Number one? Aubrey K. McClendon of Chesapeake Energy, who made a cool $100,069,201 in 2008. That’s 100 million. I bet he gets his own parking space too.

Number two, at $59,834,630, is Eugene M. Isenberg of Nabors Industries, which I believe manufactures merchandise featuring the picture of fan favorite Jim “Gomer Pyle” Nabors.

Just a hunch, but I’m guessing he thinks they make too much.

Watch it here.

And here is the union’s Executive PayWatch web site, where you can search for your favorite CEO and his compensation by company name, state, and industry.

Enjoy.

The earnest tone of the blog is typified by this comment:

“It’s tragic that fraud perpetrators have to learn critical lessons of life the hard way all the while leaving a wake of suffering victims behind them as they eventually enter a life of misery themselves. Fraud may pay in the short run but it never pays in the long run!”

In a post on the blog New Economic Perspectives, L. Randall Wray, a professor of economics at the University of Missouri-Kansas City, says that as President of the New York Fed, Timothy Geithner had to have known about an accounting gimmick that allowed Lehman to help hide massive debts in the months leading up to its bankruptcy in 2008. The Lehman collapse was one of the immediate triggers of the financial crisis that led up to the Great Recession.

Furthermore, he believes, banks are similarly hiding additional losses that will cause another financial crisis this year.

Timmy-Gate: Did Geithner Help Hide Lehman’s Fraud?

Just when you thought that nothing could stink more than Timothy Geithner’s handling of the AIG bailout, a new report details how Geithner’s New York Fed allowed Lehman Brothers to use an accounting gimmick to hide debt. The report, which runs to 2200 pages, was released by Anton Valukas, the court-appointed examiner. It actually makes the AIG bailout look tame by comparison. It is now crystal clear why Geithner’s Treasury as well as Bernanke’s Fed refuse to allow any light to shine on the massive cover-up underway.

Recall that the New York Fed arranged for AIG to pay one hundred cents on the dollar on bad debts to its counterparties—benefiting Goldman Sachs and a handful of other favored Wall Street firms. The purported reason is that Geithner so feared any negative repercussions resulting from debt write-downs that he wanted Uncle Sam to make sure that Wall Street banks could not lose on bad bets. Now we find that Geithner’s NYFed supported Lehman’s efforts to conceal the extent of its problems. Not only did the NYFed fail to blow the whistle on flagrant accounting tricks, it also helped to hide Lehman’s illiquid assets on the Fed’s balance sheet to make its position look better. Note that the NY Fed had increased its supervision to the point that it was going over Lehman’s books daily; further, it continued to take trash off the books of Lehman right up to the bitter end, helping to perpetuate the fraud that was designed to maintain the pretense that Lehman was not massively insolvent. (see here)

Geithner told Congress that he has never been a regulator. That is a quite honest assessment of his job performance, although it is completely inaccurate as a description of his duties as President of the NYFed. Apparently, Geithner has never met an accounting gimmick that he does not like, if it appears to improve the reported finances of a Wall Street firm…

Geithner has denied that he played any direct role in the AIG bail-out—a somewhat implausible claim given that he was the President of the NYFed and given that this was a monumental and unprecedented action to funnel government funds to AIG’s counterparties. He may try to deny involvement in the Lehman deals. (Again, this is implausible. Lehman executives claimed they “gave full and complete financial information to government agencies”, and that the government never raised significant objections or directed that Lehman take any corrective action. In fairness, the SEC also overlooked any problems at Lehman. But here is what is so astounding about the gimmicks: Lehman used “Repo 105″ to temporarily move liabilities off its balance sheet—essentially pretending to sell them although it promised to immediately buy them back. The abuse was so flagrant that no US law firm would sign off on the practice, fearing that creditors and stockholders would have grounds for lawsuits on the basis that this caused a “material misrepresentation” of Lehman’s financial statements. The court-appointed examiner hired to look into the failure of Lehman found “materially misleading” accounting and “actionable balance sheet manipulation.” But just as Arthur Andersen had signed off on Enron’s scams, Ernst & Young found no problem with Lehman.

In short, this was an Enron-style, go directly to jail and do not pass go, sort of fraud. Lehman’s had been using this trick since 2001. It looked fine to Timmy’s Fed, which extended loans allowing Lehman to flip bad assets onto the Fed’s balance sheet to keep the fraud going.

