In contrast, the sponsor of the Idaho bill, Republican Phil Hart, seems to be marshalling wide support by crafting legislation that is straight out industrial policy aimed at boosting Idaho's silver industry. The text of the bill is quite clear.

The intent of this act is to use the abundant silver resources of the state of Idaho to create a means whereby the people of Idaho can pay their taxes to the state using silver mined from the ground of Idaho, processed in Idaho and finally minted into a medallion in Idaho. It is the intent of the Legislature to create mining jobs in Idaho while giving the people of Idaho a means to store their wealth in a precious metal that is immune from the effects of inflation while complying with the mandates of our federal Constitution.

The Idaho bill therefore incorporates tax incentives for silver processors located in Idaho.

From The Idaho Reporter:

That, Hart believes, could bring hundreds, if not thousands of jobs to the state. In conjunction with the creation of the medallion, Hart's bill would also try to lure silver processing companies to Idaho, and in particular, north Idaho, which, according to Hart, was once called "the silver capital of the world." The bill would give companies that come to Idaho to process silver for the medallion a 10-year exemption from income taxes, as well as property taxes. The exemption would be open for 20 years and would sunset after that period of time.

Hart believes one of the advantages of silver is that it would resist inflationary pressure better than paper money. But since states aren't allowed to mint their own money, the value of the silver medallion will have to fluctuate according to market forces. In just the last ten years, the value of an ounce of silver has zig-zagged between four and twenty dollars.

One section likely to be of great interest to both the banking industry and its critics starts on page 492 of the "Restoring American Financial Stability Act of 2010": Title VII, "Improvement to Regulation of Over-the-Counter Derivatives. "

I'm working my way through it, but I was caught up short right at the start. In Subtitle A: "Regulation of Swap Markets," Section 711: "Definitions," part (a): "Amendments to Definitions in the Commodity Exchange Act," sub-section (2), the Act provides a five part definition of what kinds of derivatives are considered "swaps." Part three is characterized by a certain mad financial poetry.

...[T] he term 'swap' means any agreement, contract, or transaction that --

(iii) provides on an executory basis for the exchange, on a fixed or contingent basis, of one or more payments based on the value or level of one or more interest or other rates, currencies, commodities, securities, instruments of indebtedness, indices, quantitative measures, or other financial or economic interests or property of any kind, or any interest therein or based on the value thereof, and that transfers, as between the parties to the transaction, in whole or in part, the financial risk associated with a future change in any such value or level without also conveying a current or future direct or indirect ownership interest in an asset (including any enterprise or investment pool) or liability that incorporates the financial risk so transferred, including any agreement, contract, or transaction commonly known as an interest rate swap, a rate floor, rate cap, rate collar, cross-currency rate swap, basis swap, currency swap, total return swap, equity index swap, equity swap, debt index swap, debt swap, credit spread, credit default swap, credit swap, weather swap, energy swap, metal swap, agricultural swap, emissions swap, or commodity swap.

Whew. I needed a long break just after reading that one sentence, and it was only one part of a definition. How long do you think it will be before the members of the Senate Banking Committee are all fully up to speed on the implications of every new rule in the entire Act?

And B: Lumberton Trading Company is an unwitting subject of a "phishing" scam e-mail sent out to millions of people over this past weekend, purportedly by the lawfirm Crosby & Higgins:

March 12, 2010

Crosby & Higgins

350 Broadway, Suite 300

New York, NY 10013

To Whom It May Concern:

Enclosed is a copy of the lawsuit that I filed against you in court on March 11, 2010. Currently the Pretrail Conference is scheduled for April 10th, 2010 at 9:30 A.M. in courtroom #33. The case number is 3485934. The reason the lawsuit was filed was due to a completely inadequate response from your company for copyright infrigement that our client Lumberton Trading Company is a victim of. Lumberton Trading Company has proof of multiple Copyright Law violations that they wish to present in court on April 10th, 2010.

Sincerely,

Mark R. Crosby

The e-mail has two glaring spelling errors, doesn't mention what court the lawsuit has been filed in, and April 10 happens to be a Saturday, so even without doing any additional research the warning signs were pretty clear. Click no further! The chances that the attached document contain a virus or other nasty beastie are extremely high! Nonetheless, any mention of legal action always makes me look twice -- maybe one of my kids had downloaded something they shouldn't have and the record companies were after my ass? -- so I Googled the name in question. I promptly discovered a link to the music label and swarms of posts by people who had received the same e-mail and were looking for some evidence of its bogus-ness. Confirmed in my initial suspicion, I deleted the e-mail and thought no more about it.

