Hedge fund regulation and the Senate Banking Committee

It is sad to reflect that if slavery were by some hideous quirk made legal again, undoubtedly a certain number of individuals in the U.S. would be willing to sell themselves into it. This morning, the Senate Banking Committee held a hearing on regulating what in the world of finance is known as hedge funds.

To start with, there is more than one definition of hedge funds. Broadly, however, they are gigantically capitalized entities for high-risk investment. They are in some ways the riskiest form of investment, and they don’t deal in small amounts of money. And as Sen. Richard Shelby, head of the Banking Committee, and Christopher Cox, head of the SEC, both stated, hedge fund growth in this country (which, with Great Britain, is home to most hedge funds) has been enormous and startling over the past few years. Cox testified that the amount of capital under management in hedge funds has grown to approximately $1.2 TRILLION. Cox also stated that hedge funds account for “about 30% of all U.S. equity trading volume.”

Shelby pointed out that “wealthy investors and large institutions” attracted by hedge funds include “pension funds and universities.” There is room for concern here, especially since a U.S. Appeals Court recently struck down some federal attempts to bring hedge funds somewhat more under SEC regulation.

Sen. Paul Sarbanes (D-Maryland), excellent and lucid as usual, raised three concerns: 1) whether the standards for an “accredited investor” (currently anyone with over a million, including your house) are too low; 2) potential conflicts of interest in managers of hedge funds and mutual funds; and 3) the impact on financial markets of hedge fund strategies on a large scale, including short-selling.

Sarbanes also brought up a concern voiced by the AFL-CIO, about worker pension funds. There seems to be a move currently to allow more pension funds in hedge funds, a scary prospect for millions of workers counting on pensions to support them in retirement.

Sarbanes also asked about what might happen in a market shock — a “run on the bank,” in which large numbers of hedge fund investors withdrew from their hedge fund at the same time. Basically, to the question, “what would you do?” the answer was — something along the lines of, we’re looking at that.

Three witnesses appeared before the Committee — the head of the SEC; the head of the U.S. Commodity Futures Trading Commission, Reuben Jeffery III; and the head of — No, not the head of Treasury but an undersecretary in Treasury named Randal K. Quarles. Quarles’ answers were not reassuring.

Nobody mentioned that one sizeable hedge fund is operated by the president’s youngest brother, Marvin P. Bush. But then, nobody needed to mention it.

Quarles, BTW, is one of the new breed of Bush appointees, much like an undersecretary from State, John Hillen, whom I heard “testify” to Congress last week, on the administration’s support for a new sale of F-16s to Pakistan. Yes, that’s right, little friends. Just at the juncture when the Pakistanis are bringing out new developments along the nuclear line, the White House wants them to get more F-16s. Hillen and Quarles struck this viewer much as less senior, white male versions of Condoleezza Rice, except perhaps a tad less philosophical and independent — future First Family employees, basically.

Back to the top: one question is why the federal government, or some of the most august names on Wall Street, should be aggrandizing hedge funds in the first place. Just because some people want high-risk opportunities, does that mean the rest of us have to provide them — and pay to regulate them, and provide the courts in which they try to avoid regulation, and pay Congress to try to control them?

You’d think that people so eager for a good risk would be particularly able to stomach NOT getting what they want. Shd be a real shot in the arm, one would think.

I read years ago that a “risk” is one thing; a “gamble” another. But it seems to be BushCo’s broad strategy to maximize gambling rather than genuine risk. Perhaps that’s just another way of saying that they tend to privatize gain (for the few) while socializing penalty/payment (for the overwhelming majority).

More timely as time passes: Andrew Thomas’s Aviation Insecurity

Almost five years after September 11, 2001, the book titled Aviation Insecurity, by security analyst Andrew Thomas, published by Prometheus Books in 2003, is only becoming more timely.

 

Some books do not wear well over time, but this one does. Virtually every passing month further corroborates the discussion and analysis by Thomas of U.S. lack of aviation security before September 11 and now.

 

Reading successive chapters about the culture of compromise at the FAA, the actions of the White House and Congress to bail out the airlines immediately after September 11, and the creation of new layers of bureaucracy under the guise of security is like watching time lapse photography in motion. Especially now, while we watch the Middle East go up in flames and even commentators chastise the president for  supposedly not knowing it would happen, we see with the clarity of hindsight how thoroughly the airlines influenced governmental processes that were supposed to work for the public interest. The result is that our federal agencies, in spite of the courageous work of many lower personnel, are tainted and compromised by the aviation industry they were supposed to monitor and regulate. As one commentator said succinctly,

Condoleezza Rice slips, makes unintentionally true statement

This morning on This Week with George Stephanopoulos (ABC), Condoleezza Rice, interviewed on the violence in the Middle East:

Rice, awkwardly trying to justify the administration’s non-support of a cease-fire, stays with the Bush-Cheney fantasy line that “extremists” facing “a new Middle East” are the cause and source of the violence. (No mention of repressive regimes or the mistreatment of Palestine.)

