Friday, April 23, 2010

While the Banks were Diddling the Public, The SEC was.....

Yesterday I mentioned that 'It is not lack of regulation--it is the failure of regulators to do their jobs properly that is the problem. If regulators are not able to carry out their duties under the current regulatory system--another layer of bureaucratic entanglements will not remedy the problem that has become pervasive in our society.'

A new report from ABC News suggests that while the markets were crashing in 2008 SEC officials were busy attending to their own vices. I also stated that' until corporations and governments embrace and promote the cultivation of moral character in both private sector leadership and regulatory bodies nothing will be solved in eradicating the self-destructive behavior demonstrated by so many individuals and groups in contemporary society.'

Thursday, April 22, 2010

Further Reform is NOT What We Need

The battle cry for further reform echoes through the corridors of finance and the committee rooms of government bureaucracies.
Not enough Regulation? GIVE YOUR HEAD A SHAKE.

Enron et al, Madoff, Robert Stanford, AIG, Bernie Ebbers, AIG, Lehman, Goldman: all were in the headlights of various regulatory bodies for extensive periods of time before being indicted by the various regulatory bodies. It is not lack of regulation--it is the failure of regulators to do their jobs properly that is the problem. If regulators are not able to carry out their duties under the current regulatory system--another layer of bureaucratic entanglements will not remedy the problem that has become pervasive in our society.
Indeed, financial reform is needed, but is needed to update a system that has not undergone any substantive changes since The New Deal. Much has changed since the 1930s although the root of the problem has not: A lack of moral character exhibited by many individuals in positions of power.
Regulation is a poor replacement for morality but it is the only tool that can be used to maintain a semblance of honesty, accountability and transparency in the financial system. Until corporations and governments embrace and promote the cultivation of moral character in both private sector leadership and regulatory bodies nothing will be solved in eradicating the self-destructive behavior demonstrated by so many individuals and groups in contemporary society.
Morality is what is missing not regulation. They are not the same thing--regulation is merely a somewhat inferior substitute of the former.

Here is a partial list of US Financial and Regulatory Agencies

Commodities Futures Trading Commission (CFTC)

Federal Deposit Insurance Corporation (FDIC)

Federal Reserve Board

Office of the Comptroller of the Currency (OCC)

Office of Thrift Supervision (OTS)

Security & Exchange Commission (SEC)

The problem currently encountered on Wall Street have been faced previously--and have been dealt with in an effective manner. Below is William K. Black's testimony to Congress with regard to the Lehman debacle.




Wednesday, April 21, 2010

Bill Moyers Journal . Watch & Listen | PBS

Bill Moyers Journal . Watch & Listen | PBS

How did Big Finance grow so powerful that its hijinks nearly brought down the global economy – and what hope is there for real reform with Washington politicians on Wall Street's payroll? Bill Moyers talks with authors Simon Johnson and James Kwak, two of the nation's most respected economic experts and authors of the new book 13 BANKERS: THE WALL STREET TAKEOVER AND THE NEXT FINANCIAL MELTDOWN.

Friday, April 16, 2010

IMAGINE THAT: SEC Sues Goldman Sachs

April 16 (Bloomberg) -- The U.S. Securities and Exchange Commission today charged Goldman Sachs Group Inc., accusing the company and one of its vice presidents of defrauding investors by misstating and omitting key facts about a financial product tied to subprime mortgages.

The SEC announced the case in an e-mail release.

Washington, D.C., April 16, 2010 -- The Securities and Exchange Commission today charged Goldman, Sachs & Co. and one of its vice presidents for defrauding investors by misstating and omitting key facts about a financial product tied to subprime mortgages as the U.S. housing market was beginning to falter. Additional Materials

The SEC alleges that Goldman Sachs structured and marketed a synthetic collateralized debt obligation (CDO) that hinged on the performance of subprime residential mortgage-backed securities (RMBS). Goldman Sachs failed to disclose to investors vital information about the CDO, in particular the role that a major hedge fund played in the portfolio selection process and the fact that the hedge fund had taken a short position against the CDO.

"The product was new and complex but the deception and conflicts are old and simple," said Robert Khuzami, Director of the Division of Enforcement. "Goldman wrongly permitted a client that was betting against the mortgage market to heavily influence which mortgage securities to include in an investment portfolio, while telling other investors that the securities were selected by an independent, objective third party."

Kenneth Lench, Chief of the SEC's Structured and New Products Unit, added, "The SEC continues to investigate the practices of investment banks and others involved in the securitization of complex financial products tied to the U.S. housing market as it was beginning to show signs of distress."

The SEC alleges that one of the world's largest hedge funds, Paulson & Co., paid Goldman Sachs to structure a transaction in which Paulson & Co. could take short positions against mortgage securities chosen by Paulson & Co. based on a belief that the securities would experience credit events.

