Now raising intellectual capital

Death of lawyer raises new questions in Russian scandal

You might think that the scandal involving Hermitage Capital in Russia couldn’t get any more perturbing. If you have been following the case, you’ll be aware that the British investment fund, managed by American-born financier William Browder, has repeatedly accused Russian criminals and corrupt officials of stealing $230 million in funds from the Russian budget.


Now there are more serious questions for the Russian authorities. Today the Russian Interior Ministry revealed that Sergei Magnitsky, a lawyer acting for Hermitage who was arrested a year ago, has died in prison at the age of 37. They say that he died from “toxic shock and a heart attack”.


Over recent weeks Hermitage has complained that Magnitsky was kept in inhumane conditions and denied medical treatment despite deteriorating health. A copy of an official complaint by Magnitsky, submitted in September, was published by Hermitage immediately after his death. The Interior Ministry, however, stated today that Magnitsky had never complained about his health.


The news of Magnitsky’s death is a personal shock, because I met with him just a few weeks before his arrest last year. I was working on a Business Week story about suspicious financial dealings at two Russian companies, which had extraordinary similarities with the case publicized by Hermitage. Magnitsky was helpful but declined to comment for my story, citing fears for his personal safety.

Barofsky audit a Fed, not Geithner, problem

Sure, Timothy Geithner led the negotiations with AIG counterparties when he headed the New York Fed last year, but TARP special inspector Neil Barofsky’s audit is damning where it really hurts the Fed. It raises the question of whether the central bank is a tough enough regulator at a time when Senator Christopher Dodd is calling for the Fed to be stripped of such power over big banks.

Big Picture has posted the report in its entirety.

It’s one thing to be a bad regulator during the boom years when, let’s face it, there were bad regulators everywhere. But to shrink from tough negotiations with banks during the height of the crisis when those banks were already benefiting from billion of dollars in state aid will be harder to explain away, though the New York Fed has tried.

from Rolfe Winkler:

Whitney: “I haven’t been this bearish in a year”

Bartiromo asks some good questions, including "are banks adequately capitalized today?"

"No way" says Whitney.

She adds: "I don't know what's going on in the market right now 'cuz it makes no sense to me." The fundamentals aren't there.

The drought is (kind of) over!


After months of buildup, Developers Diversified Realty Corp finally sells the first commercial real estate bond in more than a year. At $400 million, it’s hardly a dramatic debut, but it’s a significant first for one of the few markets still jammed since the financial crisis.

From Reuters:

Met with strong investor interest, Developers Diversified was able to price the deal below existing levels for the CMBS issues. Its $323 million AAA-rated five-year notes came at a narrower 1.4 percentage point premium to the five-year interest rate swap benchmark, or a yield of 3.807 percent, market sources said.

from Rolfe Winkler:

NYT editorial: “whistling past the deficit”

This is the Times editorial page on the NY State deficit. Note how fiscally conservative they are when discussing this issue.

New York’s governor could not have spoken more plainly than he did last week before a joint session of the State Legislature. “Quite frankly, we are running out of money,” he said, as he asked members to help cut the budget. The plea has so far gone unanswered, even though, with each week, the fiscal problems get worse....

from Rolfe Winkler:

Morning links 11-16

Taxpayers on hook as some bailed out firms prove frail (Tse, WaPo) TARP investments in CIT and United Commercial bank were recently wiped out (= $2.6 billion). AIG and GM have received tens of billions they'll never be able to pay back. Taxpayers may have purchased a bit of breathing room with TARP, but busted balance sheets will eventually have to be recapitalized anyway, as shareholders are wiped out while certain creditors eat their share of losses.

Bankruptcy rise slows with thaw in lending (Spector/Haywood, WSJ) Great article. The writers emphasize how the supposed "thaw" in lending markets is largely a head fake, that junky companies are being allowed to paper over their problems because the Fed is forcing investors to chase risk.

from Rolfe Winkler:

Weekend links 11-14

Lawyer crashes after life in fast lane (Koppel/Esterl, WSJ) Big Florida ponzi.

Buffett admits: Burlington not cheap (Frye, Bloomberg) Buffett was so eager to deploy his cash that he was willing to overpay for Burlington. What I think may be going on in his head: in a world likely to experience many more bubbles and busts, lots of paper wealth will be wiped out. Not a bad idea to turn cash into tangible assets.

After spending binge, administration says it will focus on deficits (Allen/Vandehei, Politico) Not sure if I believe this. The Senate is already planning a third stimulus dressed up as a "jobs" bill.

from Rolfe Winkler:

Bank failure Friday

IBERIABANK is busy tonight, acquiring $3.1 billion of failed bank assets. The bank also bought nearly $600m of assets from the estate of CapitalSouth Bank of Alabama back in August.

After these transactions, IBERIABANK will have increased its balance sheet nearly 67% since June.

Moving on

All good things must come to an end as they say. Yeah, yeah, it’s a cliche but it’s my last blog post as a columnist and I feel entitled to resort to cliches–especially where it is appropriate. And in this case, it certainly is.

I’ve had a great six-month run as a columnist with Reuters’ Commentary team, but it’s time to move on to something new. But don’t worry, I’m not moving that far–just one flight upstairs at 3 Times Square to the main newsroom at Reuters.

from Rolfe Winkler:

Defining the “extended period”

Another tidbit from Rosenberg, who offers guidance on what the Fed means when it says it will keep rates low for an "extended period"...


The reason — there is a wave of mortgage refinancings coming in the housing market for one, and not only that, but in the commercial space, there are $2.7 trillion of debt coming due through 2011 and another $1.5 trillion of leveraged loans....In other words, the default rate is going to rise even further and the Fed tightening policy would only aggravate that situation. In other words, the Fed is simply immobile for at least the next two years.