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GMAC, the automobile financing company spun off from General Motors, finally received USD 6 billion from the US Government via the TARP fund. GMAC was able to access the TARP fund by magically turning into a bank holding company (BHC). With this new cash infusion I’m sure the management of GMAC will do everything possible to spend it wisely and not have a repeat of the subprime lending practices in the housing market.

GMAC said in a statement that it would modify its credit criteria to include financing for customers with a credit score of 621 or above, a significant expansion of credit compared with the 700 minimum score put in place two months ago.

DOH…of course this is different from subprime lending! I wonder if people will really be taking out car loans if they know their job is in jeopardy or if the financial crisis gets worse. Since all US taxpayers are on the hook for the USD 6 billion, sucks to see the same thing happening over and over.

As I’ve said before, 2008 was a year to forget.  In 2008, I learned that a “Triple A” rated financial product can go to zero. The financial markets were falling throughout the year but the selling intensified on September 15 when Lehman Brothers filed for bankruptcy. The filing set in motion a massive de-leveraging of various investment vehicles around the world and separated the men from the boys. I must admit my blind faith in the financial system has been shaken. I’ve realized all this talk of due diligence, corporate governance, board of directors, risk committees, auditors, regulatory agencies, etc…is all window dressing. It all sounds great in a marketing pitch or a PowerPoint preso, but in reality it’s just words. Below are several examples showing how severely broken the system is. 

Washington Mutual (WaMu)
WaMu was a bank that had consistently been ranked by Fortune Magazine as one of the best places to work. Their advertising was very consumer friendly and the image they projected was of a cute cuddly dog, but in reality it was anything but. An article from the NY Times over the weekend goes into detail about the subprime lending practices of WaMu and how it was one big scam factory. The following quote sums it up:

“If you were alive, they would give you a loan. Actually, I think if you were dead, they would still give you a loan.”

Steven M. Knobel, a founder of an appraisal company, Mitchell, Maxwell & Jackson, that did business with WaMu until 2007. 

When I was living in Southern California WaMu bank branches were popping up everywhere and I wondered if there was that much money in lending money…I guess so.  I remember several of my neighbors becoming real estate agents because “everyone is doing it.” A neighbors friend was a loan processor and driving a BMW 740iL,  it made me think “what the fu%@ am I doing wrong.” However, it was all a mirage everyone in the chain had a financial incentive to get people into houses.  WaMu shares part of the blame, but the homeowners bear the brunt of the blame.

Bernie Madoff
Bernie Madoff confessed on Dec 11, 2008 that he ran a USD 50 billion ponzi scheme. What is more surprising is that someone named Harry Markopoulos had been tracking Madoff since 1999 calling him a crook.  Yet, no one listened. Some very large fund of funds got caught napping with all their talk of due diligence.  Due diligence is all a sham, I’ve been through the due diligence process at several large investment banks and it starts out with tough talk. But the minute they find out you are distributing your product via another bank they cave because they don’t want to lose customers.  They figure if Bank X is distributing then they should be safe since Bank X is a known entity.  What they don’t realize is maybe Bank X got a sweet heart deal to distribute the product and from there it just snowballs.  Fairfield Greenwich Group  (FGG) was the largest distributor for Madoff’s toxic funds.  If you read their preso (pdf) you almost feel like it’s safer to have your money with FGG then the US Government.  It seems FGG’s Chief Risk Officer Amit Vijayvergiya was eating masala dosa’s during every discussion concerning risk.

Satyam
Lastly, Satyam Computer Services has shown if you own around 8% of a company you can siphon USD 1.2 billion to buy other companies.  To recap, Satyam was started by the Raju family and lately their ownership had come down to 8%. The Raju family decided to take the excess cash at Satyam and buy two construction companies (Maytas Properties and Maytas Infra) as part of a diversification strategy – cement and C++ what a combo. The deal was announced and within 12 hours it was cancelled when everyone but the Raju family and the Board of Directors thought it was a stupid idea. Then the Board of Directors insisted there was proper due diligence and many other construction companies were looked at but Maytas had some sort of special synergy.  And what was that special synergy? The two Maytas companies were started by Raju family members where they own over 30%. 

Over the past few months I’ve realized no one is really looking out for you. After seeing what has happened in 2008 I would never invest in a fund – hedge or mutual without meeting the manager. If they are too big or too busy to meet then most likely our goals are not aligned. As we speak most of my money is in ETF’s.

