Bernanke: The Main Street Versus Wall Street Litmus Test

Poor folks ain't got a chance
Unless they organize.

Which side are you on boy?
Which side are you on?

- Florence Reece (Peter Seeger)

Ben Bernanke's re-appointment as Chairman of the Federal Reserve Board is in trouble. Liberal senators, such as Russell Feingold of Wisconsin and Barbara Boxer of California, are against him. Conservative senators, like Richard Shelby of Alabama, oppose him too.

What do Boxer, Shelby and Feingold normally have in common? Nothing. You can't find another contested issue where they line up on the same side.

Bernanke is different. It is not about Republican and Democrat.

It is a vote on whether a senator is listening to Wall Street or Main Street.

The vote on Bernanke lets us see which side each senator is on.

Boxer was quoted in the New York Times, saying "It is time for Main Street to have a champion at the Fed."

It is time, indeed.

Main Street supporters know that Bernanke has to go. The Wall Street crowd wants to keep Ben in the worst way. He is completely their guy.

Just ask the people at Goldman Sachs or AIG.

My biggest disappointment in President Obama, a man I voted for, is that he has consistently sided with Wall Street over Main Street.

Obama has supported each and every bailout, appointed Timothy Geithner to run the Treasury and appointed Dr. Lawrence Summers to whisper in his ear at the White House.

Naturally, Obama is in favor of giving Bernanke another shot. That is what the Wall Street crowd is calling for.

I was vehemently opposed to Bernanke when he was first appointed by President George W. Bush. Outside of opposition by Senator Jim Bunning of Kentucky, Bernanke's Senate confirmation was a love fest and his confirmation was a coronation.

Which led to him presiding over one of the great economic disasters in history.

Nothing in Bernanke's background clued him in to Main Street. He has never met a payroll, never had to get a business loan and spent most of his life hanging in the faculty lounge at Princeton.

It's one thing to write a thesis. It's another to have to live with your decisions, like those of us on Main Street do.

They have a word for people who screw up on Main Street: bankrupt.

They have a word for people who screw up on Wall Street: bailout.

They have a word for people for screw up in Washington: re-appointment.

Thus, Wall Street and Washington is lining up to give Bernanke another shot.

Senator Christopher Dodd, Chairman of the Senate Banking committee, responded to the opposition in an "inside the beltway" fashion. The New York Times quotes Dodd as saying that a vote against Bernanke would send "the worst signal to the market right now" and could "lead us into an economic tailspin." What kind of economic tailspin? Like that one Bernanke led us into last year? Or the bigger one, the year before that?

Dodd, whose close ties to lobbyists and sweetheart loans from Countrywide is leading to his premature retirement, considered himself a champion of "working people." I guess Dodd defines "working people" as those who work for investment banks.

It makes sense to get rid of Bernanke. You don't rehire a football coach who keeps losing games. Bernanke's term as Federal Reserve Chair is like watching the Cincinnati Bengals for the decade of 1990's. They started in last place and they stayed in last place. At least the Bengals changed coaches. President Obama needs to do the same at the Federal Reserve.

I would love to see a Federal Reserve Chair who was not a product of the Wall Street-Washington alliance -- someone from the heartland, who doesn't do power lunches at the Four Seasons or hang at the Harvard faculty club. Someone who had a real job at least at some point in his (or her) life.

If Warren Buffett was available, he would be my pick. If not Warren, then someone with the same kind of Midwestern values and sensibilities.

Since the upset election of Senator Scott Brown in Massachusetts, there has been a lot of talk about populist anger. Washington is just starting to "get" what those of us on Main Street have known for a long time.

People are broke, frustrated and angry and want Washington to do something to help them.

The vote on Bernanke is a litmus test. Senators have a chance to show us whether they will continue to suck up to Wall Street or whether to find someone who is listening to the voice of Main Street.

We will be watching our senators and asking, "What side are you on?"

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SEC Blocks Early-stage Ponzi Scheme Involving Purported Investments in Personal Injury Settlements

The Securities and Exchange Commission today halted a Ponzi scheme involving a New York firm that solicited investments involving personal injury lawsuit settlements but instead shipped the money overseas.
Washington, D.C. - infoZine - The SEC obtained a court order freezing the assets of the firm, its president, and several companies holding money from the scam that began several months ago.

The SEC alleges that Rockford Funding Group LLC used cold calling and a Web site to raise at least $11 million from more than 200 investors in 41 different states and Canada since March 2009. Rockford Group falsely touted itself as a leading private equity firm with an $800 million pipeline of investments and many Fortune 500 companies as clients, and told investors their money would be safely invested in structured settlements in private lawsuits.

