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« "If These Allegations Are Correct, It Appears To Have Been A Direct Transfer Of Wealth From The United States Treasury To Goldman Sachs Shareholders": Josh Rosner | Main | Financial Crisis Commission Releases Final Report »
Thursday
Jan272011

Tavakoli: Slap A 95% Windfall Tax On Goldman Profits

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Scroll down for VIDEO of Janet with Katie Couric...

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Guest post submitted by Janet Tavakoli...

In a January 2009 interview with NBC’s Tom Brokaw, Warren Buffett criticized leveraging “to the sky,” and creating “phony instruments [RMBSs, CDOs, et al.] that fool other people so you stick money in your pocket.”  In 2002, he claimed over-the-counter derivatives are “financial weapons of mass destruction”1 and participants who account for them have “enormous incentives to cheat.” 2  

Warren Buffett, the blogosphere’s “Oracle of Omaha,” often chastises the financial community.  If you cost him money, he’s liable to write an expose.  He posts annual shareholder letters on a low-tech website and seems to labor under the assumption that rational people eagerly read his blog.  Congress and regulators are dismissive of Buffett’s hyperbolic rhetoric; it is fit only for a banana republic.

In 2003, Buffett wrote of the manufactured housing industry’s “business model centered on the ability…to unload terrible loans on naïve lenders…The consequence has been huge numbers of repossessions and pitifully low recoverie[s].” 3  Buffett alleged that the manufactured housing industry’s consumer financing practices were “atrocious,”4 and securitizations provided the money to fuel the financing.

Berkshire Hathaway’s investment in the distressed junk debt of Oakwood Homes lost money after the designer and manufacturer of modular homes went bankrupt in 2002.  Buffett claimed “Oakwood participated fully in the insanity.” 5

Warren Buffett’s diatribe suggested that most of the manufactured housing industry was involved along with several Wall Street firms that underwrote the securitizations.  Using money from new investors to pay returns to old investors in unsupportable investments is called a Ponzi scheme. 

Oakwood’s loans to purchasers of manufactured homes were made possible by a line of credit from Credit Suisse First Boston (Credit Suisse). The credit line was similar to a credit card except that Oakwood had to put up the home loans as collateral. Credit Suisse earned fees for the loans and further fees when it packaged (securitized) Oakwood’s loans. Credit Suisse (the old investor) bought the securitized loans and then sold them to new so-called sophisticated investors.

Sales of manufactured homes declined. Loan delinquencies (late payments) and repossessions rose.  Oakwood Homes had crushing debt and falling income for at least three years before it filed for bankruptcy in November 2002.  But securitizations had temporarily inflated the bubble for the collapsing enterprise.  A June 2008 court opinion said Oakwood’s aggressive lending practices led to the high number of repossessions and a debt load that Oakwood could not support.  Oakwood’s liquidator said the transactions it did with Credit Suisse were “value destroying.”6 

Someone should have muzzled Warren Buffett back in 2003.  The Slumbering Esquires’ Club might have believed Buffett’s preposterous theory that after private securitizations became popular, the “industry’s conduct went from bad to worse.” 7  Buffett’s wacky warnings could have jeopardized Wall Street’s subsequent mortgage lending securitization Ponzi scheme

The SEC might have investigated Lehman Brothers’ questionable shenanigans, especially after it was held liable in 2003 by a California jury for allegedly helping FAMCO cheat borrowers.  The SEC might have looked into the unsavory practices at Goldman Sachs Alternative Mortgage Products, Bear Stearns, Merrill Lynch or the entire private securitization industry, and their mortgage lending subsidiaries.

While the SEC slept inside a collapsing debt bubble, the Omaha conspiracy theorist spooked Goldman Sachs into believing it needed his money.  In the fall of 2008, Buffett closed a deal for $5 billion in Goldman Sachs’s preferred stock paying a 10% annual dividend.  Goldman even gave Buffett warrants to buy $5 billion in common stock at a price of $115 anytime before October 1, 2013.  [The Fed let Goldman buy back its warrants for chump change.9] Buffett’s warrants are now about $3 billion in-the-money and worth much more—a sweetener for his crispy calamari.