More generally, this revelation drives home three related points. First, the scandal is on-going and it is huge. President Obama must hold Geithner accountable. He must determine what did Geithner know, and when did he know it. All internal documents and emails related to the AIG bailout and the attempt to keep Lehman afloat need to be released. Further, Obama must ask what has Geithner done to favor his clients on Wall Street? It now looks like even the Fed BOG, not just the NYFed, is involved in the cover-up. It is in the interest of the Obama administration to come clean. It is hard to believe that it does not already have sufficient cause to fire Geithner…

Point number two. Lehman used an innovation, “Repo 105″ to hide debt. The whole Greek debt fiasco was caused by Goldman, et. al., who helped hide government debt. Whether legal or illegal, Wall Street has for many years been producing financial instruments designed to mislead shareholders, creditors, and regulators about the true financial position of its clients. Note that Lehman’s counterparties in this fraud included JP Morgan and Citigroup (who actually precipitated Lehman’s final failure when they finally called in their loans). It always takes at least three to tango: the firm that wants to hide debt, the counterparty that temporarily takes it off their books, and the accounting firm that provides the kiss of approval…

Third point. To the extent that debt is hidden, financial institution balance sheets present an overly rosy picture—of course, that is the purpose of the financial “innovations.” Enron did it; AIG did it; Lehman did it. What about Bank of America, Citi, JP Morgan, Wells Fargo and Goldman? We now know that the New York Fed subjected Lehman to three wimpy “stress tests,” all of which it failed. Timmy’s Fed then allowed Lehman to construct its own sure-to-pass “stress” test. (We know, of course, that the test was absolutely meaningless because, well, Lehman passed the test and then immediately failed spectacularly. Timmy then let the biggest banks run their own stress tests, which they (surprise, surprise) managed to pass.

As our all-time favorite Fed Chairman Alan Greenspan liked to put it, “history shows” that when financial institutions pass their own stress tests, they are actually massively insolvent. There is no reason to believe that this time will be different. Mike Konczal reports that there is every reason to believe the biggest banks are hiding huge losses on second liens. These are second mortgages or home equity loans that amount to about $1 trillion of which almost half are held by the top four banks. Since the first principal of a mortgage is paid first, it is likely that much of the second liens are worthless. Yet banks are carrying these on their books at 86 to 87 percent of face value—which was necessary to allow them to pass the stress tests. Konczal shows that at a more reasonable loss rate of 40% to 60%, the four largest banks would have “an extra $150 billion hole in the balance sheet”. I won’t go into the policy conundrum implied for President Obama’s plan for principal reduction to help homeowners (the banks will not allow renegotiation of underwater mortgages because that would force them to recognize losses on the second liens).

Of greater importance is the recognition that all of the big banks are probably insolvent. Another financial crisis is nearly certain to hit in coming months—probably before summer. The belief that together Geithner and Bernanke have resolved the crisis and that they have put the economy on a path to recovery will be exposed as wishful thinking. In the bigger scheme of things, this is only 1931. We have a long way to go before bank assets (and nonbank debts) are written down sufficiently to allow a real recovery. In other words, a Minsky-Fisher debt deflation is still in the cards.

From the World Bank blog, a post about the Zero Rupee bank note, printed in India and distributed by an anti-corruption organization called 5th Pillar.

Imagine that you are an old lady from a poor household in a town in the outskirts of Chennai city, India. All you have wanted desperately for the last year and a half is to get a title in your name for the land you own, called patta. You need this land title to serve as a collateral for a bank loan you have been hoping to borrow to finance your granddaughter’s college education. But there has been a problem: the Revenue Department official responsible for giving out the patta has been asking you to pay a little fee for this service. That’s right, a bribe. But you are poor (you are officially assessed to be below the poverty line) and you do not have the money he wants. And the most absurd part about the scenario you find yourself in is that this is a public service that should be rendered to you free of charge in the first place. What would you do? You might conclude, as you have done for the last 1-1/2 years, that there isn’t much you can do…but wait, you just heard about a local NGO by the name of 5th Pillar and it just happened to give you a powerful ally: a zero rupee note.

…5th Pillar…has a unique initiative to mobilize citizens to fight corruption. In India, petty corruption is pervasive – people often face situations where they are asked to pay bribes for public services that should be free. 5th Pillar distributes zero rupee notes in the hopes that ordinary Indians can use them as a means to protest demands for bribes by public officials…

…the idea was first conceived by an Indian physics professor at the University of Maryland, who, in his travels around India, realized how widespread bribery was. He came up with the idea of printing zero-denomination notes and handing them out to officials whenever he was asked for kickbacks as a way to show his resistance. (He) took this idea further: to print them en masse, widely publicize them, and give them out to the Indian people…The first batch of 25,000 were met with such demand that 5th Pillar has ended up distributing one million zero-rupee notes to date. Along the way, the organization has collected many stories from people using them to successfully resist engaging in bribery.

