own funds, obviously expecting to raise far more than what the public funding would give him.

This kind of money influencing the elections and candidates will further obligate the elected officials and make them subservient to the corporations and to the wealthy donors. One can this outcome to widen the gap between the richest 5% of the nation and the rest. Unfortunately the 'rest' do not get any rest- they are working harder just to prevent a steep slide in their quality of life.

Mohammad Yunus - An Addendum to the post "Wesley Autrey and Swami Ranganathananda, and NOT the Energizer bunny"

Continuing on the theme of the "Wesley Autrey and Swami Ranganathananda, and NOT the Energizer bunny" post..........

PBS did an interview with the 2006 Nobel Prize Winner, Mohammad Yunus, in which he discussed the impact of Microfinance. The discussion is philosophical and spiritual.
The interview is WELL WORTH WATCHING.

The entire transcript of the interview can also be found using the above link.
I am posting a piece of the transcript here.

The social side of microfinance

PAUL SOLMAN: How did you create the level of trust that you did? When you write about your first experiences, farmers cheated you. When you had a guy collecting the repayment, beetle leaf seller, I think it was, people were saying, "Oh, we paid him back already," and lying about that. So it's not as if these were naturally trusting or trustworthy people. How did you turn it around?

MUHAMMAD YUNUS: Well, people are people everywhere, same way. Natural tendency is for people to stay honest. If the system encourages them to go wrong, they take the other route. Then they say, "OK, if everybody is doing it, I'll do it, too."

So we created an environment where everybody remains at their natural state of affairs, which is to remain honest. Because as long as you pay back the loan, the door of the bank remains open to you. You can take more loans and move up.

If you don't pay back, all you have done, you closed down the door. You don't go mad at them. Then she says, "Can I come back? I made a mistake. I had a lot of difficulty. I couldn't pay you back. Can I now pay and come back?" Of course you can come back. You're welcome.

PAUL SOLMAN: Because they've learned their lesson.

MUHAMMAD YUNUS: Because they have learned the lessons, and we know that. And that's what we wait for.

PAUL SOLMAN: So if this is the natural state of people, then why weren't banks doing this before? Why weren't commercial banks doing it? Are they stupid? Are they prejudiced, both?

MUHAMMAD YUNUS: Because they don't trust people. If you look at it in a kind of funny way, you'll say the entire banking system is based on distrust, because you are bringing the lawyer, you are bringing the collateral. You are assuming this guy is going to run away with my money, so you want to tie him up so that he cannot run away with money.

Our system started with trust. We assumed that she was good enough to pay us back and so on. We didn't make any arrangement whatsoever. And in 99 percent of the cases, we are right.

PAUL SOLMAN: Do you mean to say that you think that, if Citigroup and I simply had a trust relationship with each other, it'd all work fine?

MUHAMMAD YUNUS: No harm trying. I tried. It worked.

...

PAUL SOLMAN: A critic of the micro-credit movement, Thomas Dichter, in Forbes magazine recently: Quote, "The large majority of people in the advanced economies are not entrepreneurs, so why do we assume that in the developed economies the poor are?"

MUHAMMAD YUNUS: All human beings are entrepreneurs. When we were in the caves, we were all self-employed. We were finding our food, we're feeding ourselves. That's where the human history began with. As civilization came, we suppressed it and made it into labor. We are all labor.

PAUL SOLMAN: And a labor market.

MUHAMMAD YUNUS: And a labor market. We became labor, because you stamped us, "You are labor." We forgot that we are entrepreneurs.

...

MUHAMMAD YUNUS: Yes, I invite everybody to come into micro-credit area. But one thing I want to distinguish and also urge them: Don't make it an area to maximize profit. Because when you maximize profit, you minimize the benefit to the people.

PAUL SOLMAN: Why would you expect me, if I were a hedge fund, to take a lower profit than I could otherwise get by attending to other people's social-economic problems?

MUHAMMAD YUNUS: Because people are people, human beings. Human beings are a much bigger entity than money-making machine. People have all kinds of feelings and all kinds of inclinations, all kinds of exciting ideas.

That's why we create foundations. We give away our money. You don't say this is a crazy thing to do, but we all do. Big companies have their foundations. What is a foundation? You give away your money.

So I'm saying, if you can give away your money, why don't you invest to do good to people and get back your investment, do the same thing over again so that your money recycles and again and again, and change the quality of life of people?

PAUL SOLMAN: And so there will be enough investors in the world to invest in these funds to make them continue to operate, even though they're not as profitable as they could be?

MUHAMMAD YUNUS: It was not profitable at all, non-loss, non-dividend companies. That's what the social business is all about. So you came here to do good. It's a clean idea.

***************

Kiva is a not-for-profit organization doing microfinance, and makes it very easy for people in the U.S. to contribute to entrepreneurship.