According to the SEC's complaint, filed in U.S. District Court for the Southern District of New York, Rockford Group does not appear to engage in any investment activity that would generate any returns for investors, let alone its claimed returns of at least 15 percent annually. Instead, dividend payments made to investors have been funded by other investors' contributions, and Rockford Group transferred most of the money collected from investors to banks in Latvia and Hong Kong.

"Rockford Group dressed itself up as a high-powered firm with a safe strategy to make huge returns, but everything was a lie," said George Canellos, Director of the SEC's New York Regional Office. "Rockford Group pressured investors through cold calls and fooled them with a Web site, but fortunately the scheme was detected early on."

The SEC alleges that Rockford Group lured investors by promising high returns and falsely assuring investors that it is a member of the Securities Investor Protection Corporation (SIPC) with up to $4 million in insurance to meet customer claims. According to the SEC's complaint, however, Rockford Group is not a member of SIPC.

Misrepresentations that Rockford Group made to mislead investors, according to the SEC's complaint, included:

False claims that the firm has been in existence since 1999, when it actually was not incorporated until December 2008.
False claims that during the past 10 years, its "portfolio has increased 251 percent compared to a 12.8 percent increase in the Dow Jones Index."
Promotional material falsely identifying 20 Fortune 500 corporations as Rockford's major institutional pension plan clients.
False statements to at least one investor that Rockford Group is "going public" and that large investors in its Fixed Dividend Contracts will receive special access to shares sold in its initial public offering.

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ABCP investors blast settlement, regulators

While the majority of retail asset backed commercial paper investors got 100% of their principal investment back, many believe the firms that sold ABCP have received little more than a slap on the wrist in their settlement with securities regulators.

Members of the ABCP Retail Owners Committee argue the $138.8 million in penalties were far too small in comparison to the scope of the ABCP market, which was estimated at $32 billion.

"The first thing that hit me is that they only have to pay $138 million out of 32 billion dollars, which as a settlement represents roughly .04 cents on the dollar," says Layne Arthur, an Alberta-based investor who had the proceeds from the sale of his family farm locked up in what he thought was a safe investment. "Everybody involved in this settlement got immunity. They do not lose their right to practice at any of the banks or in the investment community at large."

Arthur fought for 18 months to get his money back.

"Everybody is walking around with smiles pretending this is all behind them. I think this is still a case of fraud. I would like to see a criminal investigation as to who knew what," Arthur says. "Luckily, I was one of the guys with less than a million dollars invested, so I got paid out. I just got my last cheque a month ago. I've wasted a whole year on this thing, and it was so frustrating. The lingering problem is this is going to happen again. People will be able to put together some fraudulent garbage and pass it off as a savings program."

The ABCP Retail Owners Committee says it has been unable to get criminal action taken against firms.

"Our representative's appeals for assistance from the RCMP's Integrated Market Enforcement Team were referred to the self regulatory bodies. 'Small folks' like ourselves were simply left to 'duke it out' with some of the largest financial organizations in the country," a release from the committee says.

Arthur expressed frustration at being passed around by enforcement agencies when the committee lodged its complaint.

"The system is broken. You cannot have the fox guarding the hen house. You need a totally independent police force that we can go to. I think there are 32 different arms of investigators at different levels, and all of them just referred us to the next outfit," he says.

Independent financial analyst and well-known investor advocate, Diane Urquhart, worked closely with the group in getting their money back. She says this last chapter in the ABCP proceedings highlights serious deficiencies in Canada's capital markets and banking structure.

"I am pleased to see that the securities regulators have finally brought seven securities dealers into settlement agreements as penalty for their sale of toxic ABCP into the public markets," she says. "The public announcement of these securities regulatory settlements demonstrates to the world that the Canadian banks were significant players in the international structured credit crisis, albeit indirectly through their wholly owned investment banks."

Urquhart believes the restructuring process allowed banks to skirt their responsibilities since they were not required to buy the ABCP back from investors.

"No Canadian banks required a government bailout because they had sold the toxic asset backed commercial paper from their inventories to their customers and because they were not forced to buy this bad paper back like the other banks of the world were required to do," she says. "Also, unlike in other countries, the Canadian bankruptcy courts gave full immunity from lawsuits by the ABCP owners against the Canadian banks and investment bank distributors of this toxic product. So, it was not the Canadian banks that took massive writedowns, but the customers of the Canadian banks and investment banks."