But 48 hours later, I noticed that "Lumberton Trading Company" had shot up the "Hot Search" rankings, and realized the phishing scam must have been massive. But interestingly, when I Googled the phrase on Monday morning, aside from one link to the Lumberton Trading Company Web site, the vast majority of remaining search results provided no useful information at all -- they appeared to be automatically generated Web pages that did little more than incorporate the name "Lumberton Trading Company" -- typical garbage keyed to whatever people are searching for, in near real-time. Only after I tried searching for "lumberton trading company lawsuit" did I find, at the bottom of the first page, a link devoted to the question of whether this was a spam, and pretty good evidence, in the form of a comment from the law firm in question, that it was.

Crosby Higgins LLP said...

Thank you everyone for passing on this information. The e-mail referenced above is a fraudulent spoofing e-mail created to give the impression that it was sent from our law firm -- it was not. The e-mail is completely bogus and contains a malicious virus in the attachment. Fortunately, most of the feedback I have received indicates that normal antivirus software apparently automatically deletes the infected file. Our IT provider has taken certain additional security precautions to minimize further distribution and we have also notified the appropriate authorities who are investigating origin. Thanks very much for your understanding. If you have any questions please feel free to contact me directly through our website.

Thanks very much.

Todd A. Higgins, Esq.
Managing Partner
Crosby & Higgins LLP

If you go to the Crosby & Higgins Web site you will be redirected to a page also disavowing the "fraudulent e-mail."

By tomorrow, I'm guessing that Google's search algorithms will have pushed the pages that identify the e-mail as a spam to the top of the rankings. But at this juncture we exist in an uncomfortable moment of search uncertainty as a host of automated Web page creation engines, triggered by whatever phrase people are currently searching on, attempt to capture Web traffic from suspicious people like me, who learned long ago to google before you click.

How long before we see the next step in this bizarre info-ecosystem evolution? A new startup or upcoming artist -- or anyone looking for publicity -- stage-manages a fake phishing scam just to impel people to go a-googling -- on purpose? Millions of people are now learning who the real Lumberton Trading Company is. Presumably the label is not responsible -- it would be suicidal to actually infect computers with a malicious virus. But if you were careful, and kept your hands clean...

UPDATE: Two hours later, "Lumberton Trading Company" is no longer a top ten Hot Search, but "Crosby Higgins" is. Go figure.

The New York Times has a good synopsis here. The nut: In an effort to hide how badly its financial situation was deteriorating, Lehman moved billions of dollars of dodgy real estate-backed securities off its balance sheet via maneuvers known as "Repo 105" and "Repo 108" transactions that were clearly bogus.

...[T]he Examiner concludes that a fact finder could find that Lehman's failure to disclose its use of Repo 105 transactions to impact its balance sheet at a time when both the market and senior Lehman management were keenly focused on the reduction of Lehman's firm-wide net leverage and balance sheet, and particularly in light of the specific volumes at which Lehman undertook Repo 105 transactions at quarter-end in fourth quarter 2007, first quarter 2008, and second quarter 2008, materially misrepresented Lehman's true financial condition.

...The Examiner concludes that there is sufficient evidence to support a colorable claim that: (1) certain of Lehman's officers breached their fiduciary duties by exposing Lehman to potential liability for filing materially misleading periodic reports and (2) Ernst & Young, the firm's outside auditor, was professionally negligent in allowing those reports to go unchallenged. The Examiner concludes that colorable claims of breach of fiduciary duty exist against Richard Fuld, Chris O'Meara, Erin Callan, and Ian Lowitt, and that a colorable claim of professional malpractice exists against Ernst & Young.

The emphases are all mine. A "colorable claim" means, in this context, likely to be provable at trial. No question, these are fighting words, and they suggest that civil law suits against Lehman's execs are going to keep the likes of Lehman CEO Dick Fuld in court for a long, long time to come.