According to the SEC's complaint, filed in U.S. District Court for the Southern District of New York, the marketing materials for the CDO known as ABACUS 2007-AC1 (ABACUS) all represented that the RMBS portfolio underlying the CDO was selected by ACA Management LLC (ACA), a third party with expertise in analyzing credit risk in RMBS. The SEC alleges that undisclosed in the marketing materials and unbeknownst to investors, the Paulson & Co. hedge fund, which was poised to benefit if the RMBS defaulted, played a significant role in selecting which RMBS should make up the portfolio.

The SEC's complaint alleges that after participating in the portfolio selection, Paulson & Co. effectively shorted the RMBS portfolio it helped select by entering into credit default swaps (CDS) with Goldman Sachs to buy protection on specific layers of the ABACUS capital structure. Given that financial short interest, Paulson & Co. had an economic incentive to select RMBS that it expected to experience credit events in the near future. Goldman Sachs did not disclose Paulson & Co.'s short position or its role in the collateral selection process in the term sheet, flip book, offering memorandum, or other marketing materials provided to investors.

The SEC alleges that Goldman Sachs Vice President Fabrice Tourre was principally responsible for ABACUS 2007-AC1. Tourre structured the transaction, prepared the marketing materials, and communicated directly with investors. Tourre allegedly knew of Paulson & Co.'s undisclosed short interest and role in the collateral selection process. In addition, he misled ACA into believing that Paulson & Co. invested approximately $200 million in the equity of ABACUS, indicating that Paulson & Co.'s interests in the collateral selection process were closely aligned with ACA's interests. In reality, however, their interests were sharply conflicting.

According to the SEC's complaint, the deal closed on April 26, 2007, and Paulson & Co. paid Goldman Sachs approximately $15 million for structuring and marketing ABACUS. By Oct. 24, 2007, 83 percent of the RMBS in the ABACUS portfolio had been downgraded and 17 percent were on negative watch. By Jan. 29, 2008, 99 percent of the portfolio had been downgraded.

Investors in the liabilities of ABACUS are alleged to have lost more than $1 billion.

The SEC's complaint charges Goldman Sachs and Tourre with violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Exchange Act Rule 10b-5. The Commission seeks injunctive relief, disgorgement of profits, prejudgment interest, and financial penalties.



SEC Sues Goldman Sachs, Alleging Fraud in CDO Tied to Subprime - Bloomberg.com

Wednesday, April 14, 2010

Politicians and Wall Street: ...and the beat goes on.

The news is quickly becoming farcical! Soon news of corporate-government misconduct and executive privilege will be relegated to either the back pages or the comic section of newspapers--if there are any actually left.
Whitman's ties to financial giant Goldman Sachs

Tuesday, April 13, 2010

Lehman Used ‘Alter Ego’ to Transfer Risks - NYTimes.com

"Greenspan is nothing if not a representative leader of his time. We live in a culture where accountability and responsibility are forgotten values. When “mistakes are made” they are always made by someone else."
It is difficult to fathom the level of hubris that causes people to blatantly disregard regulations and laws in the pursuit of money and power. Well--perhaps its not--since it permeates our culture. Justification for the 'excesses of privilege' are rationalized ad nauseam while the foundations of Wall Street crumble. The only way a free market can work in a productive, sustainable and fair manner is if all participants embrace the concept of honesty, responsibility and accountability. Unfortunately, evidence is beginning to mount with increasing frequency and credibility that many of the institutions of finance that are supposed to fuel the entrepreneurial nature of the middle class have, instead, opted to enrich themselves and a very small but powerful group of sycophants by creating investment vehicles that are self-serving and ostensibly exploitative to the middle class. In order to keep the roulette table spinning certain liberties have had to be taken with regard to the truth, responsibility, transparency and accountability. This is not isolated to a few Bernie Madoffs. The discomforting thing is that this contagion has spread to the upper echelons of power in both Washington and Wall Street. Until some semblance of personal virtue becomes a defining characteristic of the financial ethos, the foundations of capitalism will continue to deteriorate until what we now refer to as Wall Street will crumble like a derelict casino.
The evidence stacks up as the bubble inflates.

Lehman Used ‘Alter Ego’ to Transfer Risks - NYTimes.com

No One is to Blame for Anything.

Friday, April 9, 2010

Major U.S. banks masked risk levels: report | Reuters

Transparency and accountability are the cornerstones of ethics in the financial industry. It appears that the major banks have nothing but contempt for such matters.

(Reuters) - Major U.S. banks temporarily lowered their debt levels just before reporting in the past five quarters, making it appear their balance sheets were less risky, the Wall Street Journal said, citing data from the Federal Reserve Bank of New York.

The paper said on Friday 18 banks, including Goldman Sachs Group (GS.N), Morgan Stanley (MS.N), J.P. Morgan Chase (JPM.N) Bank of America (BAC.N) and Citigroup (C.N), understated the debt levels used to fund securities trades by lowering them an average of 42 percent at the end of each period.