Urquhart believes the penalties that were handed out do little to deter or reform the type of sales practices amongst Canada's investment dealers that led to the ABCP crisis.

"With banks making billions of dollars in profit each year, miniscule monetary penalties such as this one, will not have any deterrence on the sale of toxic investments like ABCP in the future," she says. "Deterrence only comes when the well-paid managers and experts in the banks lose their jobs, lose their right to move to another investment firm or receive jail sentences in the cases of intent to defraud the investing public."


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Legislators quiz regulators on deterring abuse in life settlements securitization

Regulators and legislators clashed with members of the life settlements industry at a congressional hearing today that focused on the risks and merits of life settlements securitization.
Legislators, though intrigued by the concept of the pooled life settlements, were also interested in having regulation to deter abuse.

“The improper securitization of life settlements could ultimately leave countless seniors penniless and innumerable investors broke,” Rep. Paul E. Kanjorski, D-Pa., chairman of the House Financial Services Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises, said at the hearing.

Regulators and legislators appeared most sensitive to the possibility of a securitization market for packages of life settlements — bundles of life insurance policies that have been sold over the secondary market.

The Securities and Exchange Commission has already taken a step forward by creating a life settlements task force that will not only consider how federal securities laws apply to life settlements, but also the emerging role of securitization, concentrating on investors, intermediaries and sales practices. That task force will work with the Financial Industry Regulatory Authority Inc., Paula Dubberly, associate director of the SEC’s division of corporation finance said in her testimony.

The SEC has already brought enforcement cases against life settlement sales as investment opportunities, including cases in which the settlement providers made misrepresentations of the underlying policies, she said.

“In the event that possible securities law violations are present in sales of securities through life settlement securitizations, we stand ready to pursue those cases vigorously,” Ms. Dubberly said.

However, members of the life settlements industry raised concerns that regulators were tilting at windmills.

For one thing, these financial products are nothing new, and the market that exists for them is limited, said Jack Kelly, director of government affairs for the Institutional Life Markets Association. Only two rated securitization transactions have occurred: a 2009 life settlements securitization that involved American International Group Inc. — the only pure life settlements transaction to date—and a 2004 securitization by Legacy Benefits Corp. that included life settlements and annuities.

“Since these are the only known transactions, it brings to question why suddenly there is such increased attention to the securitization of life settlements,” Mr. Kelly said.

Furthermore, representatives from Credit Suisse Group AG and The Goldman Sachs Group Inc. indicated that they have never securitized life settlements. However, while Credit Suisse wouldn’t rule out participating in a “properly structured life settlement securitization,” Goldman Sachs has no client mandates or plans to execute these transactions, according to testimony.

Still, both participate in life settlements, and Goldman owns a longevity index.

“We do not see the life settlement securitization market as a cause for concern for the financial system as a whole,” Goldman managing director Steven T. Strongin said in his testimony. “However, there does appear to be special issues in terms of consumer protection in life settlements in general that may be appropriate for Congress or a regulator appointed by Congress to address.”


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SEC creates life settlements task force

SEC creates life settlements task force Specifically, the SEC is concerned with the securitization of life insurance policies that have been sold on the secondary market, as well as whether insured individuals and investors know what they are getting into, insiders told the newspaper.

Last month, Mary Schapiro, chairman of the SEC, asked her staff to create a task force that combines employees from the agency's enforcement, corporate-finance and trading-and-markets divisions, an insider told the Journal.

Reports of the SEC's interest in the packages of life settlements arrived on the heels of legislators' increased interest in the products. Rep. Paul E. Kanjorski, D-Pa., chairman of the House Financial Services Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises, yesterday announced a Sept. 24 hearing to discuss the securitization of life settlements.

Ms. Schapiro's interest in the world of life settlements goes back as far as April, when she submitted a comment letter on the topic to Sen. Herb Kohl, D-Wis., chairman of the Senate Subcommittee on Aging. She noted that the SEC has jurisdiction over a transaction in which a senior sells a variable-life-insurance policy on the secondary market, as well as a case in which the senior uses the policy sale's proceeds to buy securities.

However, Ms. Schapiro noted that the investment side of a transaction can also be subject to SEC oversight.

“The second part of the transaction — the purchase of an interest in the life insurance policy or a pool of policies — can be structured in a variety of ways. But in many cases, this transaction will involve the sale of a security and thus be subject to the commission's jurisdiction,” Ms. Schapiro wrote in her April 28 letter to Mr. Kohl.