Her reasoning is the neocon argument that past peace-keeping efforts in the past didn’t “work” –i.e. since no peace lasted forever, lives saved or quality of life improved in the interim don’t matter a whiff.

No time for obvious fallacies right now; this blog just to highlight a statement worthy of thought: Rice, winding up her peroration, asks rhetorically, “Where do we think Hezbollah and Hamas [etc] came from?”

Bingo. Those “extremists” — and this is the point that Bush-Cheney ALWAYS mask — are people, and they come from populations. Populations revolt when life becomes untenable. 

BTW, it is beside the point to accuse Bush-Cheney of being the “extremists,” and false to call them “radical” — a term meaning etymologically rooted, to the root, fundamental. That’s the last thing they are. They’re a cabal. This is the geopolitics of corruption and cabal at work, aggrandizing violence by every feasible means (not too overt) and at every level.

Re that last point: 1) Bill Kristol calls for war with Iran in today’s Weekly Standard, the paid-propaganda organ of the neocons; Fareed Zakharia made a good point dismissing the editorial, and even George F. Will demurred. 2) Weapons used in some horrific shootings in D.C. last week were brought back from Iraq and sold here at home. There will be more of that, to be sure, if this administration has its way.

Right now the president and Mrs. Bush are traveling around the country trying to sound nice. But there is only too much reason to fear that when fall 2006 elections are safely past, the administration will manage to achieve the major it wants against Iran, either directly or through Israel.

Meanwhile, the untruthful Condoleezza Rice, Laura Bush and Lynne Cheney have helped to bring about the deaths of thousands of little girls in Iraq. They support a foreign policy that is itself war crime — the immoral, illegal and unconstitutional invasion and occupation of another country.

Miraculous timing of the skyjackers, Part 3 – getting the right seats on 4 planes

Aside from other factors, one that surely worked to the advantage of the 9/11 hijackers was that each of the four flights they caught on that fateful day was carrying significantly less than a full passenger load. Again we have what appears to be little short of a miraculous concatenation of timing and other circumstances:

 

Since the four planes, like the World Trade Center, were mercifully not full to capacity, casualties ultimately proved less than they might otherwise have. On the other hand, the hijackers also had fewer passengers to overpower or keep under control, and there was less passenger weight to use up fuel. Magically, the flight that carried four hijackers rather than five — United Airlines flight 93

Tiers of hijackers for day of tears

Continuing from previous blogs . . . One thing the 9/11 Commission incontestably got right is that the 9/11 skyjackers were a team comprising more than one tier. The 19 men who hijacked four U.S. jumbo jets in three U.S. airports had varying degrees of expertise and in several instances lacked expertise in, for example, aviation or engineering; they entered the U.S. at several different times; and they showed different degrees of commitment.

 

They had different degrees of knowledge about the suicide mission they were engaged in. This is the point I keep coming back to, over and over again.

 

They were also incontestably linked, some entering the country in pairs and several living together or in the same areas

Demolitions were neither necessary nor sufficient to bring down the World Trade Center

Demolitions were neither necessary nor sufficient to bring down the World Trade Center

 

The main beneficiary of erroneous stories about 9/11 is George W. Bush–as this administration clearly recognizes, since it has resisted at every step of the way every investigation of every aspect of the plotting behind the attacks.

Former National Security Adviser Condoleezza Rice

It has not resisted–if you notice–the circulation of obviously bogus narratives, the assertion that no plane hit the Pentagon or that the World Trade Center was brought down by demolitions. Disinformation and misinformation discredit and impede genuine investigating. Without going at this point into whether some “conspiracy theorists” may be getting a little quiet help from people close to the administration, it is still necessary to keep informing the public that there was no good reason for these stories to get off the ground in the first place.

Let’s take the slightly more colorable story of the World Trade Center.

(Note: some of the wilder narratives could be corrected by the release of documents in ongoing litigation about the WTC, but the administration opposes any release. One factor may be that major insurance carriers stand to be affected by the litigation, including the company with which the president’s brother is associated.) A typical assertion is that no fire “from jet fuel” is hot enough to “melt steel.”

