Marilyn M. Barnewall
August 8, 2010
Colorado is what they call a political “Bellwether State” this year. All of that makes our Congressional races more interesting than the norm. The Washington Post has called Colorado one of the most politically important 2010 primary states in the country.
Senator Michael Bennet is fighting for his political life in a Primary race with fellow Democrat Andrew Romanoff. Bennet, appointed by Democrat Governor Bill Ritter to fill Ken Salazar’s Senate term when he was appointed Secretary of the Interior, once worked for conservative billionaire Phil Anschutz. There is nothing conservative about Michael Bennet’s voting record.
And “corporate raider” isn’t the only name Bennet is being called. “Economically inept” is another not-so-lovingly applied nickname in Ski Country, USA.
Michael Bennet was Superintendent of the Denver Public Schools when appointed to the U.S. Senate by Governor Ritter. The school system needed to “plug a $400 million hole in its pension fund.” Guess what Senator Bennet invested in to plug that hole. If you said “derivatives,” go to the front of the class!
Senator Michael Bennet is denying that his derivative investment is dangerous. That is more than a little disingenuous – especially after the Lawrence Summers affair that caused huge derivative losses at Harvard University. I know anyone who worked for Phil Anschutz must be pretty smart – but so is Larry Summers, one of President Obama’s key economic advisors.
The Summers affair is something everyone seems to be ignoring – the Denver Post, the Rocky Mountain News, everyone. Larry Summers invested in derivatives while he was President of Harvard University. Since Larry Summers was Director of Obama’s National Economic Council at the time of the $500 million loss to Harvard, the story was (and is) more than a tad newsworthy.
“Oct. 17 (Bloomberg) -- Harvard University’s failed bet that interest rates would rise cost the world’s richest school at least $500 million in payments to escape derivatives that backfired.
“Harvard paid $497.6 million to investment banks during the fiscal year ended June 30 to get out of $1.1 billion of interest-rate swaps intended to hedge variable-rate debt for capital projects, the school’s annual report said.”
It sounds to me like Bennet took the same long derivatives walk on a short derivatives diving board that Larry Summers took, doesn’t it? It also sounds like Bennet is confident he’s economically smarter than the President’s economic advisor. Looking at the economy, he may be right. Summers sure couldn’t figure out what to do other than take the loss!
Even former President Bill Clinton told ABC reporter Jake Tapper that he shouldn’t have listened to the advice to deregulate the derivatives market. Summers was the one doing the advising. “On derivatives, yeah I think they were wrong.”
In the late 1990s, the Commodity Futures Regulatory Commission was preparing to tighten regulatory controls on derivatives. Larry Summers and Republican (yes, Republican) allies intervened in 2000. Legislation prohibited the CFRC from imposing tighter controls on derivatives. Derivative growth was exponential thereafter… until they caused America’s economic meltdown.
Is Bennet unaware of the records regarding politics, politicians, regulators, and derivatives?
On October 9, 2009, I wrote a NewsWithViews article defining derivatives and titled “Games the Big Boys Play (and the Toys in Their Sandbox).”
“Derivatives are synthetic. ‘Synthetic’ means artificial. It means unreal, non-genuine. ‘Synthetic’ means a thing made in imitation of something that is natural. Breast implants are a good example of ‘synthetic’.”
Warren Buffet once called derivatives ‘weapons of mass destruction’. They are. In my opinion, Bennet made a serious error in judgment. In his public statements, Bennet disagrees with me saying what he did was a good thing. Senator Bennet must think he’s smarter than Larry Summers. That’s okay, Senator. Harvard thought they could beat the loss when it first started trying to correct the mess Larry Summers made.
I never thought I’d live to see the day where I agree with the New York Times while disagreeing with a liberal politician.
As Superintendent of Schools, Michael Bennet didn’t ask the right questions about derivatives before investing in them. He was sufficiently naïve to believe in free lunches and something for nothing deals. And I do wish both sides would stop “playing” the issue.
The following caption is under Senator Bennet’s picture in the New York Times article: “Senator Michael F. Bennet of Colorado, above, who as superintendent of schools in 2008 recommended the financing, said no one could have predicted the financial crisis that caused it to go sour.”
You’re wrong, again, Senator. I wrote a book predicting the financial crisis two years before it occurred. It was published in July 2008. It takes a year to write and six to eight months to edit a book once written. The writing of this book was completed in August 2007.
I also wrote numerous editorials in the Grand Junction Free Press (print/newspaper) about the economic woes of this country years before it became apparent to people like you whose world exists of The Washington Post, The New York Times, and the Wall Street Journal. One day, you’ll figure out why they’re losing subscribers and organizations like NewsWithViews is gaining them.