“Typically, the management activities and services provided by the party who arranges the life settlement and sells the interest to an investor will bring the transaction within the definition of an ‘investment contract,'” she wrote.

A call to the SEC seeking further comment wasn't immediately returned.


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GHF GROUP LIFE SETTLEMENT FUND SURPASSES TARGETS

“This is a result of offering a protected investment with guaranteed returns in an environment of devastated equity markets. Sophisticated investors are rapidly realizing the benefits of the life settlement industry and are quickly trying to secure their own piece of the pie.” said senior trader Nelson Garber.

A life settlement is a financial transaction in which an existing life insurance policy owner sells their policy to a third party. The purchaser then becomes the beneficiary of the policy in addition to assuming responsibility for all subsequent premium payments.

In general, life settlements are an option for high-net-worth policy owners aged 65 or older who want or need access to cash. Independent estimates report that 20% of policies have a market value that well exceeds the cash value offered by the carrier. The majority settled policies are Universal Life (UL) policies which provide coverage for the entire life of the insured. Policies typically have a face value of between $100,000 and $10,000,000 and have been in-force for over two years so as to be outside of the insurance company’s contestability period.

Global Hedge Fund Group Ltd. (GHF Group) has been developing customized alternative investment solutions and providing corresponding advisory services since 2000. Our priority lies with hedge funds and private equity. GHF Group has also become a leader in providing funds in the life settlement industry. All products are designed to provide sustainable and above-average rates of return. Instability and risk are reduced by well-structured investment strategies whose clarity and success are established. Our team of competent professionals has the distinction of reliability, effectiveness and promptness. GHF Group's expertise in hedge funds is enhanced by a close association with leading research firms, successful hedge fund managers, and brokerage houses whose macro research gives its research team an edge in understanding world market trends, enabling them to make better hedge-fund allocation decisions. For more information, visit Global Hedge Fund Group’s website at ghfgroup.net.

This news release may contain forward-looking statements, as defined by securities laws, including statements about the financial outlook and business environment. Any such statements are based on current expectations and involve a number of risks and uncertainties. Important factors, including those mentioned in this news release, that could cause actual results to differ materially are set forth in the company’s current annual report and subsequent filings. They include risks and uncertainties relating to the pace at which GHF Group adds new clients or at which existing clients use additional services, the value of global and regional financial markets, and the dynamics of the markets GHF Group serves. GHF Group encourages investors to review filings in conjunction with this announcement and prior to making any investment decision. The forward-looking statements contained in this news release speak only as of the date of release, and the company does not undertake to revise those forward-looking statements to reflect events after the date of this release.

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Ratings affirmed for New York arm of Symetra Life Insurance

Symetra Life Insurance Co. and its New York subsidiary had their ratings from A.M. Best Co. affirmed because of their growth in a difficult economy.
The ratings service affirmed the financial strength rating of “A” (Excellent) and issuer credit ratings (ICR) of “a+” of Symetra, based in Belllevue, Wash., and First Symetra National Life Insurance Co. of New York.
The ratings reflect the organization’s solid liquidity and risk-adjusted capital position, the consistent operating profitability of its four business segments and its continued progress in delivering strong top-line growth despite the difficult economic climate, the ratings service said. The affirmation also reflects that Symetra’s balance sheet carries somewhat less asset risk than many of its similarly rated peers, with limited exposure to the subprime and Alt-A residential mortgage markets.
A.M. Best notes that the investment portfolio’s overall unrealized loss position has narrowed significantly since its peak in the first quarter of this year. The ratings service noted that Symetra maintains a modest level of intangible assets on its GAAP balance sheet relative to its peers.
A.M. Best indicated that offsetting these strengths is the potential for additional asset impairments given the current economic conditions, the company’s increasingly heavy concentration in spread-based and other commoditized product lines, and its exposure to reinvestment risk within its large block of immediate annuities and structured settlements, which accounts for slightly less than one-half of its statutory general account reserves.
Symetra, according to A.M. Best, will continue to be challenged to maintain profitable spreads as the long-term nature of its structured settlement liabilities makes finding suitable investments difficult. The company’s spread-based product concentration is further exacerbated by its recent strong growth in fixed annuity sales, which accounted for nearly 90% of the company’s total product sales during the first half of 2009.
But A.M. Best noted that Symetra continues to execute on its strategies to closely manage its asset/liability duration matching (ALM), which have led to improved cash flow testing results. Additional offsetting factors include concerns over the near-term profitability of the group medical stop loss business, although A.M. Best noted that Symetra has a history of profitability in this product line.


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