HCC

 

Okay, let’s start there. One operable term is the chemical term “thermite,” defined as either the reaction of aluminum and iron oxide, or the combination of two such materials. A thermite reaction produces fires so hot as to be capable of burning almost all building materials and certainly capable of softening steel. That’s why this reaction is used in grenades and why construction workers avoid boring aluminum machinery through rusting steel layers, while morons who think they want to make a bomb at home are eager to experiment with same.

A go-to tech expert provides a layman-comprehensible explanation:

“ . . . Thermite reactions are usually powdered iron (rust? not sure) and powdered aluminum. Piling rusty steel wool in an aluminum pot won’t do. In fact, the fineness of the powder determines how fast the reaction goes (the finer and more thouroughly mixed, the faster and thus hotter.) BTW, this is the same reaction in disposable hand-warmers available for a buck each at your local outdoors store (coarse powder hence slow reaction hence warm hands not pants on fire.)

. . . I think the conventional wisdom (per engineering studies released about a year after the disaster) is correct (as far as anyone knows) and goes like this:

Building fires traditionally burn hotter than 900 F, which is roughly the temperature that steel softens. (It’s not necessary that the framework melt, just that it start to droop.) This is true in wood structure fires and in most offices, since almost everything in an office burns (carpets, paneling, laminates, paper etc; not sheetrock, glass, steel cabinets, etc). Of course adding an almost-full load of kerosene (which is basically what jet fuel is) makes a faster & hotter fire.

Structural steel is ALWAYS insulated to increase the time before it starts to droop. This increases the chance of (a) extinguishing the fire or (b) evacuating occupants before structural failure. I’m sure you’re aware of published rumors that the insulation was inadequate, due to crooked inspections during construction. That seems unlikely to me; life safety issues aren’t nearly as malleable as other codes, but it is New York: go figure.

In any case, the insulation only slows the heat flow (rate of heating), and if a hot fire is continued long enough the steel will lose its structural integrity. The process that apparently no one anticipated (designers, fire consultants, bin laden, tom clancy) was the so-called “pancaking”, that is, after the first few floors collapsed, the whole mass of rubble fell ten to twelve feet, and had enough momentum when it hit the next floor that the floor structure (poured concrete on steel pans attached to the central and peripheral pillars) stripped away from the supporting pillars, and added to the downard mass. (The internal pillars also crumpled due to uneven stresses as the whole mess fell.) I’ve seen videos, supposedly at real-time speed, in which the mass of rubble was not in free-fall, but was hesitating a moment at each floor; the apparent time for each floor to collapse was remarkably similar for the different floors on the way down.

. . . The fact it took a half hour or so for each building to collapse argues against explosives as a cause. The terrorists were just trying to burn up a few floors, and got an outcome far beyond their wildest dreams.

. . . Please continue to pound the neocon reich. How can the sane republicans be encouraged, against the elephantine herd instinct, to support fiscal responsibility, limited government, the rule of law instead of the Fuererprinzip, etc? That’s where political bogs should be going – uniting right-minded Americans from both sides of the aisle in defending our heritage of freedon. (Cue the Sousa, fireworks, angel chorus)

Happy Independence Day!  God Bless America!”

Two quick comments here, to highlight.

One:

As the informant recaps with clarity, it is not necessary for steel to “melt” to collapse. Softening and bending would suffice. We’re talking about skyscrapers.

Two:

This informant, like experts including Professor Astaneh at the University of California, surmises that the tiered team of skyjackers may well not have predicted accurately.

Possibly they thought they would topple the towers, Babel-like, onto the U.S. Stock Market, a magnified real-life enactment of old B-movie posters of biblical destruction.

However, it seems likely that at least some of their backers knew better–including whoever timed the attacks, before the towers were fully loaded up with employees for the day. (‘Controlled’ yes, in some sense; ‘demolitions’ no.) It might be added that indications of thermite reactions were indeed found in the debris; it would have been impossible to bore a 757 into a steel-laden skyscraper without producing thermite reactions. Presumably more would have been found, but Mayor Giuliani, Gov. Pataki, and Bernard Kerik marshaled a precipitant disposal of the World Trade Center materials possibly including the ‘black boxes’ from the two planes.

Giuliani

Note to journalists at the New York Times and elsewhere: current attacks on the New York Times are not attacks on revealing information; they’re attacks on information. This White House is not opposed to leaks; it is opposed to investigation. But the story of White House ‘supervision’ of financial surveillance via a major contractor and lobbying firm, Booz Allen Hamilton, has to wait. For now, it is important to point out that this White House also benefits from ignorance that cannot distinguish between a chemical reaction and a ‘bomb.’

 

[This article, deleted by the system among hundreds of articles and blog posts in summer 2011, is re-posted using archives and Word files.]