One such story was our earlier case about the old lady and her troubles with the Revenue Department official over a land title. Fed up with requests for bribes and equipped with a zero rupee note, the old lady handed the note to the official. He was stunned. Remarkably, the official stood up from his seat, offered her a chair, offered her tea and gave her the title she had been seeking for the last year and a half to obtain without success. Had the zero rupee note reached the old lady sooner, her granddaughter could have started college on schedule and avoided the consequence of delaying her education for two years. In another experience, a corrupt official in a district in Tamil Nadu was so frightened on seeing the zero rupee note that he returned all the bribe money he had collected for establishing a new electricity connection back to the no longer compliant citizen.

…bribery is a crime in India punishable with jail time. Corrupt officials seldom encounter resistance by ordinary people that they become scared when people have the courage to show their zero rupee notes, effectively making a strong statement condemning bribery. In addition, officials want to keep their jobs and are fearful about setting off disciplinary proceedings, not to mention risking going to jail. More importantly…people are willing to stand up against the practice that has become so commonplace because they are no longer afraid: first, they have nothing to lose, and secondly, they know that this initiative is being backed up by an organization—that they are not alone in this fight.

Wonder what Americans would use zero-dollar notes for. Maybe send them to banks that charge onerous fees, telemarketing firms, or political candidates?

Someone should get on this, pronto.

Neil Barofsky, SIGTARP

But this post from The Conglomerate, a blog written by a group of law professors, argues that the Inspector General, Neil Barofsky, may have acted outside his purview with such broad judgments.

Last week, Neil Barofsky, the Special Inspector General of the TARP, released his latest report on the implementation of the TARP program. Most news agencies responded to sound-bite sentences in the report that TARP “had not worked” and that there still was too much risk in the system and that we may be creating a second housing bubble. The report also contained criticisms of the New York Fed’s handling of AIG (they should have been stronger negotiators, among other things), and of executive compensation in general.

…it was a really big report (224 pages), which immediately triggered the question: What is the boundary of the SIG’s authority? Ordinarily, we might expect an Inspector General to conduct audits and investigations around the implementation of agency programs, and to investigate specific allegations of wrongdoing within a particular agency. Does the critique of policy exceed such boundaries?

With regard to the TARP programs, it’s easy enough to envision what we would expect an SIG to do: We want to know how much money is being spent, where it’s going (and whether the beneficiaries are the ones intended by Congress), and whether proper procedures are being used to document where and how the money is being used. We also want to identify those individuals who are abusing TARP programs and/or violating the law so that we can punish and deter future abuses and violations.

But it is not at all clear to me that a Special Inspector General should be weighing in on government policy decisions,much less predicting the housing market or economy’s future. For one thing, the skill-set is wrong. Neil Barofsky was not picked for his expertise and knowledge of financial matters. To the contrary, he was chosen to be the SIG because he was a former prosecutor (full disclosure: we overlapped during our terms at the United States Attorneys Office, but did not know each other well). Prosecutors should be very good at overseeing audits, reviewing internal processes, and investigating fraud. Prosecutors have no reason to be very good at working out the nuances of financial regulation.

Moreover, one has to be worried that we are creating another Eliot Spitzer/Andrew Cuomo-esque culture of prosecutorial celebrity here. Neil is already doing the rounds of business news shows, and New York Magazine has published a couple of short puff pieces admiring the fact that he was such a “bad-ass” (their word, not mine) with criminal defendants (the intended analogy to bankers and Treasury folks is obvious). The upshot, of course, is that the more SIG beats up the government and bankers — and does so with easy to digest soundbites — the more good press he’ll get. Complex analysis and nuanced response, meanwhile, get lost in the shuffle. Moreover, so does the incentive for banks and government agencies to cooperate with each other.

Although I doubt Congress is unhappy about it (Tim Geithner and the banks seem to be everyone’s favorite punching bags these days), the legislation that created the SIG does not seem to support the SIG’s foray into policy. Rather, it simply says that the SIG should: “conduct, supervise and coordinate audits and investigations of the actions undertaken by the Secretary under this Act” and submit quarterly reports to Congress.