Hank Paulson, Ben Bernanke, and Tim Geithner10 ignored the historic ravings of the most successful living investor, and fueled some of the bombers piloted by Wall Street before finance’s Pearl Harbor.  After they used taxpayer money to save the system and enriched the culpable with no strings attached, Buffett said “it could have turned out a lot differently,” and called each of them a four-letter word.  The label was undeserved. 

Four-letter words aside, Warren Buffett raised a good point.  It could have—and should have—turned out a lot differently.  But it’s not too late.  Buffett called the crisis an economic Pearl Harbor and said that “Wall Street owes the American people one at this point.”8 

During World War II, we imposed an excess profits tax.  We should impose a 95% excess profits tax—or windfall profits tax—on certain financial institutions (including Goldman Sachs) enriching themselves with ongoing low-cost Fed funding and debt guarantees.

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Video:  Janet Tavakoli interview with Katie Couric -- May 2010

GREAT CLIP!  Watch this one - runs just 90 seconds.

  • "Massive, widespread fraud and malfeasance."

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More detail on this clip is here...

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In the mood for a riot?  Check out these photos...

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Spoiler ALERT -- Do not miss #7:

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Reader Comments (10)

Boy - Janet turned on Warren like a whipet. Well deserved. Janet has the fire in her belly - which makes her a four letter word - Hero.
Nov 20, 2010 at 5:12 PM | Unregistered CommenterFraud-Esq
Windfall Profits Tax

Excess Profits Tax

"Wall Street owes the American people one at this point."

Or Both!

At the same time!
Nov 20, 2010 at 5:13 PM | Unregistered CommenterDaniel Stoica
i agree with both of you...you should read janet's response to charlie munger...i'll find it for you hold on...
Nov 20, 2010 at 5:31 PM | Registered CommenterDailyBail
No Security Pat-Downs for Boehner

At a Capitol Hill news conference after Election Day, as Mr. Boehner began laying out the changes he would make when he becomes House Speaker, he announced that he would continue to fly commercial airlines (usually Delta) back to Ohio. It was a not-so-subtle dig at the outgoing Democratic speaker, Nancy Pelosi of California, who had been criticized by Republicans for flying military airplanes when she returned home to San Francisco.

http://thecaucus.blogs.nytimes.com/2010/11/19/no-security-pat-downs-for-boehner/
Nov 20, 2010 at 10:22 PM | Registered CommenterDailyBail
What the impossible hamster has to teach us about economic growth. A new animation from nef (the new economics foundation), scripted by Andrew Simms, numbers crunched by Viki Johnson and pictures realised by Leo Murray.

http://www.youtube.com/watch?v=Sqwd_u6HkMo&feature=player_embedded

very interesting clip...
Nov 20, 2010 at 10:24 PM | Registered CommenterDailyBail
Evil people have abused their power over the USA for their evil deeds, leaving the USA soiled. Yet the USA is part of the body of Christ. May God free the USA from those that have abused it to death, and provide leaders worthy of the challenge of ruling it in a way Jesus Christ will approve of.
Nov 21, 2010 at 1:25 AM | Unregistered Commenterm
I was just recently introduced to this website and have been visiting it daily. I came her today and discover a guest post by (my hero) Janet Tavakoli. Wow. I'm blown away. Janet Tavakoli, in my opinion, is one of very few people that should be held up as a hero throughout this financial crisis and bailout mess. She is a straight shooter and calls bullshit on anyone and everyone responsible for the economic crisis. Even better, she names names, and is vocal that there should be indictments handed out for the massive fraud that has been going on.

You, The Daily Bail, are my new favorite website! Thanks for everything you're doing!

Amy
Nov 21, 2010 at 11:51 AM | Unregistered CommenterAmy
thanks amy...we have published dozens of stories and video from janet...you can find them thru the search box in the right column...glad to have you around...
Nov 21, 2010 at 12:12 PM | Registered CommenterDailyBail
Protect Civil Liberties: Let The PATRIOT Act Expire!
http://act.demandprogress.org/sign/patriotact/?akid=102.97604.IWXN2m&rd=1&t=1

Crash JP Morgan - Buy Silver!
http://www.youtube.com/watch?v=wN0rcNJXFfI
Jan 28, 2011 at 8:45 AM | Unregistered CommenterAnonymous

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