What you mean is, in your circles “…no one could have predicted the financial crisis that caused it to go sour.”
On March 7, 2005, my Grand Junction Free Press article said the following (inter alia):
“Alan Greenspan’s comments before the Senate Banking Committee last week were, however, a bit puzzling: ‘The broadly unanticipated behavior of world bond markets remains a conundrum’ (mystery).
January 2004 I wrote an article about giant mortgage company Freddie Mac.
That summer, I wrote another about Fannie Mae (bigger than Freddie). Both
seem to have problems with ‘honest bookkeeping and reporting’.
Greenspan, it seems, has finally noticed there are problems at Fannie
and Freddie that may cause big trouble.
“After pointing out the problem, Greenspan suggested Fannie Mae and Freddie Mac should not have mortgage portfolios exceeding $100-$200 billion each. ‘Enabling these institutions to increase in size – and they will, once the crisis passes – we are placing the total financial system of the future at a substantial risk.’ Interesting choice of words… ‘crisis’. (Italics added.)
“When I wrote that last July (2004), some thought me an extremist. Fannie Mae’s current portfolio is close to $900 billion; Freddie’s, $654 billion. In other words, Greenspan says two entities whose problems with integrity and honest reporting should not have mortgage loans exceeding $200 billion max… but one already has $900 billion, the other $654 billion. If Greenspan’s words do not tell you something major must happen in the mortgage business in the coming year, nothing will.
“Nothing is isolated, these days. For example, in mid-February Citigroup reported it owns a 6.3 percent stake in Fannie Mae… or $366 billion. Since December 2004, Fannie’s stock has declined by 11.2 percent. On paper, the cost to Citigroup year-to-date is immense. For every cent Fannie’s stock price goes down, Citigroup loses nearly $600,000.” On the particular day this comment was made, Fannie Mae stock was down $1.09. If my calculator is not playing tricks on me, that is a $65,400,000 loss for Citigroup for the day.”
A little further down in my article, I made another statement that surprised even me when I re-read it. This one statement explains a major part of the problem with commercial banks that no one is talking about even yet. I’d forgotten I said this:
“Most large loans made by big banks are shared with other commercial banks (correspondent banks). Thus, if a big bank should fail, it would cause loan losses throughout the system.”
“As of mid-February (2005), the Dow Jones Industrial Average was at 10,785.22. The February average in 2004 was 10,794.95… about ten points higher this year than last. The NASDAQ closed on Friday, February 17th at 2058 (down slightly because of tech stock lackluster – mostly caused by Dell and Cisco whose earnings reports disappointed the market). Last February 17th, it was at 2029. That equates to a 29 point increase (in mostly small cap stocks). “The dollar is weak… and we are only three (plus) years into a six or seven year week dollar cycle. Greenspan has, however, been able to keep a good parachute under the dollar’s fall. It is key. If the dollar falls too fast, it could cause more than a conundrum.
“Inflation is heading up… far more rapidly than expected. Last month, the core rate (the usual rate of inflation minus energy and food) was expected to go up by three-tenths of a point. Economists were somewhat shocked mid-February when the core rate came in at 0.8 percent… ten percent, annualized.
“This puts Mr. Greenspan’s Fed in a bit of a quandary. By increasing the cost of funds he has controlled inflation. That, however, is a dangerous thing to do right now. To do so increases the interest rate on business loans which slows business borrowing which slows business growth and new jobs.”
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© 2010 Marilyn M. Barnewall - All Rights Reserved
Marilyn MacGruder Barnewall began her career in 1956 as a journalist with the Wyoming Eagle in Cheyenne. During her 20 years (plus) as a banker and bank consultant, she wrote extensively for The American Banker, Bank Marketing Magazine, Trust Marketing Magazine, was U.S. Consulting Editor for Private Banker International (London/Dublin), and other major banking industry publications. She has written seven non-fiction books about banking and taught private banking at Colorado University for the American Bankers Association. She has authored seven banking books, one dog book, and one work of fiction (about banking, of course). She has served on numerous Boards in her community.
Barnewall is the former editor of The National Peace Officer Magazine and as a journalist has written guest editorials for the Denver Post, Rocky Mountain News and Newsweek, among others. On the Internet, she has written for News With Views, World Net Daily, Canada Free Press, Christian Business Daily, Business Reform, and others. She has been quoted in Time, Forbes, Wall Street Journal and other national and international publications. She can be found in Who's Who in America (2005-10), Who's Who of American Women (2006-10), Who's Who in Finance and Business (2006-10), and Who's Who in the World (2008).
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