The Looting

First, I guess Obama doesn't like $10 words. The Blabberg reporter-ette is practically gushing about his use of simple, monosyllabic words. Maybe he knows his audience.

Back to the looting ...

This story about the Merrill Lynch bonuses gets sleazier and sleazier.

WSJ: "Monday's court filing alleges that the board set the bonus pool on estimates that were off by $7 billion. Once Merrill had a better indication of the firm's fourth-quarter performance, Mr. Thain didn't go back to the board to give them the chance to reduce the bonus payout "even though results are suppose to be a key component in setting bonus pools," Mr. Cuomo claimed in the filing."

Hogs at the trough ... vikings looting the monastery ...

Smash that window and grab the loot before the cops arrive.

So how well run was Merrill Lynch ? Here's a clue:

FT: "Ineffective internal controls at Merrill Lynch caused the firm to understate its 2008 losses by more than $500m, the investment bank said on Tuesday in its annual report. Merrill, which was acquired by Bank of America on January 1, shocked investors last month with the disclosure of a $15.3bn loss for the fourth quarter of 2008 and full-year losses of $27.1bn. But in its revised figures, Merrill disclosed that its losses for 2008 were $27.6bn."

"The additional $500m in losses appear to have come from the discovery that Merrill used a flawed model for measuring the value of derivatives that were used in its hedging strategy."

"Auditor Deloitte & Touche concluded that Merrill had “not maintained effective internal control over financial reporting” as of the end of 2008."

"According to the annual report, the discrepancy in valuation involved internal swaps used between Merrill and its affiliates. In 2008, the report said, Merrill “began using a different set of yield curves to value certain intercompany swaps”.

"In its opinion, Deloitte said “several mitigating internal controls were not operating effectively and therefore failed to identify the intercompany difference that resulted” from reliance on the two different yield curves. In addition, Deloitte said Merrill management did not apply proper accounting guidelines to one hedge entered into during the fourth quarter, involving long-term borrowings."

In simple terms, one arm of the firm valued the SAME swap to be $500 million more than another part. Obviously that entire "swap valuation" cesspool is a complete shambles.

Does anyone else smell a fraud ?

Word of the Day

"Dichotomy" - noun [$10] from the card file
Dichotomy means a division or the process of dividing into two especially mutually exclusive or contradictory groups.
Sentence: Washington's ruling class has yet to realize that a dichotomy exists between a successful bank and one run according to government rules, viz. that a private bank must make a PROFIT. Profits are the key to resolving the financial crisis.

Le Mot du Jour

"Souhaiter" - verb; regular -er conjugation
Souhaiter means 1. to wish for; 2. (+ que) to hope that
La Phrase: En buvant mon café ce matin, je souhaitais que M. Geitner lise toujours ce blog.
Sentence: While drinking my coffee this morning, I was hoping that Mr. Geitner always reads this blog.