A bit delayed – Merry Christmas and Happy Holidays to all. I’m sure many of you are ready to put 2008 behind us, it’s been one helluva ride. My recap: financial crisis, home values melting, car sales plummeting, wealth erosion, Beijing olympics, President Elect Obama but most tragic was the Mumbai terror attack on Nov 26. I’m really looking forward to 2009 and hope things get better, but from all the data that is coming out the financial outlook is even gloomier then 2008. My plan for 2009: more vacations, getting in shape and getting back to basics!!

On a side note this is my 300th blog post…thanks again!

Okay, Satyam not only stumbles but it falls flat on its face. Tuesday after the Indian equity markets closed Satyam Computer Services, the 4th largest IT company, decides to acquire two companies as part of a diversification strategy. When I heard about the diversification, I thought maybe it was buying a data center company or some online advertising company. Nope, the Raju family decides to REALLY diversify and get into real estate and infrastructure. If cash is king then Satyam is ruling, they have over USD 1.2 billion in cash so they decide to blow USD 1.3 billion on Maytas Properties and USD 300 million on Maytas Infra. If you are wondering Maytas is Satyam spelled backwards. The problem is that both Maytas entities are Raju family owned companies and they were basically moving the cash from one company to another where they had a larger ownership stake. The most appalling part was on the conference call they mentioned they had a “Big 4″ accounting firm help with the deal but would not reveal the name. Does anyone really still give a damn what a “Big 4″ accounting firm has to say? And when asked about other real estate or infrastructure companies they looked at they again decided not to reveal any names.

Then Wednesday morning, they must have been enlightened because after ALL that due diligence and working with a “Big 4″ accounting firm they decided to call the whole deal off. Then they get on TV and try to justify how just 12 hours ago it seemed like the best thing since sliced bread but now they are all about “shareholder value”. Bottom line, they don’t seem so transparent as a publicly listed company should be.

The irony is that in 2008 they received the Golden Peacock Award for corporate governance. I wonder if they have to return the award like Milli Vanilli gave back their Grammy after their lip sync scam?

The ultimate irony, Satyam means truth in sanskrit, something that is truly missing with the Raju family at the moment.

Why is this guy smiling? Because he just made the Guinness Book of World Records for the largest ponzi scheme in history. Bernie Madoff is the brains guy behind the USD 50 billion scam that has left everyone speechless.  I was out of town when I first heard about it and was furiously checking my phone for updates, it’s like watching a 50 car pile-up…of Ferrari’s…holy fu!#@!!  Where were the auditors, where was the due diligence, where were the ex-traders and most important where was the SEC while all this was going down over the past decade? But the biggest question, who was the guy responsible for randomly generating the monthly performance number?

Rye Select November 2008 performance numbers

Some of the clients who are getting lumps of coal in their stockings for Christmas

Hey kids, I just upgraded my blog to WordPress 2.7. You most likely won’t notice anything different as most of the changes are under the hood. In a massive bonehead move, I was planning to upgrade my other lesser used blogs to see how the new version performs before upgrading this one, but I was trying to multi-task and ended up FTP’ing to this site…doh. So far everything seems to be working great and I would highly recommend upgrading ANY blogging software to WordPress 2.7. Over the next couple of weeks I’ll be adding some cool plug-in’s such as a new comment engine from IntenseDebate and if that’s not enough I’m also going to change the overall look and feel towards the beginning of the year.

Business Week has a pretty good story on how the Mumbai terror attacks might affect business in India.  I’ve said for the past one year that India has a window of 12-24 months to get it’s act together to show the world it has arrived, my comments were more along the lines of corporate governance and the financial arena. But now, I think India has a very long road ahead and must address many things. The biggest issue on it’s plate is low expectations. People have no or low expectations of their government, hospitals, police, etc…people need to change their mindset.  I’ve outlined some of the bigger issues that need to be addressed, these are not 6 month blue ribbon committee type things, but structural changes in the mindset of Indians.

• Pakistan – This issue is front and center right now and will need to be addressed before anything else can really happen.  Based on the media reports it seems Pakistan bares some blame. Whether it’s going in for surgical strikes or all out war, something needs to be done. 
• Politics – Honest governance is required and this requires more people getting involved in the process and not just sitting back and watching.
• Corruption – Let’s be honest this is India’s cancer.  I’ve heard that 50-80% of all money is lost to “leakage” – aka corruption. Accountability and transparency can help bring this number down.
• Economy – The so called USD 5 billion stimulus package announced over the weekend is a joke. Spain is talking USD 150 billion, China is talking USD 586 billion and the US is looking at something approaching USD 1 trillion.

