Banking: This Disaster Was Guaranteed

[EV_Ares]

Money-back assurances on subprime-linked securities are costing some leading banks billions
by David Henry

Although refund policies have long been standard practice for retailers, they've rarely been given for financial investments--and for good reason.

A closer look at the mortgage meltdown reveals Citigroup (C) and other big banks offered a type of money-back guarantee to buyers of nearly $100 billion of subprime mortgage-linked securities, according to a BusinessWeek analysis. Incredibly risky in retrospect, the refund policies were critical in the banks' push to keep a steady stream of money coming in during the peak years of the housing market from 2004 to 2006. But the myopic decision has been a central cause of the billions in losses that some banks are now reporting. Citi, which declined to comment, announced on Nov. 5 that it was on the hook for $25 billion worth of such deals.

The refunds are emblematic of the "What, me worry?" attitude that permeated the housing market. Everyone involved, from banks to borrowers to investors, convinced themselves they were taking little, if any, risk.

For the investors, at least, it was free money. In an effort to attract money-market funds--a new group of buyers for subprime-related securities--banks started putting guarantees on some products a few years ago. The deal appealed to the target audience, a conservative group seeking higher yields at low risk. After all, it was a no-lose situation. The funds didn't have to worry if the underlying mortgages started to look shaky since the banks agreed to pay back the investment plus interest, with few exceptions.

At the same time, the banks convinced themselves that it was a low-risk proposition. They figured the securities would at least maintain their value. And even if the investments did stumble modestly, the losses would be minimal and affect only the lowest tier of investments. So the banks never figured they'd have to make good on the refunds. "It sounds like there was so much hubris that they thought something bad couldn't happen," says Jack T. Ciesielski, publisher of The Analysts' Accounting Observer.

The refund policies came at a pivotal juncture in the housing market--the point at which the boom turned into a bubble. They allowed the banks to tap into a new pool of money, which in turn attracted more money from players already in the game, such as hedge funds.

HIDDEN LIABILITIES
Here's how it happened. Money-market funds eagerly bought up the short-term debt associated with the subprime-linked securities known as collateralized debt obligations (CDOs). The refund policies, technically known as "liquidity puts," were crucial. For instance, they allowed the credit rating agencies to bestow on the investments the same grade they gave the banks that backed them. That reassured the funds.

entire article @ the link: http://www.businessweek.com/magazine/content/07_50/b4062026774092.htm?chan=magazine+channel_top+stories

[Wapsie B]

1. Gosh between the S & L Scandal of the 80's

and this subprime mortgage fiasco going on now the banking industry has got quite the track record. You'd think these banks were run by a bunch of spendthrift Liberals. :sarcasm:

Two questions: Have we ever paid off the mess left by the S & L's?
And will the taxpayer end up getting stuck paying for the banks playing around with subprime mortgages? My guess is yes, especially with higher fees for things at the very least.

[EV_Ares]

3. One of the biggest beneficiaries of the S&L rescue was Neil Bush

The Relatively Charmed Life Of Neil Bush
Despite Silverado and Voodoo, Fortune Still Smiles on the President's Brother

By Peter Carlson
Washington Post Staff Writer
Sunday, December 28, 2003; Page D01

Ah, it's nice to be Neil Bush.

When you're Neil Bush, rich people from all over the world are eager to invest money in your businesses, even though your businesses have a history of crashing and burning in spectacular fashion.

When you're Neil Bush, you'll be sitting in a hotel room in Thailand or Hong Kong, minding your own business, when suddenly there's a knock at the door. You answer it and a comely woman strolls in and has sex with you.

Neil Bush and his wife, Sharon, leave Denver's federal court in September 1990 after he testified about Silverado Savings and Loan. As President George H.W. Bush's son, Neil was escorted to and from court by the Secret Service. (Karen Schulenberg -- AFP)

Life sure is fun when you're Neil Bush, son of one president, brother of another.

Just how much fun was revealed in a deposition taken last March, during Bush's very nasty divorce battle. Asked by his wife's attorney whether he'd had any extramarital affairs, Bush told the story of his Asian hotel room escapades.

"Mr. Bush," said the attorney, Marshall Davis Brown, "you have to admit that it's a pretty remarkable thing for a man just to go to a hotel room door and open it and have a woman standing there and have sex with her."

"It was very unusual," Bush replied.

Actually, it wasn't that unusual. It happened at least three or four times during Bush's business trips to Asia, he said: "I don't remember the exact number."

"Were they prostitutes?" asked Brown.

"I don't -- I don't know," Neil replied.

"Did you pay them?"

"No."

Not surprisingly, the revelation made headlines around the world. Equally unsurprisingly, the sex story overshadowed the curious financial revelations that came out in the same deposition.

In 2002, for instance, Bush signed a consulting contract with Grace Semiconductor -- a Shanghai-based company managed in part by the son of former Chinese president Jiang Zemin. Bush's contractual duties consist solely of attending board meetings and discussing "business strategies." For this, he is to be paid $2 million in company stock over five years, plus $10,000 for every board meeting he attends.

