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Archive for the ‘Merger Review’ Category

As the credit market continues to flush out Wall Street driven excesses, perhaps it is also a good time for the Federal Reserve to address a looming crisis of confidence with respect to money market accounts, beginning with Charles Schwab’s “government security money market.”

Most investors in the Schwab Government Money Market actually believe they are investing directly in government backed securities yet that is simply not true. In its September 30, 2007 summary of holdings Schwab disclosed that 74 percent of this fund was invested in commercial paper at major banks, including Morgan Stanley and others who are central figures in the unfolding subprime debacle. You say, impossible? Here is a an overall snapshot pictured below. Such investments are listed as “other.”

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Today, in its monthly meeting, the Oregon Investment Council, which manages Oregon’s $70 billion in PERS and related public assets, continued its commitment to leveraged buyouts by private equity firms, this time in Europe as it provided $500 million to KKR and $300 million to CVC European Equity Partners. Now at 13 percent of total assets, its stated goal is that 16 percent of assets be dedicated to private equity.

oicmeetcvcdec07.jpg

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Today Bloomberg followed up on what could be the first in a wave of public and private “bank runs” here in the U.S. Remarkably, investors today still don’t appreciate the difference between high quality money market accounts and those with derivatives. Even more remarkable are the number of such derivative invested funds in 401k and other retirement plans. Let’s be honest, these investments are not about higher returns but rather simply higher fees.Parish & Company recommends investing only in derivative free monehy market funds composed of exclusively government backed securities.

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The following article in the WSJ makes no mention of Institutional Shareholder Services nor its parent, Riskmetrics, pending IPO.

“Cox, in denying access, puts his SEC legacy on the line,” Wall Street Journal, by Karen Scannell, November 29, 2007

This whole debate over prohibiting shareholders to separately forward director nominees is simply a ruse for hedge fund and private equity firms designed to takeover more and more publicly traded firms under the guise of good corporate governance. Cox did the right thing in rejecting this attempt. Far too many good companies, including Willamette Indusries of Portland, Oregon, have been destroyed by so called “shareholder initiatives” that change the composition of a companies board of directors in order to forward a merger.

Organizations cited in the article, including the Institutional Council of Investors, have a shameful record with respect to corporate governance and have no credibility. If they did, they would be agressively fighting the pending IPO of RiskMetrics.

Clearly, changes need to be made yet now is not the time given that hedge and private equity firms are not currently required to register with the Commission. As “The Investors Advocate” the SEC’s goal should always be increased transparency, not simply greasing the wheels for companies who disclose nothing to conduct predatory based mergers.

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Today it was announced that a Dubai firm will invest $7.5 billion in Citigroup notes and be paid 11 percent interest, on top of being able to convert the stake to equity in the future. Clearly, these terms indicate how desperate Citigroup has become and should be a wake up call to depositors with large uninsured money market balances at Solomon Smith Barney and other related subsidiaries.

The two primary architects of this debacle are Robert Rubin, Vice Chair of Citigroup, and former Secretary of the Treasury, known in the investment industry as the “Godfather of Hedge Funds” and Sandy Weill, former CEO of Citigroup who made a cool $1 billion in stock options in a single year. Weill, still a “senior advisor” to Citigroup, pictured below, and Rubin both wrote notable books. Rubin was also the primary architect of the deregulation of financial services in 1998, of which Citigroup was the biggest beneficiary. It would seem preposterous to make something this ridiculous up.

Rubin and Weill

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Today a leading European financial publication based in the UK, Financial News, published a story regarding RiskMetrics IPO now being reviewed by the SEC. Riskmetrics primary clients are hedge and private equity firms, for which they construct math driven models resulting in many of the derivative based investments that are now destabilizing the financial industry. The article is titled “Corporate Governance: who is guarding the guardians.”

Christopher Cox with President Bush

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Just as Enron manipulated the power grid to create artificial profits, a private equity firm, Fortress, is now attempting the same game with key railroad infrastructure in the State of Oregon, and using Oregon Public Pension assets to do it. Oregon PERS invested an additional $125 million in Fortress in May 2007 (select May 2007 minutes), on top of $425 million already invested. Here are the details.

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