Who would have thought after 60 hours of terror in Bombay we would be laughing so soon.  One of the most popular Indian TV shows is The Great Indian Laughter Challenge, however that show is nothing compared to the statements being made by our caring and affectionate government leaders.  The laughter you hear is because most people are laughing in pain at the mockery these elected officials are making of this massacre.  Anyway, let’s go through some of their sound bites:

“If it had not been Sandeep’s (slain NSG commando) house, not even a dog would have glanced that way”

V.S. Achuthanandan, Chief Minister of Kerala (pic shown), was quoted after the father of the slain NSG commando told the minister to take a hike. This would be the equivalent of California Governor Schwarzenegger telling a firefighter’s father to get lost.

“I was on an official visit to find out for myself the damage caused to the hotel. It was a sheer coincidence that producer Ram Gopal Verma was also present”

V. Deshmukh, Chief Minister of Maharashtra, was quoted after protests over his actor son Ritesh and director Ram Gopal Verma toured the Taj Palace with him. Imagine if George Bush had Tom Cruise and Steven Spielberg visit ground zero within hours of the 9/11 attack.

“The odd incident does happen in a big city like Mumbai”

R.R. Patil, Home Minister of Maharashtra, was quoted as the attack was occurring. Maybe, but these “odd incidents” don’t usually last 60 frikken’ hours due to government stupidity.

“These are just a few women wearing lipstick and powder taking to the streets”

M.A. Naqvi, BJP Leader, was quoted as saying when talking about citizens protesting. Fair enough, maybe this guy REALLY doesn’t like lipstick and powder.

The larger issue is that most of them are still sticking by their quotes because they don’t see anything wrong with their statements. In fact, many have said their words were incorrectly translated from their mother tongue to English. This is India baby!…where the world knows about “India Shining” but internally we are “India Crying.”

There are some people that are slowly getting back to their routine after the massacre and thinking there is not much they can change. But, many people are shocked and horrified at how the government has addressed the massacre during and after the attacks and want to do something. For me lighting a candle is something you should do when there is a power outage, instead I rather focus on actionable items and have the government get out of their comfort zone. Their comfort zone is a 20 car entourage on Marine Drive and everyone gets out of the way, so if you light candles and have a sit-in on Marine Drive and Mantralaya that would be a much better idea because you are now forcing them to take notice.

Me personally, I’ve been busy putting my thoughts together and will soon approach several large media houses – traditional print media and digital content providers. The overall theme is that we need to have a daily status report front and center on what is happening on a day to day basis in regards to the massacre. But that is only half of it, the other piece is having people such as yourself able to share information and keeping the government honest via collaborative technology. One of the tools we’ll be using is the government’s own Right To Information (RTI) website. Once we get the green light and the basics are in place, I’ll let you know via my blog how you can affect change.

Do I think it will work? Only time will tell, my only fear is that people in South Bombay have always had some what of an elitist attitude and this might be just another example – “MY friends got affected thus the entire nation should give a damn.” Let’s pray people all over India feel violated like the victims in the massacre and want change.

P.S. You might have noticed a new tag/label I’ve been using – WTF. It’s because every time I think of the Mumbai Massacre, I think to myself “What The Fu!@#$.”

The Indian economic situation is so bad that even Chief Ministers are losing their jobs. Vilasrao Deshmukh is rumored to be getting his pink slip from the central government any moment. Between going to every film award ceremony and giving hotel tours to movie directors, it became painfully clear to the central government that his hectic social calendar was getting in the way.  The government is looking at several candidates to replace him, I hope they use a new vetting process to select these most critical positions.  Here is my list of required questions I would ask and every media person should demand be answered:

1. Name
2. Education (If you mention Harvard it better be a 2 or 4 year degree, none of those lame-ass 3 week programs. Bonus points for an IIT/IIM grad)
3. Previous Job
4. What is your cell phone number/e-mail address
5. How much did you earn last year?
6. What is your attitude towards bribery and corruption
7. Have you ever committed a crime, if so describe
8. What will your first 100 days look like (since sh@#$ is slow in India, I’ll give you 200 days)
9. What are your top 5 areas you will focus on
10. What has been your biggest accomplishment?
11. What has been your biggest failure and what did you learn from it?
12. How large of a car entourage/security detail will you require and why?  (Most US Governors have 2 cars or is India so unsafe you need more)

I know many of you were hoping that this blog entry would talk about what I’m planning on doing for change, but I had to put together a list of questions when I heard CM Deshmukh might resign. I promise the next blog entry will be about what I’m planning to do.

Boston.com has a section called the Big Picture and they have some amazing pics from the Massacre: Set 1 | Set 2