"Now, you have absolutely no educational background in semiconductors, do you Mr. Bush?" Brown asked.

"That's correct," Bush responded.

Meanwhile, back home in Texas, Bush serves as co-chairman of a company called Crest Investment. Crest, he revealed in the deposition, pays him $60,000 a year to provide "miscellaneous consulting services."

"Such as?" Brown asked.

"Such as answering phone calls when Jamal Daniel, the other co-chairman, called and asked for advice," Bush replied.

Ah, it's nice to be Neil Bush, who seems to be living the lifestyle immortalized in those famous Dire Straits lyrics: "Money for nothin' and chicks for free."

Unique, Relatively Speaking

Neil Bush is the latest manifestation of a long tradition in American life -- the president's embarrassing relative.

There was Sam Houston Johnson, who used to get drunk and start blabbing to the press until his brother, Lyndon, sicced the Secret Service on him.

And Donald Nixon, who dreamed of founding a fast-food chain called Nixonburgers and who accepted, but never repaid, a $200,000 loan from billionaire Howard Hughes. His brother, Dick, had the Secret Service tap his phone.

And Billy Carter, who drank prodigious quantities of beer, authored a book called "Redneck Power" and took $200,000 from the government of Libya.

And Roger Clinton, a party animal who spent a year in prison for cocaine dealing and who later appeared in a movie called "Pumpkinhead II" playing a pol called Mayor Bubba.

But Neil Bush has surpassed them all. Bush has done something that no other American has ever accomplished: He has become the embarrassing relative of not one but two presidents.

In the late '80s and early '90s, Bush embarrassed his father, George H.W. Bush, with his shady dealings as a board member of the infamous Silverado Savings and Loan, whose collapse cost taxpayers $1 billion.

Now Bush has embarrassed his brother George W. Bush with a made-for-the-tabloids divorce that featured paternity rumors, a defamation suit and, believe it or not, allegations of voodoo.

And Bush's career as an embarrassment may not be over. At 48, he is still relatively young and, judging from his deposition, still virile and vigorous. If his brother Jeb, governor of Florida, is ever elected president, Neil could conceivably embarrass him, too, pulling off an unprecedented hat trick of presidential embarrassment.

Obviously, it's time for a mid-career retrospective on the life and work of Neil Bush.

Or maybe not. His father, mother, brothers and ex-wife all declined to be interviewed. White House spokeswoman Claire Buchan uttered a curt "no comment."

Neil also declined to be interviewed, although he agreed to respond to e-mailed questions, provided they did not pertain to his divorce. He reports that he's too involved with Ignite!, his educational software company, to pay much attention to media coverage of his misadventures.

"Seriously," he writes via e-mail, "I'm too busy being a good father and promoting Ignite! to worry about that kind of thing."

The Wheeler-Dealer

Neil Mallon Bush was born in 1955 and named after his grandfather's Yale buddy Neil Mallon, the corporate CEO who gave George H.W. Bush his first job in the Texas oil business.

The third of the five Bush children, Neil was so thoughtful and helpful that siblings dubbed him "Mr. Perfect."

But Neil had trouble reading, and a counselor at St. Albans prep school in Washington told his mother he might not graduate. His problem was dyslexia, and his mother spent countless weekends taking him to special reading lessons.

It worked. He graduated, then went to Tulane University, where he received a degree in international economics and, in 1979, an MBA. That year, while working on his father's unsuccessful campaign for the 1980 Republican presidential nomination, Neil met Sharon Smith, whom his mother later described in her memoirs as "a darling young schoolteacher from New Hampshire."

They married in 1980 and moved to Denver, where Neil got a $30,000 job negotiating mineral leases for Amoco. Denver was an oil-fueled boomtown, and soon the handsome son of the vice president was charming the swells at the soirees of Denver's social set.

In 1982, Neil and two co-workers quit and formed an oil exploration company, JNB Exploration. His partners were geologists; Neil was in charge of raising money.

"Neil knew people because of his name," one partner, Evans Nash, said later.

Among the people Neil knew were two high-powered Denver real estate barons -- Bill Walters and Ken Good. Walters was a flamboyant Rolex-wearing, Rolls-driving mogul known as "the Donald Trump of Denver." Good owned the largest home in Colorado, a $10 million mansion with a special plumbing system that pumped Scotch, gin and vodka throughout the house.

After listening to Bush's sales pitch, Walters invested $150,000 and set up a $1.75 million line of credit for JNB at a bank he owned. Good invested $10,000 and pledged loans worth $1.5 million. Good also lent Bush $100,000 to gamble in the commodities market and said Neil didn't have to pay it back unless he made money.

"It was," Bush later admitted, "an incredibly sweet deal."

He set up an office, decorated it with a bust of his father and paid himself $66,000 a year -- double his Amoco salary. But JNB floundered. In five years, the company drilled 26 wells in four states, but it never found a drop of exploitable oil. JNB would have gone bankrupt if not for the money from Walters and Good.