In the ex post facto analysis of the crisis, one commonly hears that the decision not to bailout Lehman was a mistake -- that by failing to come to the rescue of the bank, the government precipitated the next fearsome stage of financial sector disintegration. But when you put together the picture that has emerged through the course of numerous books and congressional hearings, and reports such as the one referenced here, it seems pretty clear that Lehman deserved to fail. Could the process have been managed better? Absolutely. But Lehman's woes were also largely of its own making.

I remember watching Dick Fuld appear before a Congressional hearing in October 2008. At one point, Fuld was asked flat out: Why was Lehman allowed to fail and AIG bailed out? In a moment of great drama, he furrowed his Olympian brow and said "until the day they put me in the ground, I will wonder.'

But it's not that complicated. Lots of people knew that Lehman was playing games with its numbers, even if they didn't know exactly <i>how.</i> What they didn't know was the chain reaction that Lehman's catastrophic failure would cause. And Dick Fuld, who was signing off on bogus quarterly statements, has no right to be aggrieved, not after pocketing hundreds of millions even as his company imploded -- much of which, we hope, will be squandered in an unsuccessful legal defense.

Barry Ritholtz was one of the Wall Street watchers calling bullshit on Lehman at exactly the time when the bank was cooking the books, and he was ridiculed by name for it on CNBC. Ritholtz seized upon the release of the new report as an opportunity to settle some old scores. The video is instructive if only to remind us how complicit the financial press was in the whole charade.

A review of the historical record also shows that she took a more negative view of the economy than Bernanke in the runup to the Great Recession. Back in 2006, when Alan Greenspan was opining that the worst was over in the housing sector, she was warning that the worst was yet to come. She was right.

Obama has been getting some flak for not moving more quickly to fill three current vacancies on the Federal Reserve Board. But the Journal also reports that the administration has settled on two other nominees, and may introduce them together as a package deal.

Taken together, (and provided Obama's nominees make it through the Senate confirmation process,) the administration's choices could be hugely influential going forward. No matter what kind of financial regulatory reform finally emerges from Congress, the inclinations and predispositions of the actual human beings serving in positions of regulatory oversight will be enormously important. For far too long, the Fed has ignored or downplayed its responsibility to focus on combating unemployment. With Janet Yellen in a position of greater power to influence policy, and with new troops to back her up, the Fed could be a different animal altogether, for years to come.

Sound familiar? Just one month ago, Dodd announced that bipartisan talks were at an "impasse" and Democrats would go it alone. Back then, Alabama Republican Sen. Richard Shelby played the role of recalcitrant GOPer. But then, a few days later, word trickled out that Dodd had started negotiating with Corker.

Who's next?

Handicapping the fate of financial regulatory reform at this juncture seems nearly impossible, even for veteran Senate watchers. But there are a few things we know for sure. The bill gets weaker the further it progresses, and it is nowhere near as strong as the bill passed by Barney Frank in the House last December. In fact, according to ace financial regulation analyst Mike Rorty, the evolving Senate bill is beginning to look a lot like a proposed House GOP bill that never made it to the floor.

Corker, reports the Times, said he was "very disappointed" and that Dodd's gambit is likely an attempt to cover his left flank.

"I think what Chairman Dodd is going to do probably is introduce a bill on Monday that is a little to the left of where we were, to try to ensure that he can do as much as he can in the way of getting Democratic support on the committee. And then I think he will move to the right."

Let's try defining "moving to the right": Weakening the Consumer Financial Protection Agency as much as possible, avoiding tough derivatives regulation, and not coming anywhere close to prohibiting banks from the kind of risky bets that precipitated the financial crisis.

The conventional wisdom parrots Corker's position, since the Democrats only control 59 votes in the Senate and thus cannot beat a filibuster. Comparisons with the plight of healthcare reform abound.

But those comparisons are not valid. Whether you blame Republican obfuscation or Democratic compromises with the health industry, the public's attitude toward passing healthcare reform is highly ambivalent. Not so with Wall Street. Senate Democrats have a golden opportunity to put together a solid bill and then force Republicans to filibuster against it, thus placing the GOP in the clear position of defending the interests of the financial industry against the interests of the general public. It would be nice to think that Dodd is finally realizing this. But after watching his zigs and zags over the past few months, during which reform has only become more watered down, it's difficult to feel confident that finally, somehow, the Dems are willing and ready to make a stand.

But let's see what happens Monday.