The banks had increased their debt in the middle of successive quarters, it said.

Citi, Bank of America, Goldman Sachs, JPMorgan Chase and Morgan Stanley were not immediately available for comment when contacted by Reuters outside regular U.S. business hours.

Excessive leverage by the banks was one of the causes that led to the global financial crisis in 2008.

Due to the credit crisis, banks have become more sensitive about showing high levels of debt and risk, worried their stocks and credit ratings could be punished, the Journal said.

Federal Reserve Bank of New York could not be immediately reached for comment by Reuters.



Major U.S. banks masked risk levels: report | Reuters

See My Squiggly Lines for comments on derivatives and the 5 major U.S. Banks.

Thursday, April 8, 2010

The Collapse of the Reform Initiative

Unfortunately Andrew Cockburn is probably right on the mark.

The irony is that any regulation will be ineffective if our culture does not embrace--and reestablish-- some form of moral ethos

Andrew Cockburn: Financial Reform Bids Collapse Into Farce

Monday, April 5, 2010

Bubble Redux

Sometimes the truth hurts. Prevarication and recurrent opaqueness will continue to fuel the bubble that is currently being formed. The financial malfeasance that is being condoned by Washington and the continued influence of Wall Street lobbyists on legislators will ensure that the lessons that should have been heeded in 2007-2008 will be abrogated by spurious reform.

Greenspan's inability to accept at least some responsibility for the bizarre economic policies since the crash of 1987--Band-Aid on top of Band-Aid, the abject failure of supply side economics to distribute wealth equitably--as is the principle of capitalism--and the politicization of everything that represents liberty will eventually turn its back on the perpetrators of the colossal scam that is debasing the foundations of the capitalist paradigm.

Where is the next bubble? The Interest Rate derivatives market is a prime candidate--especially if rates rise and make a mockery of the presuppositions that are the basis for derivative algorithms.

Things are truly out of whack and the 'silent majority' will soon wake up to the reality of the situation.

"There must be some way out of here,” said the joker to the thief,
“There’s too much confusion, I can’t get no relief.
Businessmen, they drink my wine, plowmen dig my earth,
None of them along the line know what any of it is worth.”

“No reason to get excited,” the thief, he kindly spoke,
“There are many here among us who feel that life is but a joke.
But you and I, we’ve been through that, and this is not our fate,
So let us not talk falsely now, the hour is getting late.”

All along the watchtower, princes kept the view
While all the women came and went, barefoot servants, too.

Outside in the distance a wildcat did growl,
Two riders were approaching, the wind began to howl.

All Along the Watchtower: Bob Dylan 1968



As performed by the Master


Love him or hate him: Robert Reich calls things as he sees them--often with great clarity, insight and veracity.
Robert Reich (Greenspan, Summers, and Why the Economy Is So Out of Whack)

I Saw the Crisis Coming. Why Didn’t the Fed? Michael J.Burry

Saturday, April 3, 2010

Robert Reich (The Paper Entrepreneurs Are Winning Over the Product Entrepreneurs (A Thirty Year Retrospective))

Can't say we weren't warned...

but....Reaganomics was far too intriguing.

Robert Reich (The Paper Entrepreneurs Are Winning Over the Product Entrepreneurs (A Thirty Year Retrospective))

Currently 12 banks in the USA control 50% of the country's deposits.
in 2003: 25 banks controlled 50% of the country's deposits
in 1998: 42 banks controlled 50% of the country's deposits
in 1984: 64 banks controlled 50% of the country's deposits.

Do the math !!!!!!

A BIGGER TABLE and LESS TO FEED

Friday, April 2, 2010

A LONDON TRADER WALKS THE ‘CFTC’ THROUGH A SILVER MANIPULATION IN ADVANCE By Andrew Maguire

Andrew Maguire is an independent metals trader turned whistleblower at the center of a storm for exposing what could be the largest fraud in history involving countries, banks and government leaders.

Although the main stream media are doing the ostrich trick with this potential bombshell, it is very disconcerting if the claims made by Mr. Maguire are true

A LONDON TRADER WALKS THE ‘CFTC’ THROUGH A SILVER MANIPULATION IN ADVANCE By Andrew Maguire

Robert Reich (The Fed in Hot Water)

It is becoming increasingly clear that Washington and Wall Street are in dire need of a--whats a polite way of saying this?---amelioration? It is inevitable that there will be a 'bloodletting' in both locales--it is just a matter whether this will happen through positive and comprehensive reform or-as mankind has habitually demonstrated--by way of self-induced razing. Unfortunately history has favored the latter alternative.
Robert Reich exposes the Fed's malfeasance and condescension in this recent blog.

Robert Reich (The Fed in Hot Water)