But Bush was able to help the men who helped him. In 1985 he joined the board of Silverado Savings and Loan, which had already lent millions to Walters and Good. Over the next three years, Silverado lent an additional $106 million to Walters and $35 million to Good, although the two men's real estate empires were collapsing.

Good used some of that money to buy JNB, although it was still losing money. He raised Bush's salary to $120,000 and awarded him a bonus of $22,000. He also hired Bush as a director of one of his companies, at a salary of $100,000.

Neither Good nor Walters ever repaid a nickel of their Silverado loans, and in 1988 Silverado went belly up, leaving U.S. taxpayers holding the bag for $1.3 billion in debts.

Picking through the wreckage, regulators from the federal Office of Thrift Supervision concluded in 1991 that Bush's deals with Good and Walters while serving on Silverado's board constituted "multiple conflicts of interest." Bush became a public symbol of the $500 billion savings and loan scandal. Protesters picketed his home and pasted mock wanted posters around Washington: "Jail Neil Bush."

Bush proclaimed his innocence, declaring at a news conference that "self-serving regulators" were persecuting him because he was the president's son. But when he appeared before the House Banking Committee in 1990, he admitted that some of his deals looked "a little fishy."

Ultimately, Bush paid $50,000 as his part of a federal lawsuit against Silverado and was reprimanded by the OTS. Good and Walters ended up declaring bankruptcy, and JNB, which had never found oil or made money, quietly perished.

Today, Bush maintains that he did nothing wrong.

entire article @ Washingon Post link: http://www.washingtonpost.com/ac2/wp-dyn/A35297-2003Dec27?language=printer

[Wapsie B]

4. I find it interesting that in the mainstream press there was little if any mention of Neil

during the '00 campaign. God between him and Jeb and * I think Poppy and Bar shoulda practiced a little birth control. Woulda saved this country more than a little grief.

[EV_Ares]

5. Agree; pretty disgusting isn't it. You thinkj about it, has the Bush family

done more harm or good for this country?

How Bush's grandfather helped Hitler's rise to power

Rumours of a link between the US first family and the Nazi war machine have circulated for decades. Now the Guardian can reveal how repercussions of events that culminated in action under the Trading with the Enemy Act are still being felt by today's president

Ben Aris in Berlin and Duncan Campbell in Washington
Saturday September 25, 2004
The Guardian

George Bush's grandfather, the late US senator Prescott Bush, was a director and shareholder of companies that profited from their involvement with the financial backers of Nazi Germany.
The Guardian has obtained confirmation from newly discovered files in the US National Archives that a firm of which Prescott Bush was a director was involved with the financial architects of Nazism.

His business dealings, which continued until his company's assets were seized in 1942 under the Trading with the Enemy Act, has led more than 60 years later to a civil action for damages being brought in Germany against the Bush family by two former slave labourers at Auschwitz and to a hum of pre-election controversy.

The evidence has also prompted one former US Nazi war crimes prosecutor to argue that the late senator's action should have been grounds for prosecution for giving aid and comfort to the enemy.
The debate over Prescott Bush's behaviour has been bubbling under the surface for some time. There has been a steady internet chatter about the "Bush/Nazi" connection, much of it inaccurate and unfair. But the new documents, many of which were only declassified last year, show that even after America had entered the war and when there was already significant information about the Nazis' plans and policies, he worked for and profited from companies closely involved with the very German businesses that financed Hitler's rise to power. It has also been suggested that the money he made from these dealings helped to establish the Bush family fortune and set up its political dynasty.

Remarkably, little of Bush's dealings with Germany has received public scrutiny, partly because of the secret status of the documentation involving him. But now the multibillion dollar legal action for damages by two Holocaust survivors against the Bush family, and the imminent publication of three books on the subject are threatening to make Prescott Bush's business history an uncomfortable issue for his grandson, George W, as he seeks re-election.

While there is no suggestion that Prescott Bush was sympathetic to the Nazi cause, the documents reveal that the firm he worked for, Brown Brothers Harriman (BBH), acted as a US base for the German industrialist, Fritz Thyssen, who helped finance Hitler in the 1930s before falling out with him at the end of the decade. The Guardian has seen evidence that shows Bush was the director of the New York-based Union Banking Corporation (UBC) that represented Thyssen's US interests and he continued to work for the bank after America entered the war.

Good article which continues at The Guardian link: http://www.guardian.co.uk/usa/story/0,12271,1312540,00.html

[Turbineguy]

6. It's the Bush Family's tradition

to do harm. But more than that, it's programmed in their DNA. Live, do harm.

[DainBramaged]

2. Greedy banks, predatory real estate agents, blind loan officers

They ALL had a hand in it. Everyone wanted to milk the poor and ride the wave. Zero principle loans, wtf kind of an idea is that?


I hope the bastards in my area who all sang "money for nothing" a couple of years ago are working in Kmart.

[Joanne98]

7. MIHOP