the audit

Audit Notes: Magnetar, Comfort the Comfortable, Minimum Wage

November 1, 2010

ProPublica reports that the SEC is investigating a specific JPMorgan deal with the Magnetar hedge fund and whether the bank let the hedge fund pick assets for a CDO a la what Goldman Sachs and Abacus.

Remember, Magnetar was critical because it created fake demand for subprime securities by buying the equity slice when nobody else would do so (and which was necessary to create these securities). That enabled them to make much bigger bets against the CDOs.

One participant in the deal told ProPublica that Magnetar pushed the bankers to select riskier bonds. “They really cared about it,” this person said [11]. “They wouldn’t pull punches. It was always going to be crappier assets.” The hedge fund requested that Squared include slices from other CDOs that Magnetar helped spawn, according to this person.

Weirdly enough, Magnetar specifically denies that it did so, but ProPublica slaps that down, reporting immediately after the hedge fund’s statement that the SEC has emails showing they did.

E-mails that the SEC has obtained in the course of its investigation show Magnetar executives discussing specific assets with bankers from JPMorgan, according to the participant in the transaction. This person, who asked not to be named because of the investigation, reiterated that Magnetar requested that specific assets go into the deal.

The New York Times reports on Fox Business Network and how it has spent an eyebrow-raising amount of time reporting on attacking a California initiatitive that would cut $1.7 billion in corporate welfare in the state.

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Oh yeah, Rupert Murdoch happens to have given lots of money to defeat the proposal. And Fox Business spent five hours live on site at a business flacked to it by the very same group Rupe gave the million bucks to. Nice.

You just have to shake your head at this kind of stuff:

Mr. Magee said “The War on Business” was one of the channel’s weekly themes to focus attention on business issues. Other themes have included “They’re Burning Your Money” and “Is the World Broke?”

He said the network’s tone was not “pro-business” per se, but that it was “making sure that businesses get heard.”

Yeah, dude—business has a real hard time getting its message out. These people are amazing.

— Fox Business will give business its megaphone to protest against raising the minimum wage the next time that issue comes up.

Because if there’s one thing business hates, it’s higher wages—and boy, have the last thirty years been good for them in that respect!

Leave aside the fact that the real minimum wage was higher in 1967 than it is today. Raising the minimum wage will force businesses to not hire as many people as they want to, they’ll say, when the bigger problem, of course, is that it will cut into their profit margins a bit.

Nancy Folbre at the Times‘s Economix blog reports a big new study is coming out that a higher minimum wage found no employment impact—even in counties that abutted lower-minimum-wage counties in other states:

An important new study exploiting this opportunity will appear this month in The Review of Economics and Statistics. The economists Arindrajit Dube of the University of Massachusetts Amherst, T. William Lester of the University of North Carolina at Chapel Hill, and Michael Reich of the University of California, Berkeley, closely analyze employment trends for several categories of low-wage workers over a 16-year period in all counties sharing a common border with a county in another state where minimum wage increases followed a different trajectory.

They report that increases in minimum wages had no negative effects on low-wage employment and successfully increased the income of workers in food services and retail employment, as well as the narrower category of workers in restaurants.

The study successfully addresses a number of criticisms previously leveled at the case-study approach and points to flaws in all previous studies that have found negative employment effects.

Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR’s business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum.