LILA RAJIVA: The Mind-Body Politic
Individuals Not Ideologies
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Celente: Report Shows JPMorgan, Citi Helped Push Lehman Under
Gerald Celente: JP Morgan and Citi acted like mobs bosses in torpedoing Lehman.
Note: the bankruptcy examiner’s report shows Lehman cooking its books to look less levered than it was, but the Federal Reserve Bank of New York (FRBNY) (Mr. Geithner, that would be you) abetted it. So did the SEC, and JP Morgan and Citi acted like cannibals (or street gangs…or mob bosses), as they tried to wipe out their rival.
Well, we said so at the time, in a post called“Statistics Don’t Back Panic Mongers” (October 2008).
And even before that.
Except for the fact that the Wall Street gang uses money, ratings, and other “adult” world paraphernalia, they’re not much more than hooligans who didn’t get toilet-trained right.
Let’s see:
Finger-pointing: He did, teacher, I didn’t (Politicians to voters, voters to politicians)
Avoiding responsibility: But you told us we could (Wall Street to Main Street, home-owners to lenders, managers to accountants, lawyers)
Succumbing to peer pressure: Everyone does it ( Book-cooking managers, lazy reporters, colluding speculators)
Blaming the victim: He deserved it (Corporate raiders, colluding speculators, media shills)
Soros, Paulson etc. Under DOJ Probe For Destabilizing Euro
Yes, indeed. One for the good guys!
“The U.S. Justice Department has launched an investigation into whether heavyweight hedge funds including Soros Fund Management, SAC, Greenlight Capital and Paulson & Co. aggressively shorted the euro in recent weeks to destabilise it, the WSJ reported on Wednesday, citing people familiar with the matter.
According to the paper, the department has asked hedge funds to retain trading records and electronic communications relating to the EU currency which needless to say has come under strong selling pressure as a result of the Greek debt crisis. The euro has lost more than 10% since November. It currently trades at $1.3609….”
More at the Wall Street Journal.
I blogged a few days ago about David Einhorn’s holdings, noting his anti-Euro trade; I also noted that without the raids against Allied and Lehman and without his late-in-the day piling onto gold, Einhorn’s record really isn’t as impressive as all the hype about his abilities would lead you to believe.
Mexican President Nominated For Citi Director
Robert Wenzel at Economic Policy Journal:
“Citi’s Board of Directors has nominated Ernesto Zedillo as a new non-management director candidate to stand for election at Citi’s annual shareholder meeting on April 20, 2010. He was the President of Mexico from 1994 to 2000 and is now Director of the Yale Center for the Study of Globalization and Professor in the Field of International Economics and Politics at Yale University.
Zedillo (58) worked at Mexico’s Central Bank (Banco de Mexico), serving in various positions, including those of deputy Head of Economic Research and deputy Director. Zedillo is on the boards of Alcoa Inc. and Procter & Gamble Company.
Obviously, despite the fact that it almost blew itself up because of schemes far from traditional banking, Citi continues to take the New World Order approach to banking.
There is nothing wrong with Citi attempting to penetrate into Latin America for business but, putting a former Mexican president on the board smacks of penetration via back door crony government deals versus attempting to serve the serve the consumer in the Latin American countries.
Sure, you have to deal with the crooked governments in these countries, but that’s what you have connected law firms for. They get things done in a very low key efficient manner. Putting Zedillo on the board sends a different signal, that Citi will not only deal with Latino politicians, but that it is part of the crooked club.”
More Agora - Updated 3/6/2010- Stansberry Response/SEC
While googling, I stumbled on some weird material by a blogger Jennifer Lake, who seems to have gotten some facts mixed up about libertarian newsletter publisher, Agora Inc. [I've since had time to read through her archives and many of her entries are overtly anti-semitic]
“Agora Inc. was established as a publishing company in Washington D.C. in 1979 by its founders; William Bonner, Jim Dale Davidson, Porter Stansberry and Lord William Rees-Moog.
(Lila: I don’t believe Stansberry was involved in founding it…he might not even have been born would have been very young at the time; and it’s Rees-Mogg. Moog is the electronic synthesizer. Also, most people who’ve written on the subject don’t mention Rees-Mogg as a founder, except Lyndon Larouche.
Besides Larouche, the person who harps on Rees-Mogg is a minor Internet spammer and web-stalker, Tony Ryals, who apparently lost money in an investment promoted by Davidson and has spent the last five years multiple posting on the company and on anyone connected to it, and as I can testify from personal experience, most of his rants are exaggerations, distortions, disinformation, and “magical” thinking, with some much-mangled facts hidden somewhere, if you have the patience to unearth them)
(Since I wrote this, I’ve found another piece. with this information, by EIR. EIR or Executive Intelligence Review is a Larouche outfit whose macro perspective has generally been regarded as conspiracist, anti-semitic (Christopher Bollyn), and/or paranoid, although many also concede that some of its work is accurate.
I am not linking it here, although I’ve seen it cited by William Engdahl, a credible left-oriented writer, as I’m not sure whether the citation is genuine or a hoax of some kind).
“Notorious for promoting Penny Stock fraud”
(Lila: Not to defend Agora, but it promotes penny-stock and many other investments, not all of which are fraudulent by any means, unless you count any promotion of stocks to be fraudulent. Most penny-stocks in tip-sheets, frankly, are promoted in questionable ways. For that matter, a large proportion of investments of any kind, even in mainstream publications, are promoted quite questionably. Check out the government/real estate industry promotion of the housing bubble, if you disbelieve me).
“and supporting an offshore investment network, Agora has a core membership of world-traveling Libertarians who have connections at the highest levels of government and industry.
Through the illegal practice of naked short-selling, domestic Agorans function as “economic hitmen” and support “sovereign” enterprizes of all descriptions that move national and personal resources overseas to emerging markets.”
(Lila: This seems to be some kind of populist nonsense. Who exactly are “domestic Agorans” and how do they function as “economic hitmen”? I’ve never heard of naked short-selling in conjunction with Agora, but it’s certainly true that penny-stock promoters often work with naked short-sellers, through off-shore havens and exchanges like Vancouver. I know financial reporter Carol Remond has written on this, in relation to some Agora newsletters, and I’ll try to unearth the link. However, I’ve never heard any one at Agora encouraging the moving of “national resources” overseas….unless you include pointing out that employers will go where labor is cheap…..or suggesting diversification abroad)
“The primary operatives of Agora pose as financial experts and advisors, selling information over the internet that targets a variety of consumer interests including “natural health”, real estate, travel and leisure. Agora counts George Soros and known Rothschild agents among its “friends” as well as American “patriots” and “truthtellers”.
(Lila: Never heard that Soros was a friend.
(March 6, 2010): See above for research by EIR/William Engdahl)
Jim Rogers, Steve Forbes, and Marc Faber are.
As a right libertarian outfit, Agora and its original founder/s would likely not be terribly sympathetic to a pro-regulation, pro-one world government, mega currency speculator like Soros. It’s possible that one or other faction within the outfit might sympathize with Soros, but they would likely be more liberal-left in their political leanings than the outfit).
Now, I’ve been quite critical of Agora (within the limits of what you can say of a place where you once worked). I’ve noted their strident marketing hype; the SEC conviction of one of their newsletter publishers, in 2007 (a conviction that’s been appealed, and that in all fairness wasn’t a very convincing one…right guy, wrong case, is my opinion on that; you can read why at the website of UK investigative reporter, Brian Deer); the questionable histories of some of their former and current senior people (Davidson, Masterson); but in this case, Ms. Lake’s blog seems to have wandered off into fiction.
[Update: You can read the defendant’s account of what happened at The Daily Reckoning. Here is the SEC’s original case, brought in 2003 and the link to the 2007 conviction.
Update, March 9, 2010: I’m adding a link to the New York Times piece on the SEC case in 2003, which treats the case as a First Amendment issue.
That’s not entirely true either, but the case is a weak one, as I blogged before.
On the other hand, it’s also clear from reading some of the marketing literature put out by the company that the hype used by some of the newsletters, the ‘hard sell,’ walks a very fine line and often crosses it. In the case cited by Deer, some language seems fraudulent, even though Deer’s use of the term “pump” (which implies ownership of the stock by the ‘pumper’) is also not warranted by the facts he cites.
Could all this contradictory and exaggerated posting be disinformation? Could be. But why and by whom, is the question.
And, darn. “Rothschild agents”? That sounds exciting. (March 6, 2010: See EIN above, again)
Ms. Lake goes on:
“The owner/founders of Agora have invested deeply to profit from general and specific disasters like economic collapse and the Swine Flu Pandemic……
Agora Financial publishes a journal called The Daily Reckoning, editor Addison Wiggin, featuring contributions from ’staff’ such as Lew Rockwell (LewRockwell.com), Gerald Celente (Trends Research) and Dr. Ron Paul (US Congress) http://dailyreckoning.com/cast-of-characters/ This group, and the extended arms of Agora, advocate nation-building investments in developing countries that often include international projects funded by US taxpayers. Non-profit Agora Partnerships USA, for example, uses ‘micro’ venture capital and US tax-paid grants to seed entrepreneurial programs abroad and build ’sustainable economies’ for other countries. Agora Partnerships USA shares an office in Washington DC with USAID, United States Agency for International Development, and it’s TechnoServe program.
http://www.agorapartnerships.org/press/Press/press-releases/about/contact/contact-us
http://www.usaid.gov/sa/usaidsa/technoservepress.pdf
The same building hosts the Economic Research Services of the US Dept of Agriculture, it’s primary policy, financing and forecasting service for domestic and global planning. Agora appears to be well within the loop, so this is about far more than hiring a Health Ranger to gatekeep for Shangri-la.”My Comment:
Where to start, with so many mistakes?
For starters, Lew Rockwell, Gerald Celente, and Ron Paul are not staff writers for Agora.
They are libertarian columnists whose writing Agora frequently runs. The Daily Reckoning publishes material from scores of libertarian writers, sometimes without telling the writer. Drawing conclusions from that is plain silly..
Next up, as far as I can gather, Agora Partnerships has nothing to do with Agora Inc. I looked through their website carefully, and could find nothing to confirm the kind of affiliation that is charged here. The identity of the name seems to be purely coincidental. I could be mistaken, and maybe there is some hidden link. But there’s certainly no evidence for it on Ms. Lake’s blog.
(Correction: In light of the EIR/Engdahl piece, I will be doing a little more leg work on this purported association…)
Agora no doubt profits from many of the ideas or concepts it promotes. It’s been an advocate of Americans diversifying into foreign real estate for years….and it sells foreign real estate (correction: it advertises foreign real estate being sold by its affiliates and associates). But as critical as I am of the outfit, I’ve never come across anything to suggest that its libertarian ideas weren’t sincere….
Does Agora enjoy high-level government/business connections? Yes….but not the kind this blog charges, I think.
“Empire of Debt” (2005, Bonner & Wiggin) and its spin-off “IOUSA” (Wiggin & Incontrera) were promoted by the mainstream media, and specifically, by Peter Peterson and his Concord Coalition.
I’ve blogged about Peterson’s political and financial agenda more than once. The Concord Coalition seems to be a part of any bipartisan initiative about government debt you come across….
And the programs it supports are usually social-welfare busting. I’ve also noted connections between Agora and the CIA, including the employment of former CIA agents, and the appearance of former CIA director William Casey’s Colby’s name on an Agora newsletter. But it’s not unheard of for financial newsletters/ tip-sheets to use former government employees or intelligence officers to ferret out economic tips.
In fact, it stands to reason they would…corporate intelligence and state intelligence often melding seamlessly into each other.
By itself, these aren’t damning facts. And by itself, these facts are irrelevant to any public interest.
There are other facts that certainly need untangling, for those involved, and should there be a public interest, but Ms. Lake’s blog seems so wrapped up in its partisan (”economic hit-men”) obfuscations that it seems to have missed those…
Update (March 8 ) I had time to go through her archive and I found overtly anti-Semitic language about “parasites” and The Protocols of the Elders of Zion in one of her posts, confirming my decision not to link the material cited by Engdahl (with the EIR byline).
(Note: her blog began only in July 2009, around the time I posted a detailed criticism of Agora that I later took down to avoid claims of defamation)
Financiers Used 9-11 Diversion of FBI to Loot American Middle-Class
Great interview at Forbes, between Steve Forbes and Senator Ted Kaufman on the capital markets, naked short selling, the uptick rule, sponsored access, HFT (high frequency trading) and digitalization, dark pools, and fraud…
“Forbes: Finally, Fraud Enforcement Recovery Act.
Kaufman: Yeah, yeah.
Forbes: You’re proud of it.Kaufman: Yeah, I am.
Forbes: What it does, and what will it do?
Kaufman: OK, here’s what it did. After 9/11, we moved a lot of FBI agents over to cover terrorism, which we should have done. But we left only like 250 FBI agents in the country to cover financial fraud. We did more financial fraud cases in 2001 than we did in 2007, can you believe that? So, what we did with this financial and regulatory forum, with Pat Leahy, who is chairman of judiciary committee and Chuck Grassley, an Iowa Republican. It’s a bipartisan bill and we got a bill passed to give us more FBI agents, give us more prosecutors and to go after these folks. And so that’s basic what we passed, and we’re getting organized. Had a really good hearing of the judiciary committee. Rob Khuzami at the Securities Exchange Commission, Lanny Breuer’s head of the criminal division, Kevin [Perkins] from the FBI financial thing.
And we’re really, we’re going after this thing. And I know you agree with me. You know, if you, the folks that committed crimes while this thing was going on, we can all argue about what caused it or not, anybody who took advantage of this situation and lined their own pocket for it should go jail.”
Soros: Gold In Bubble; But Keep Stimulus Going…..
Always nice to see people talk out of both sides of their mouth.
Here is currency speculator George Soros (ex of legendary hedge-fund Quantum) at the World Economic Forum at Davos:
“When interest rates are low we have conditions for asset bubbles to develop, and they are developing at the moment. The ultimate asset bubble is gold.”
So far so good. Mis-price money (cheap interest rates) and people don’t want to keep their savings in it. They want it in something that isn’t subject to mis-pricing (so they hope) - hence gold.
But then Soros shows how disingenuous he’s being by adding this:
“I think that since the adjustment process to the recession is incomplete, there is a need for additional stimulus. Some countries, like the US and European countries, have plenty of room to increase their deficits. The political resistance to doing so increases the chances of a double dip in the economy in 2011 and after that.”
That is, he’s suggesting running more deficits and keeping the money spigot going, just the thing that’s caused the gold price to rise.
So how do we understand this?
Gold is due for a technical correction, but it’s also probably responding to deflation in the general economy. It’s not going down that fast, because a lot of people are also buying it speculatively.
That’s the tug of war.
Meanwhile, who know what Soros’ holdings are and who knows what his motivations are in making such contradictory statements.
But anyone who takes these sorts of pronouncements as any kind of lead for their own investments/speculations, should be prepared to part fairly soon from their money.
More From The Easter Bunny…
I’ve been curious about the identity of the Easter Bunny, although, strictly speaking, it doesn’t affect the validity of the anti-NSS campaign.
The Bunny has zeal. Bunny-speak is brave, plain-spoken and easy to read:
“The SEC was created to reassure the unwashed masses that it was safe to invest in the markets, after the Great Crash of 1929 proved it was anything but. It was a PR firm for Wall Street, slipped through as an alternative to a regulator who would or could actually do anything to curb the real crookery on Wall Street. At the helm was one of the greatest stock manipulators of all time, Joe Kennedy, who along with Percy Rockefeller and others amassed incredible fortunes running stock pools in the 1920’s.
For those who don’t know what a stock pool is, it’s a hedge fund whose sole purpose is to manipulate stocks, first up, then down, making money in both directions. Which was enormously lucrative for the operators of the pools, and the investors therein - the only losers were always the general investing public, and other participants who weren’t on the inside. I would argue that’s precisely what some of the most lucrative hedge funds of modern times also do - there aren’t a lot of ways to beat the market with 30 or 40% returns, year after year, that don’t involve larceny and criminal behavior, at least in my study of the last century of market history.”
The Bunny doesn’t mince words:
“I concluded a while ago that the rot in the system is pervasive, runs from top to bottom, and is largely unfixable. You have oligarchs, powerful and rich families and corporations, who are having their bought-and-paid-for politicians operate the country for their personal enrichment, at the direct expense of everyone else…..
“My point is that absolute power and wealth enable one to control the safeguards that were put into place to protect populations. By co-opting politicians and capturing regulators, the bad man is allowed to come into the room and do whatever he wants, whenever he likes - and the captured media merely pretends that it can’t hear the cries for help or investigate the countless damaged lives. It’s as bad as Russia under the communists, or perhaps worse.”
The Easter Bunny stays under wraps for a reason I can guess… but maybe not express publicly.
I asked a couple of people in a position to know if it was so-and-so. They denied it stoutly.
I could, of course, go the route of the New York press, which likes to stake out, tap phones, access medical records illegally, go undercover,or violate court orders, or any number of other things.
(If only John Edwards knew how lucky he was to avoid a life as a national figure, official prey for every predator with a pen)
But that particular game doesn’t seem worth either the moral or social candle. And, most often, almost as much can be learned by reading between the lines and studying public evidence as by sleuthing.
But, while sleuthing only requires elbow grease and chutzpah, analysis requires a degree of knowledge, judgment, and intellect that is simply beyond the pay-grade of some journalists, however exalted their professional status. These petty despots have pens and they have power, but they have no clothes, as surely as the emperor they shill for.
A few have figured that out. More will follow suit.
To make the story short, I went and reread a few public records that reference NSS and replayed the stout denials in my mind, recalling as best I could the silences, the gaps, the tone of the answers. I reread The Bunny carefully.
He’s an erudite man, it’s clear. I came to my conclusion about who he was. Right or wrong, time will tell.
I only bring it up to show how looking at the big picture and developing the correct perspective can be as useful and is far more cost-efficient than private-eye sleuthing that reporters think is the one and only credible way to tell a story. Baloney. And morally dangerous baloney. Dirty tricks, even for some intended good you believe in, inevitably corrupt the people who play them, in the same way black ops corrupt intelligence agencies.
Sleuthing is good to add the footnotes and the QED at the bottom of a piece of research and critical analysis. But as a way of curing social cancers - and financial racketeering is more social cancer than legal infraction - it has limited use. By the time you have written your expose to your editor’s satisfaction and done what it takes to avoid libel litigation, the story is old, the crooks have covered their tracks in paper dirt, and a new game is afoot.
Far better to play Sherlock and deduce your conclusions. Leave the investigative reporters to do their thing. You do yours but you do it to appease your own conscience, out of love for what human beings might be (hard to love them as they are, frankly), out of sheer intellectual curiosity (a great part of what drives me), glee at pelting stones at arrogant predators, and…yes…because after life’s fretful fever, we really don’t know what comes next. It might be wise to hedge our bets, as Pascal did.
There may or may not be Judgment Day. But should it roll around, we want to be able to pass muster. Well, at least, we want the She: Who Is Probably Not There to know we tried…
And then of course, we write mainly because it’s fun…
How, my dear Mary, — are you critic-bitten
(For vipers kill, though dead) by some review,
That you condemn these verses I have written,
Because they tell no story, false or true?
What, though no mice are caught by a young kitten,
May it not leap and play as grown cats do,
Till its claws come? Prithee, for this one time,
Content thee with a visionary rhyme.
(Percy B. Shelley, “The Witch of Atlas”)
Sith-Lord Sweep: AG’s Pending Indictments Cover Major Hedgies, Journalists, and Regulators
Corporate finance generalist, investment banker and expert in derivatives, Austin Burrell, sums up last week’s announcement by Attorney-General Eric Holder that there are 5000 pending indictments [sic] arising out of the investigation of fraud in the capital markets:
[Note: the DOJ is involved in some 5000 odd cases of fraud related to the financial industry… (more…)
Hedge Funds: Top Ten Earners in 2007/2008
New York Magazine had a piece in 2007 that sorted the hedge-fund elites into categories like “brainiacs” (like James Simon and Jim Chanos) and “bad boys” (like Daniel Loeb).
The category “Top dogs” (that is, the very best hedgies) includes SAC Capital Advisers/Steven Cohen ($12 b); Cerberus Capital/Stephen Feinberg ($19.5 b); Appaloosa Mgt/David Tepper ($5.3 b); ESL/Eddie Lampert ($18 b); Citadel Investment Group/Kenneth Griffin ($13.5 b); Manhattan/Michael Novogratz ($4.6b).
[Note: the figures were as of 2007].
This is the short list of the managers whom the industry thinks are top dogs, and of these six, one (Feinberg) is directly connected to Drexel Burnham Lambert, convicted junk bond financier Michael Milken’s bank; another (Cohen) is connected indirectly to Milken through Gruntal & Co.; and three are alumni of Goldman Sachs(Tepper, Lampert, Novogratz).
Five out of six and that’s just a cursory examination. I didn’t do anything more than google to get that.
And the financial press thinks there are no Sith Lords?
A more conventional ranking is found below: (more…)
Xmarks’ Top 20 Corruption Sites List Includes Deep Capture
I just happened to notice this ranking of the most popular corruption sites and thought I’d post it as more evidence that the campaign against naked short selling isn’t some marginal “freak” show, as some of the financial blogs have tried to claim it is. (more…)
DTCC Board Stuffed With Kleptocrat Banks/Funds
The DTCC (Depository Trust and Clearing Corporation) is the largest depository in the world, and, along with its subsidiaries, the place where all transactions in equities, money market funds, corporate and muni bonds, MBSs and derivatives are cleared and settled. Activists have been demanding detailed release of trades which haven’t been settled or have failed to deliver (FTD), because of the obvious potential for manipulation, A glance at the board of directors, which consists of leading figures from the banks and funds, many of whom profited hugely from the government bail-out, shows that concern is amply warranted.
From Citizen Economists:
DTCC BOARD OF DIRECTORS
The DTCC’s board includes 20 directors.
Art Certosimo, Senior Executive VP, Bank of New York Mellon
Norman Malo, President and CEO, National Financial Services LLC; Fidelity Investments
Stephen P Casper, Partner, Vastardis Capital
Gerald A. Beeson, Senior Managing Director, COO. Citadel Investment Group
Donald F. Donahue, Chairman and CEO, DTCC
William B. Airnetti, President and COO, DTCC
J. Charles Cardona, CEO Bank of New York Mellon - Cash Investment Strategies, President of the Dreyfus Corporation
Randolph L. Cowen, Co-Chief Administrative Officer, Goldman Sachs Group Inc
Norman Eaker, CAO, Edward Jones
Timothy J. Theriault, President - Corporate & Institutional Services, Northern Trust Company
Neeraj Sahai, Managing Director and Global Business Head, Securities and Fund Services, Citi
Gerard La Rocca, Chief Administrative Officer, Americas Barclays Capital
David A. Weisbrod, Managing Director and Risk Executive, JP Morgan Chase Bank
Stephen Luparellyo, Vice Chairman and Senior Executive Vice President of Regulatory Operations, FINRA
Mark Alexander, Managing Director, Global Wealth and Investment Management - Bank of America, Merrill Lynch, Head of Technology Operations, Broadcort Clearing
Ronald Purpora, ICAP Securities USA LLP
Robert Kaplan, Executive Vice President, State Street Bank and Trust Company
Michele Trogni, Managing Direcotr and Global Head of Operations, UBS Investment Bank
Ian Lowitt, Administrative Officer, Lehman BrotherReverse Midas: SAC Spin-Offs Fail Even When They Succeed
Reading this report about SAC Capital by Reuters, I was struck by a few things.
But first, here’s the chronology (skip below for my argument):
- 1980s: Steven Cohen allegedly involved in insider trading at Gruntal
- 1999-2004, 2004-2007, 2007-2009: Insider trading at Spherix (ex-SAC trader Richard Lee’s own firm); and possibly at Stratix (founded by Goodman and Grodin in 2004, also ex-SAC traders, with SAC as a sizable investor); and (again, possibly) at SAC itself, by Richard Lee and Ali Far, also an alum of SAC.
- 2006: SEC investigates SAC and two other firms for manipulation of Fairfax Financial stock. Investigation dropped in 2007
- 2007-2009: Agent Kang investigates 20 hedge funds for insider trading
- 2007: SEC investigates SAC over Andrew Tong’s sex charges. Case sealed in 2008. Reopened in Nov. 2009, this time focusing on insider trading. About this time, Richard Grodin’s and Ian Goodman’s firm Stratix (where Lee and Far worked) closes. Grodin then begins Quadrum, which also closes
- Oct-Nov 2009: Galleon Group charged by Kang with insider trading and 14 traders arrested, including former SAC traders, Richard Lee and Ali Far
- Nov-Dec 2009: Cohen’s ex-wife alleges insider trading when Cohen was at Gruntal & Co. in the 1980s
- Dec. 2009: Ex-SAC trader and founder of Stratix Richard Grodin subpoenaed
**************************************************************************************************************
Now that you have that in mind, here are the things that struck me:
1. The high number of SAC traders who seem to have gone off into their own businesses.
You’d think with all that money and the fund’s record as the most consistently successful in the business (only one bad year on record), their traders would stay forever. Quite the opposite. People seem to have been leaving all the time to form their own businesses.
But SAC was also said to be a very tough environment. You produced, or you left.
So maybe that’s why Lee and Far, Grodin and Goodman, all left to found their own firms?
Could be. But I’m not convinced.2. None of the spin-off firms seems to have been very successful.
Why not? Why couldn’t these hot-shot traders make money on their own?
The Reuters piece suggests that perhaps the SAC experience didn’t foster business ability. And that perhaps SAC traders flounder without SAC’s huge supporting cast.
But those things are likely to be true of other firms as well, not solely SAC.
Still not convinced.
Furthermore, consider this.
3. A spin-off fund that didn’t get money from Cohen ended up quite successful:
“Healthcor, a healthcare industry focused fund, had raised $3.2 billion by June 2009 since launching four years ago. The fund returned 25 percent in 2006, 18 percent in 2007, and was up 4 percent last year, when the average hedge fund lost 19 percent. In the first 10 months of 2009, Healthcor was up 7 percent.
Healthcor, founded by Arthur Cohen and Joseph Healey, opened without any financial support from SAC. In fact, soon after Cohen and Healey struck out on their own, SAC sued the pair, accusing them of breaching their employment contracts. The matter ultimately was settled. (Healthcor’s Cohen is not related to SAC’s Cohen).”
4. Even spin-offs that were doing well were shut down.
When Stratix started in 2004, it had $60 million given to it by SAC. When it shut down, in 2007, it was up 17% and had $530 million under management. Yet it shut down. Why did it shut down? Those numbers sound pretty good.
Another spin-off, Fontana Capital, started out in 2005 with $50 million of SAC money. It grew to $325 million by 2006. But sometime in 2007, Cohen pulled out all his money. And in 2009, Fontana was down to $16.1 million, despite being down only 7.69%, compared to the average S&P Financial index loss of 57%. Again, that sounds like it wasn’t doing all that bad.
Reuters quotes someone familiar with the record of ex-SAC traders:
“So many of the ex-SAC people seem to have this model where they attract you with fantastic returns in the first year but in year two or three or four you get annihilated,” said a person who is familiar with several former SAC employees’ records.
Shades of Bernie Madoff….
Someone need to look closely at what happened to the money at these firms…
Dan Denning On Dubai, Copenhagen, And The Stock Market
Dan Denning, author of “Bull Hunter” (Wiley, 2005), in the Daily Reckoning (Australia):
“The S&P 500 hit a 14-month high overnight. The conventional wisdom is that two news events are responsible. This is probably wrong. But let’s look at both events anyway and see what happened.
The first is that Abu Dhabi extended a $10 billion in financing to debt-distressed Dubai. Hossanah! Remember, Dubai is not Lehman. It’s Bear Stearns. It’s merely the reminder that there are lot of leveraged investors in the world who’ve used borrowed money to buy assets that aren’t very productive. They’ll get theirs soon enough.
The second bullish item is that ExxonMobil (NYSE:XOM) made a US$41 billion all stock bid for Houston-based natural gas company XTO. This sent Exxon shares down 4.4%. Thus the Dow’s rally was a bit tepid (XOM is a Dow component)……
Exxon is either getting a bigger foot in the U.S. natural gas market or hedging against cap-and-trade legislation, or both. We vote for both. No one is in a better position to know about the constraints on global oil production and discovery of new reserves than a major company like Exxon. And Exxon has seen firsthand that unconventional natural gas can be a lucrative little market.
But are those two bits of news really enough to send the market higher? Probably not. Who knows why the market goes higher? It does what it does. There’s an alternative explanation.
The alternative explanation is that the Copenhagen climate talks look like they’re collapsing into confusion and President Obama’s legislative agenda is in tatters. The private sector absolutely loves this…..
Good policy? Bad policy? Who knows? All we know is that the more uncertainty you introduce into the markets, the more conservative and defensive investors are going to get……
That’s not to say that a deal won’t come out of Copenhagen. Maybe the planet will be saved. Or maybe Copenhagen is the sell signal for global warming as a big idea/moral issue with which to bash the public. But either way, we reckon the stock market actually likes the idea that no climate deal is imminent and that healthcare legislation in the U.S. Senate can’t seem to get 60 votes.“
My Comment
Full disclosure: I worked for Agora two years ago. I receive no financial or other compensation ( trips, free food, passes to movies, restaurants, invites to exclusive seminars, commissions on real estate, insider deals etc. etc.) for mentioning them. But, if you´re writing about financial contrarians, they´re the original ones ….
My own difficulties with and criticism of them do not - and should not - prevent me from correctly attributing and acknowledging their work in populariazing nearly all the main issues that are now being debated in the media. Certainly, it was through them, and through Lew Rockwell, and Mises, not through establishment media or their blogs that I received an education in Austrian economics (I should add that I was always instinctively oriented to it, from childhood on).
Having deleted my facebook account after the social media wrestling-match between the Wall Street media mob (and backers) and Deep Capture´s investigative team (and backers), I am now content with actually writing emails or making phone calls to people I want to contact. Thankfully, there aren´t many I do.
SEC To Look At High-Frequency Trading and Naked Access
From Reuters, a report shows sharp rise in “naked access” to markets after 2005:
“NEW YORK (Reuters) - A report says that 38 percent of all U.S. stock trading is now done by firms that have “naked sponsored access” to markets, the controversial trading practice said to imperil the marketplace, and which faces a regulatory crackdown.
Naked access gives trading firms, using brokers’ licenses, unfetted access to stock markets. The firms, usually high-frequency traders, are then able to shave microseconds from the time it takes to trade.
Aite Group, a Boston consultancy, found that naked access accounted for just 9 percent in 2005.
The U.S. Securities and Exchange Commission is set to make changes to naked access and less risky forms of so-called sponsored access, when it releases a document expected next month.
The document is also expected to look more generally at high-frequency trading — where proprietary trading firms, brokers, and others use algorithms to make markets and profit from narrow market inefficiency.”
Gold Sinks Further, Dollar Surges..
We will need to see a few more days of supporting action, but as of now, it looks like gold might be beginning the long-awaited correction.
How deep that will go is anyone´s guess, though the recent central bank buying is supposed to lay a floor for it above $1000. Now, normally I wouldn´t bet the house on that, but I´ve come to see that pronouncements from insider analysts (at GS) are no longer just market analysis to be weighed. They are announcements about the course of action the banking cartel is going to be supporting.
The trigger for this? I think it´s that upbeat jobs number, which is probably taking some speculative money out of gold …especially as gold is technically very overbought and institutional buyers want to lock in profits before the year end.
Dubai is more important than most commentators think, even Marc Faber. They say the numbers involved are too small.
But, as I blogged earlier, they´re not seeing the contagion possible.
Here´s what they´re discounting:
1 We don´t know what the numbers from Dubai really are. We can´t be absolutely sure. They keep changing them. $125 billion (the highest figure I´v heard) may not be enormous in a global context, but we don´t know how its tied up with investments and where. A firesale of Dubai Worlds real estate could have unsettling effects all over the world.
2. Dubai has an impact on the property market, not just in Dubai, but in London and New York where Dubai Worlds has holdings, and also in India, where real estate and employment could take a hit.
3. Banks have leveraged exposure through derivatives, beyond what they are admitting in public.
4. These are banks that are already broke, for all purposes.
5. When the banks involved are not themselves broke, they are backed by governments that are broke, or near-broke.
6. The government with likely the most exposure is Britain. Britain is on the verge of sovereign default.
7. This happens just as the second down-leg in real estate is unfolding, and along with it the just-as- leveraged commercial real estate market (see the recent zero hedge post on an ongoing CRE failure in Chicago), where there´s little pressure for the Feds to step in.
8. This happens after a 10-month run up in the stock market in what is essentially a bear rally, according to many experts.
9. This happens when the government has escalated an unpopular war in Afghanistan, calling for more troop commitments and more money
10. This happens after massive further government commitments in health care and other social spending.
Would the dollar move up just on the back of an employment number that was widely acknowledged to be misleading? I don´t know.
Do I know if gold will sink below $1000? No.
But CB (central banks of India etc.) buying is said to have set the floor. Me, I think that was a bit of help given by the RBI (CB of India, Sri Lanka, etc.) to the IMF, seat of power of the globalists. Even the IMF admitted it got lucky.
Will that bit of market manipulation to the upside be enough to stave off the deflationary effect of develeraging asset derivatives?
I don´t know, but I suspect it won´t.
I’m anticipating a rush into the dollar like we had in 2008…maybe not as strongly…
maybe gold will sop up some of the rush this time. I think that´s what the CB´s are hoping will happen.But again, one can´t be sure, for the simple reason no one knows how much more bad debt there is and where it is.
Gold Down On Biggest Volume In History..
“The exchange-traded fund, SPDR Gold Shares, that holds gold bullion was down 5% Friday afternoon on record trading volume as the gold price fell. More than 70 million shares have traded hands with an hour of trading to go. It’s the highest volume in its history. The gold ETF was launched in late 2004 and has assets of more than $40 billion”
China Warns of Gold Bubble
The Telegraph reports that China warns of a gold bubble:
“Experts say that China is putting a floor under the gold price but does not chase rallies once they are under way.
There is also a double-edged twist to news that Barrick Gold, the world’s biggest gold mining company, has closed the final 3m ounces of its notorious hedge book ahead of schedule. While the move is a bet that prices will continue to rise, it also means that Barrick has been a big buyer of gold lately. These purchases have now stopped. One of the key drivers behind the spike this autumn has been removed.”
This article is one of the few out there that takes into account the time lag between an announcement and an action. Many of the events that reporters tout as proof that the gold price will spike much higher right way are actually events that have taken place in the past - for eg., purchases at lower prices - or are hedges that have a more complex function than the usual retail investor has in mind, with the siren call of “gold´s going to the moon, jump in now or you´ve lost it forever” sounding in his ears.
Take trader John Paulson´gold purchase. It took place in January, apparently. And remember that it was a position taken by his hedge-fund, with his clients money. Paulson gets his fee no matter how that trade turns out long term,
and if his fee is a percentage of the assets under management, a purchase when the price is high is better than one at rock bottom, even if his clients´profits are not maximized that way.(sorry: thoughtless blunder there)Notice finally that Paulson´s own fortune is in gold to a much lesser extent - only about $250 million of his reported $6 billion net worth. That comes to about 4% of his assets….(Correction: that´s 6.8 billion and less than 4%)
Not an earth shaking proportion by any means.
So, what gives?
Paulson Has More Gold Than Australia…
Or Argentina, or Brazil, or Thailand, or Ireland…or..
Check out EconomPic for a nice chart.
Mark to “Markit” Manipulation
From Deep Capture:
“Another line of inquiry has not been pursued, however, though it is of equal, and perhaps greater, significance. That line of inquiry concerns the way in which the prices of credit default swaps effect [sic] the perceived value of all forms of debt — corporate bonds, commercial mortgages, home mortgages, and collateralized debt obligations — and as a result, the ability of hedge funds manipulators to use credit default swaps to enhance their bear raids on public companies.
If short sellers can manipulate the price of credit default swaps, they can disrupt those companies whose debt is insured by the credit default swaps whose prices are manipulated. The game plan runs as follows: find a company that relies on a layer of debt that is both permanent, and which rolls over frequently (most financial firms fit this description). Short sell that company’s stock. Then manipulate the price of the CDS upwards, preferably into a spike, as you spread the news of the skyrocketing CDS price (perhaps with the cooperation of compliant journalists at, say, CNBC).
Because the CDS is, in essence, an insurance policy on the debt of the company, the spiking CDS pricing will cause the company’s lenders to panic and cut off access to credit. As this happens, the company’s stock will nosedive, thereby cutting off access to equity capital. Thus suddenly deprived of credit and equity, the firm collapses, and the hedge fund collects on its short bets.
Moreover, credit default swap prices are the primary inputs for important indices (such as the CMBX and the ABX) measuring the movement of the overall market for commercial and home mortgages. In the months leading up to the financial crisis of 2008, short sellers pointed to these indices in order to argue that investment banks – most notably Bear Stearns and Lehman Brothers – had overvalued the mortgage debt and property on their books. Meanwhile, several hedge funds made billions in profits betting that those indexes would drop.
It should therefore be a matter of some concern that credit default swap “prices” and the indexes derived from them are determined almost entirely by a little company with zero transparency and, it appears probable, a high exposure to influence from market manipulators. The company is called Markit Group, and there is every reason to believe that its CDS-driven indices (the CMBX, the ABX, and several others) are inaccurate, while the credit default swap “prices” that they publish and which rock the market are in fact nowhere close to the prices at which credit default swaps actually trade.
Last year, the media reported that New York Attorney General Andrew Cuomo had sent subpoenas to Markit Group as part of an investigation into possible manipulation of credit default swap prices by short sellers. This investigation, like Mr. Cuomo’s other investigations into market manipulation, have yielded no prosecutions.
The Department of Justice is reportedly investigating Markit Group for anti-trust violations. This investigation (which is reportedly focused on how Markit Group packages and sells its information) seems to acknowledge that Market Group has near-monopolistic control of information about credit default swap prices. However, if the press reports are correct, the DOJ has not considered the possible appeal of this monopolistic control to market manipulation.
“
My Comment
This isn’t the first time that Markit has been fingered. Pam Martens wrote a detailed piece last year at Counterpunch called “How Wall Street Blew Itself Up” that blew Markit´s cover.
Now I´ve always suspected the indices (including Libor) are manipulated. The fundamental problem in our markets is corruption..and that´s directly related to size and monopoly. That´s why you do need certain kinds of “level playing field” or procedural types of regulation (not substantive regulation) to take care of the problem. I think this should also take care of Olagues’ caveat. The Deep Capture team isn’t confining its investigation to simply naked shortselling in the technical sense, but is expanding its work to the entire range of strategies involved in rigging the markets - insider trading, short-selling of all kinds, and the manipulation of indices. (Correction: I am referring to uncovered short sales, where there is no intent to deliver)
John Olagues on Naked Short Selling
John Olagues, the options market-maker who first analyzed the collapse of Bear Stearns and Lehman as the result of a concerted attack, has a new piece at Investopedia criticizing the ¨naked short selling¨critics:
Naked short selling is often in the news today, and is criticized by journalists and other pundits who claim that naked short sellers allied with “rumor mongers” caused the collapse of Bear Stearns and Lehman Brothers. They cite the large “failure to deliver” for a stock as evidence of naked short sales days after the stock had dropped. Although the naked short sales happened after the collapse event, they still hold onto the idea that those after-the-event naked short sales caused the collapses. (To learn more, see Case Study: The Collapse Of Lehman Brothers.)
In my opinion, those who believe that naked short sales caused the collapse of Bear Stearns and Lehman Brothers are misdirecting the attention from the illegal inside traders and their allied manipulators.
The large volumes of “fail to deliver” stock and the naked short sales after the collapses of Bear Stearns and Lehman Brothers leads me to believe there is an explanation for those large volumes. However, that strategy did not cause the collapse of those companies. (For more, check out our Short Selling Tutorial.)
The Bottom Line
Selling short can be done in a myriad of ways. And, although naked short selling is often given a bad reputation in the media because it is frequently abused, it is not as nefarious as its critics suggest.
My Comment:
I´ve gone back and forth about this with Olagues, as well as with the most prominent figure in the naked short-selling campaign, Patrick Byrne…and it occurs to me that a lot of the problem lies in language - as is the case in other areas of political debate too.
Distinguishing between naked shortselling and other forms of shortselling where the shares fail to deliver seems to the source of the problem. NSS should include within it all forms of shortselling that do not cost the seller.
When the seller does not pay the actual price for his transaction, his activity is no longer adding information to the market. There is no price discovery, because the cost of the shortselling has been arbitrarily shifted elsewhere and in fact miscues the market. So what market-makers do in the course of their legitimate activities and also when they´re trying to exploit their position for their own benefit would come under the NSS rubric..
Aside:
I would go on..but I have had computer problems for the past two weeks…the keys type whatever they want to …I cant use the apostrophe, the parentheses have vanished, and when I type a dash, out comes an equals sign….which is why I keep using dots..and there are no contractions.Fall-Out from Dubai World (Update)
I´ll try rounding up the reaction in the market and the punditry to Dubai World´s threat of default.
Two clarifications.
First: Dubai World´s problem is being referred to as a sovereign debt problem, but as far as I can understand, it´s not. The Dubai government is the 100% owner of Dubai World, which is itself a holding company. But, as William Buiter points out in the Financial Times, the Dubai government has only limited liability, just like any other limited liability company.
It wouldn´t have to reach into its pockets to make good any obligation unmet by Dubai World or its subsidiary Nakheel.
Second. The debt crisis is being referred to as a Black Swan. Again, this is inaccurate. A black swan is an unexpected event that doesn´t fit (and in fact upends) the prevailing paradigm. This debt crisis has been on the horizon for a while. And the announcement of the standstill in payment was obviously calculated to roil the markets as little as possible - being made during the Thanksgiving holidays, when the market is partially shut, and also at the start of Eid which lasts until December 6.
Update: With those caveats, I was going to try and list the banks and sectors that might be affected…but I found that Bob Wenzel´s site had already got a chart of Dubai World´s obligations to Nakheel Holdings from Izabella Kaminska at the Financial Times. You definitely need your coffee before you read this one.
However, the text below the chart, although just as abstruse, does make it clear that investors are not going to be able to get any blood out of the Dubai government.
“Investors should note, however, that the Government of Dubai does not guarantee any indebtedness or any other liability of Dubai World.”
Update: I should add here that while technically the government of Dubai is not responsible for the debt, it is implied everywhere that the safety of the debt derives from its backstopping by the government. The reaction of furious investors that Dubai would never be able to raise a penny again implies that default would taint the government and not simply the company.
Speculation Drives Metal Prices
Geologist Brent Cook at Mineweb explores the speculative frenzy behind metal prices:
“Now I do not know if Paul’s [Van Eeden] thesis on gold is accurate or not: if it is it could still take many years to play out. Likewise, I do not know how or when the base metal prices will re-equilibrate to the reality of end demand-whatever that is. What is obvious is that gold and now base metals have become speculative investments that in addition to being bought as hedges against inflation and a falling US dollar are the latest get rich quick scheme. The end result is that absent the faith that metals and markets are all headed higher, we here at Exploration Insights are finding it difficult, although not impossible, to find value in junior mining and exploration companies.
Hot money on the other hand is not.
Over the past few months we have witnessed bought-deal equity financings for individual mid- to junior tier gold companies in the 10’s to 100’s of million dollars. These are being bought at nearly the absolute 52-week highs by funds that I know have not looked into the mining, metallurgical, social or political intricacies that make or break a mine. This fearless hot money jumping into the sector worries me. It always precedes a market bubble and correction: sometimes serious, sometimes temporary- sometimes by weeks, sometimes by years.
Adding to the absence of fear and proper due diligence in the market, my recent discussions with corporate financiers confirm that both large and mid-sized gold companies are being offered substantial unsolicited bought-deal financings-no questions asked. At the same time, some of the very same companies being offered the quick money are being hit with heavy selling when a fund manager becomes “concerned” because there has been no news for a couple of weeks or gold backed off $15.
Hand in hand with heavy fund demand for new metals investment ideas most of the major research firms have increased their commodity price assumptions to reflect the “new reality”. The primary advantage afforded by the commodity price revisions is that previously overvalued mining companies can instantly become “Buys”. Recall that the last major upward revisions from many of these same research firms came as the new reality of higher prices set in 2008.
The problem is that greed is driving the market and so any small hiccup or change in sentiment and the hot money tends to bolt. As last year taught us (remember last year?) when the fast money going in is the liquidity, there ain’t no liquidity getting out.
I remain cautious and somewhat concerned by what appears to be hot and fickle money jumping into a sector that is apparently taking its cue from pig farmers”.
Insights From the Bears
I had a conversation recently with some insiders in the financial industry, of a rather bearish persuasion. So bearish that they’re interested in leaving the United States.
Which is how I’ve felt for about five-six years.
The conversation yielded interesting tidbits. Some of them confirm my own thinking; others contradict it. The contradictory parts interested me the most, of course. I tend to pay more attention to people who think differently from me than to people who agree, perhaps because of some diffidence about my own judgment….Unfortunately, my own instincts have turned out to be more accurate than I’ve been able to believe.
Anyway, here’s what I came away with from what I consider honest and reliable professional money managers:
1. China is overvalued greatly. By around 50%-60% or more (not the first time I’ve heard this, of course).
2. Jim Rogers knows commodities, but doesn’t know gold as well (this was new to me).
3. Marc Faber has one of the best reputations as an investor among insiders (well-known to me). His newsletter is worth the money.
(Full disclosure: I don’t subscribe to Mr. Faber’s newsletter, work for him or receive any kind of compensation for this statement. I’m passing it along as well-founded opinion that might help readers struggling to find reliable guidance in the welter of news….)
4. Gold bars sold by some firms have tungsten underneath, so be careful from whom you buy. James Turk is a reliable person to buy gold from. (Full disclosure: I don’t use Mr. Turk’s services nor have I been paid by anyone to make this assertion).
6. A lotof Several money-managers think there may be no gold at Fort Knox - or very little - not just confirmed “conspiracists” - among whom I am proud to number myself. (Correction, Nov. 13: “No gold” doesn’t have to mean the absence of physical gold. Gold could be present physically, but it could owed to other entities, like a house that is technically in your name, but is really owned by all your creditors).
7. Rogers was more the driving force behind Quantum’s success than Soros.
8. There will be no secession. Americans aren’t up to it. The cognitive dissonance between perceived reality and “real” reality is too great for most people to grasp the extent of the corruption in the system. Any hope of rebellion rests with “red-necks” (apologies for using a racist term - I use it ironically here), not with yuppies.
9. The Indian market is riddled with fraud and hype. Jim Rogers thinks the Indian market is a scam. (I wouldn’t use that harsh a word, but I worry about hype and corruption in it too).
10. Brazil’s Fortaleza area, which has been attracting a lot of investor interest, has great beaches and weather…as well as slums, crime, and deadbeats of all kinds. Recommended for investing, not for living.
11. Argentine property laws are not as safe as US property laws (despite Kelo) - at least, at the level where it concerns the ordinary joe. Aggressive, organized squatting is a problem in rural areas.
12. The ongoing investigation of insider trading (eg., Galleon) is not just a one-day wonder, but might bite harder than expected.
Buffett Bets Big On US Economy
Warren Buffett’s Berkshire Hathaway fund has pumped $34 billion into Burlington Northern Santa Fe Corporation, the USA’s second largest railroad.
“Berkshire’s $34 billion investment in BNSF is a huge bet on that company, CEO Matt Rose and his team, and the railroad industry,” Buffett said in a statement.
“Most important of all, however, it’s an all-in wager on the economic future of the United States. I love these bets,” he said.”
More at AP.
DTCC Conflicts Of Interest Include Ties With Penson, Goldman
More digging about Penson turns up a number of ties with regulators (this is probably par for the course, and not surprising). Penson Worldwide’s board of directors includes one David Kelly, who until 2000 was President of the National Securities Clearing Corporation, as well as Vice Chairman of DTCC.
More on DTCC here at Financial Wire, May 11, 2004
cited at Deep Capture.(Lila : The DTCC is the Depository Trust and Clearing Corporation, not the Depository Trust Company, as indicated in the article)
“The Depository Trust Company (DTC) is a member of the U.S. Federal Reserve System, a limited-purpose trust company under New York State banking law and a registered clearing agency with the SEC. The depository supposedly brings efficiency to the securities industry by retaining custody of some 2 million securities issues, effectively “dematerializing” most of them so that they exist only as electronic files rather than as countless pieces of paper. The depository also provides the services necessary for the maintenance of the securities it has in “custody.”
The largely unregulated DTC has become something of a defacto Czar presiding over the entire U.S. markets system, wielding more day-to-day influence and control than the SEC, the NASD and NASDAQ combined. And, as the SEC’s June 4 ruling indicates, its monopoly over the electronic trading system appears even to be protected.
How entrenched is the Depository Trust and Clearing Corp.? It’s two preferred shareholders are the New York Stock Exchange and the NASD, a regulatory agency that also owns the NASDAQ (OTCBB: NDAQ) and the embattled American Stock Exchange! Regulators, regulate thyself?
In an era when corporate governance is the primary interest for the SEC and state regulators, the DTCC is hardly a role model. Its 21 directors represent a virtual litany of conflict:
They include Bradley Abelow, Managing Director, Goldman Sachs (NYSE: GS); Jonathan E. Beyman, Chief Information Officer, Lehman Brothers (NYSE: LEH); Frank J. Bisignano, Chief Administrative Officer and Senior Executive Vice President, Citigroup / Solomon Smith Barney’s Corporate Investment Bank (NYSE: C); Michael C. Bodson, Managing Director, Morgan Stanley (NYSE: MWD); Gary Bullock, Global Head of Logistics, Infrastructure, UBS Investment Bank (NYSE: UBS); Stephen P. Casper, Managing Director and Chief Operating Officer, Fischer Francis Trees & Watts, Inc.; Jill M. Considine,Chairman, President & Chief Executive Officer, The Depository Trust & Clearing Corporation (DTCC);
Also, Paul F. Costello, President, Business Services Group, Wachovia Securities (NYSE: WB); John W. Cummings, Senior Vice President & Head of Global Technology & Services, Merrill Lynch & Co. (NYSE: MER); Donald F. Donahue, Chief Operating Officer, The Depository Trust & Clearing Corporation (DTCC); Norman Eaker, General Partner, Edward Jones; George Hrabovsky, President, Alliance Global Investors Service; Catherine R. Kinney, President and Co-Chief Operating Officer, New York Stock Exchange; Thomas J. McCrossan, Executive Vice President, State Street Corporation (NYSE: STT); Eileen K. Murray, Managing Director, Credit Suisse First Boston (NYSE: CSR); James P. Palermo, Vice Chairman, Mellon Financial Corporation (NYSE: MEL); Thomas J. Perna, Senior Executive Vice President, Financial Companies Services Sector of The Bank of New York (NYSE: BNY); Ronald Purpora, Chief Executive Officer, Garban LLC; Douglas Shulman, President, Regulatory Services and Operations, NASD; and Thompson M. Swayne, Executive Vice President, JPMorgan Chase (NYSE: JPM).”
Billionaire Nabbed In Largest Hedge Insider Scheme
In the news (:http://www.bloomberg.com/apps/news?pid=20601087&sid=asliefsvW5Zc)
“Oct. 16 (Bloomberg) — Raj Rajaratnam, the billionaire founder of Galleon Group, and ex-directors at a Bear Stearns Cos. hedge fund were among six people charged in a $20 million insider trading scheme federal prosecutors called the biggest ever involving hedge funds.
Also accused were Rajiv Goel, who worked at Intel Capital as a director in strategic investments, Anil Kumar, who worked as a director at McKinsey & Co., and IBM Corp. executive Robert Moffat. The former officials at Bear Stearns Asset Management are Danielle Chiesi and Mark Kurland, who were affiliated with the firm’s New Castle Partners, which managed about $1 billion.
“The defendants operated in a world of, you scratch my back, I’ll scratch your back,” U.S. Attorney Preet Bharara in Manhattan said at a press conference today. “Greed, sometimes, is not good.”
My Comment
The biggest hedge scam - there you go. Anything Westerners can do, Easterners can do better. We’re not going to settle for any penny-ante crime anymore. Now you know how at least one South Asian billionaire got rich so fast. Nothing like having an edge…
What’s interesting is that this is the first time that the Fed’s used wire-tapping to target insider trading on Wall Street. Until now that tool has been the reserve of organized crime and drug cases.
Fraud On the Run: Goldman Cop On SEC Beat (ROTFLOL)
In the news, to be filed under - What parallel universe does New York live in?:
“Oct. 16 (Bloomberg) — The U.S. Securities and Exchange Commission named Adam Storch, a 29-year-old from Goldman Sachs Group Inc.’s business intelligence unit, as the enforcement division’s first chief operating officer.
Storch, who joined the SEC Oct. 13, was named to the newly created post of managing executive in the enforcement unit, charged with making the division more efficient, the SEC said today in a statement. At New York-based Goldman Sachs, he had worked since 2004 in a unit at that reviewed contracts and transactions for signs of fraud.”
My Comment:
Personally, I’ve come to nurse a kind of contemptuous respect for, an appalled amusement at Goldman Sachs. It’s the contrarian in me.
In-your-face-corrupt, shameless, self-promoting, out-of-touch, sanctimonious, and bottomlessly greedy - It’s a firm made for our times…
If Goldman Sachs didn’t exist, we’d have to invent it.
Mid-East, Europe, Africa Securitizations Will Deteriorate More, Says Moody’s
From the Global Arab Network:
“The performance of many asset classes in the Europe, Middle East and Africa (EMEA) securitisation sector will continue to deteriorate throughout the rest of the year and into 2011, says Moody’s Investors Service in a new Special Report. The report examines the prospects of recovery for international securitisation in several asset classes and geographies: EMEA Auto ABS, UK Credit Card ABS, UK Non-Conforming RMBS, Spanish ABS and RMBS, Asia Pacific ABS and Global Derivatives. The rating agency expects performance volatility and uncertainty to decline in the coming months, although it cautions that a drop is predicated on achieving some level of economic moderation if not slight improvement, combined with the seasoning of securitised loan portfolios.
Moody’s says that although GDP growth is expected to turn positive in many countries in EMEA later this year or in early 2010, employment and home prices will continue to deteriorate well into 2010, which will lead to securitised loan losses remaining at elevated levels throughout 2011 and 2012.”
Taibbi’s Penson Video..(Correction)
Correction:
(10/12/09, Monday)I should have said “allegedly faked” video. I stand corrected. No weasel words, Mr. Byrne (see Byrne’s comment below).
I often post stories on which I have no comment or opinion one way or other, because I haven’t followed them, but think readers might like to. In my last several posts, in fact, I defended Deepcapture’s, Taibbi’s, and Zerohedge’s work, in spite of occasional alleged or real errors.
But the reason I linked to Wenzel’s blog is because Wenzel’s post is pretty funnily written, and I don’t follow Taibbi, except occasionally. I didn’t like his attacks on David Griffin, where he exposed himself as somewhat ignorant. Taibbi also doesn’t attribute people (apparently others have that complaint too). But arrogance and ignorance in one area don’t equate to being incorrect in another.
I’ll add a separate post with the rather long back and forth between Taibbi and his various critics and defenders. I went by Penson’s dismissal of the video, but I’ve since noted that Penson has some history that is troubling and tends to makes its dismissal less credible.
So what else might be construed as “weasel-worded” in my recent blogging?
Perhaps my rather neutral approach to the Byrne vs. Weiss feud, still going strong. Well, I’m neutral about it - who stalked whom, etc. etc. - because I don’t know the ins and outs of it. I had my own experience of being harassed, and can barely keep up with the details of that, let alone someone else’s stalking experience.
I also don’t know which of the two abuses of the market - “stock pumping and money laundering” (criticized by the Wall Street “captured” media) or “naked-shorting” (criticized by Byrne, Davidson “ “Bob O’Brien,” and many others, including Taibbi) - is the more momentous.
As a libertarian, I think naked-shorting is, but that’s only my opinion. Which is why I’ve been neutral. My sense is both abuses are real and extensive.
Likewise, I really don’t know enough about what the SEC’s investigation of Overstock is about. Could it be punitive?
Quite likely, given all we know about the SEC. But does that mean everything else the SEC does is incorrect? Unlikely.
Does that mean what Byrne wrote about “naked short selling” is incorrect? No.
Final point. I tend not to like shrill personal attacks.
That’s a deferral to civility and complexity, not weasel-wordedness.
ORIGINAL POST:
On Matt Taibbi getting suckered by a “faked” (quotes added for now) naked shorting video:
“Carney is a sharp guy, and he has Taibbi nailed on this one, but, I repeat, naked short selling, like a lot of Wall Street, is a very complex game. Carney in some of his other posts suggests there is nothing wrong with naked short-selling, he is off on that one. Some of it can be justified as simple market maker operations, but some of it is major league abuse by very clever insiders, which is the point Taibbi is taking, but doesn’t have the knowledge to back up properly.
Anyway, once you sit down an analyze the entire naked short selling thing, you realize that the bad naked short selling would go away if the SEC would stop issuing regulations that protect the bad guys. Basic common sense and commercial law would put an end to the bad naked short selling, real fast.
Bad naked short selling exists because there is a power source to manipulate, in this case the SEC, and the bad guys are running circles around the SEC.
What you want to understand naked short sales for yourself? Well pull up a chair, give yourself five hours and read this. It’s a great first step.
But, I tell you, it will be much more fun watching Taibbi attempt to pull the bayonet out of his brain.”
More by Robert Wenzel, at Economic Policy Journal.
Gulf Arabs to Move Out of Petro-Dollar (Updated)
Update:
I’m adding my comment at the top here after watching this puzzling day. Gold shot up to new highs over $1040 (and not just in the US but elsewhere). Is this the bull break-out the bugs have been waiting for? Maybe. Central bankers and officials from the Gulf states came out to pooh-pooh the story, but it couldn’t be put back in the box.
My puzzlement is this: If gold is soaring because of this “revelation” of the dollar’s death - then why did the dollar itself sink only modestly (at least, as I write).
I note also that the stock market recovered some of its ground. That might have something to do with the Australian Reserve Bank announcing a tighter policy, quite unexpectedly, and in apparent belief that the recovery is real, never mind Joseph Stiglitz, George Soros, Marc Faber, Jim Rogers, and other no-longer-strange bedfellows who think the opposite.
V-shaped, U-shaped, Square-root shaped, or corkscrewed, the recovery isn’t your grandfather’s recovery, that’s for sure. And someone is trying to make a silk purse out of this sow’s ear. That skepticism leads me to wonder whether this very convenient rumor, which coincides with the IMF meeting in Istanbul, might be a certain kind of saber rattling in anticipation of negotiations - except that these very public meetings are never where anything substantial takes place any way. (So says Simon Johnson in a recent blog post). But the IMF is selling gold, we know, and we know also that it wants to make sure it doesn’t hit the markets too hard when it does. Could this little upswing be helpful toward that end? Probably. Could this rumor - widely denounced as insubstantial - have something to do with that? Perhaps.
In the news, the Independent’s Robert Fisk reports on the coming fall of the petro-dollar:
“In a graphic illustration of the new world order, Arab states have launched secret moves with China, Russia and France to stop using the US currency for oil trading
In the most profound financial change in recent Middle East history, Gulf Arabs are planning – along with China, Russia, Japan and France – to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar.
Secret meetings have already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme, which will mean that oil will no longer be priced in dollars.
The plans, confirmed to The Independent by both Gulf Arab and Chinese banking sources in Hong Kong, may help to explain the sudden rise in gold prices, but it also augurs an extraordinary transition from dollar markets within nine years.”
China Saved Brazilian Economy, Says Brazilian Economist
From the Brunei Times:
“In Latin America, IMF economists said the crisis is affecting countries differently depending on whether, like Mexico, they are more closely tied to the US or, like Brazil, they have more links with China.
“If it was not for China we wouldn’t have seen positive growth in the second quarter in Brazil,” Ilan Goldfajn, chief economist at Brazilian bank Itau Unibanco, said at an IMF-organised conference in Istanbul. He said the world would now start to “rebalance towards Asia”.
What A Billionaire Can Buy
For those who think that nationalism is the threat, rather than transnationalism, consider this:
“Bill Gates, America’s richest man with a net worth of $50 billion, has a personal balance sheet larger than the gross domestic product (GDP) of 140 countries, including Costa Rica, El Salvador, Bolivia and Uruguay. The Microsoft ( MSFT - news - people ) visionary’s nest egg is just short of the GDP of Tanzania and Burma.”
More here at Forbes.
Prechter - Debt Is the Problem, Not Paper Printing
Goldseek radio has an interview with Robert Prechter here.
Prechter’s 2002 book, “Conquer the Crash,” predicted the current economic collapse and this is an interesting and wide-ranging interview. Prechter is a renowned Elliot Wave theorist and a long-time prophet of depression.
Summing up his most important points:
*We have been in a developing deflation since 2002
*Debt is the problem, not paper-printing.
*Gold will hold value and do well, but it won’t go to the moon
*Cash is a good place to be
*The market will go down for a replay of 2008, in spades
Faber: Indian Central Bank One of the Best in the World
“Where does India fit in your preferred or not preferred list right now of markets?
A: I think the Reserve Bank of India (RBI) has one of the best monetary policies in the world because they supervise the financial sector very closely. They have maintained relatively tight monetary policies and also they pay attention not only to core inflation which is not representative of the cost of living increase and is not representative of inflation in the system but the RBI also pays attention to rising and falling asset prices. So I have to give them credit for being one of the best Central Banks in the world.
My Comment:
Faber goes on to argue for a pull-back in markets everywhere (maybe immediately, maybe after a further 10% rise), for a snap-back of the dollar in the near term (by around 10%), and for substantial further decline in the market, and over the next 2-3 years, in the dollar.
I like the point he makes in the quote that inflation isn’t just “core” inflation - the rise in prices in the stuff on the grocery shelves - but should also include asset price inflation. Because then you’d have a better judgment of what was going on in the markets.
My own take is that the media is misjudging some of the numbers coming from the emerging markets. The Chinese figures are likely to be highly over-optimistic and inflated, maybe by as much as 50% or more. The Indian market is also not that transparent….
Ron Paul: There Will Be Violence….
Ron Paul on Glenn Beck, via Lew Rockwell:
“I think that there will be violence,” he explained. “I hope we don’t have to go through, you know, a very violent period of time, but that’s what happens too often when the government runs out of money and runs out of wealth, the people argue over, you know, a shrinking pie and, of course, the people who have to produce are sick and tired of producing.”
Ground Hog Ben: Fed Declares Depression Over…
I expanded an earlier post into a diatribe:
That’s it folks. Wrap it up. This here recession…er.. correction…er.. depress…oh, whatever..is over. Time to put away your pens and papers, boys and girls.
Professor Bernanke says there’s going to be no test. You hear that? Or maybe, there’ll be one little teeny-weeny take-home. Better yet, you just get to write in and ask for whatever grade you want.
Billy Gross, Bobby Rubin, and Jamie Dimon, you boys get A’s, as usual.
(The rest of you clods better learn to to suck up if you want A’s).
Everyone else gets B’s….
No one fails. Ain’t life great?
Whew. That depression stuff was so, well, depressing. Glad it’s over.
There. That wasn’t so bad, after all, was it, seeing as how it was supposed to be the worst one in half-a-century and the sky was falling and we were all going to live in the Ozarks or Patagonia on canned peas and raw mackerel until we got raptured up… and really all that happened was some green paper got printed and we had to listen to a lot of speeches about schools an’ stuff in Barackistani (not as weird a lingo as Bushlish, but just as daft) and then, bingo, everything’s back to normal again.
Yessir. The economy is healthy. Grade A, certified organic, flu-vaccinated healthy. A bit weak. But wholesome. Except for jobs, that is. No jobs.
What kind of recovery is that, you ask?
What kind? It’s the new deadbeat, can’t-get-a job, rocketing-inflation, trashed-currency, can’t-sell-my-house, can’t-make-my-payments, bankrupt-mafia-government, kazillions-in-debt, trade-warring-with-China recovery - that’s what it is. Glad you asked.
It’s kind of a new thing. No one’s really tried it so far, but they’re doing it in Europe, we hear. And maybe a bit of it in Asia. But it’s back here in the US of A that we’ve got the whole thing down. Right here in Washington. And from now until the economy gets really going, we’ll be getting the full Bernanke on it - at least, that’s the buzz.
Yep. Professor Ben’s all but promised us he’s going to be inflating grades all around this time.
No F’s. No D’s. Heck, no C’s. It’s A’s and B’s all the way. That’s the way they do it in Princeton. It’s a self-esteem thing.
Like that pep talk back on March 16, when Ben first spotted those green shoots. Now it’s September15 (exactly six months later), and Ben says the recession is over.
He says it’s all in the numbers from the National Bureau of Economic Research. The numbers say the recession ended this summer or fall. Man, the things they can predict these days.
Ole Ground Hog Ben. Puts his head out and the sun comes up. Amazing. Who knew you could even keep score of an economy?
Kind of like a lacrosse game at Princeton. Swat. Swat. Swat Take that, Harvard.
Of course, being a Princeton professor and religious and a pretty nice guy from all we’ve heard, Ben couldn’t bring himself to tell an outright whopper. He let the truth out dribble-drabble at the end.
Something about “impaired credit”…. and “head winds”…. and “digging out from personal debt”…. and “ongoing adjustments”….. and “unwinding massive stimulus efforts”…. and “risking igniting inflation”…. and “lingering high unemployment”…. and “sluggish outlook”…. and “higher gas prices” and…. “consumer reluctance”…. and “widespread job insecurity”…. and “significantly impaired credit”…. and “less lending”…. and “higher costs”…. and “deep freeze in credit”…. and “fearing defaults.”
But they put that way down in the report, after paragraph 5 (”Bernanke: Recession is Over,” Kansas City Star, Sept 15, 2009).
Before that, they just had him muttering something about the economy “underperforming”. ‘ Yeah, underperforming. Like the old geezer just needs a shot of Viagra.
But don’t let any of that bad stuff worry your little head, ’cause you know, the numbers say we’re okay. The numbers say the recession…er correction..er depress…oh, whatever…is over.
And numbers don’t lie, you know.
Like August retail sales. That went up by 2.7% over July. (I know, I know, cash-for-clunkers, high gas prices, blah blah blah. Gimme a break. It was still up wasn’t it?)
And the ISM numbers are good too.
August PMI (Purchasing Manufacturers Index) came in at at 52.9, 4 percent points higher than July.
(A number over 50 indicates an expanding economy. Below 50 is a contracting economy. This is the first time since June 2007 that the number’s been over 50).
Oh you don’t say!
And New Orders came in at the highest reading since December 2004. You know what that means. Businesses are stocking up. GDP is on it’s way up.
Woo-hoo. Ride that gravy train.Ka-ching! Bada boom!
Hold just a moment though.
What’s this Non-Manufacturing Index stuff here?
Oh, you mean those bozos in medicine and law and teaching and real estate and construction and finance and retail?
Yeah, consumers. You know, guys who consume stuff. That stuff the manufacturing guys are producing. Seems like they still aren’t doing so good. So who’s going to buy all the stuff?
Not consumers. They’re cutting back.
You don’t know? That’s what comes of being a grade-inflated B student.
I bet Bob Rubin knows. And Jamie Dimon. And Bill Gross. And Warren Buffett.
And all their hedge-fund managing, private-equity-directing, leveraged-buying-out, sovereign-wealthy speculator buddies lining up to start the casino all over again.
They know whose money they’re using to do it too.
Hey, Professor Bernanke. Can we see you outside class? We have some questions….Note:
The indicators that are looking positive (ISM number, retails sales, the price of copper) are all numbers that could reflect no more than
1. The business cycle restocking of inventories 2. Cash for clunkers 3. The beginning of the school year 4. State purchases/investments being made by China in an effort to get rid of dollars
Government Debt: A Giant Step for Mankind
Portfolio.com has a neat interactive feature, “The Green Miles,” by Jocelyn Hanamirian,that shows you what the government’s debt would look like if it were stretched bill by bill across the solar system.
The Bear Stearns buy-out, at $29 billion, for example, takes us just past the moon.
The 2009 federal budget deficit, at $1.2 trillion, takes us past the sun.UN Recommends New Global Currency
In the news, on September 7, Bloomberg reports that the UN wants a new global currency, ostensibly to protect emerging markets:
“UN countries should agree on the creation of a global reserve bank to issue the currency and to monitor the national exchange rates of its members, the Geneva-based UN Conference on Trade and Development said today in a report.
China, India, Brazil and Russia this year called for a replacement to the dollar as the main reserve currency after the financial crisis sparked by the collapse of the U.S. mortgage market led to the worst global recession since World War II. China, the world’s largest holder of dollar reserves, said a supranational currency such as the International Monetary Fund’s special drawing rights, or SDRs, may add stability. “
My Comment
(coming up)Gold Below $1000, While Dollar Slides
In the news, gold failed to find a foot-hold above $1000, despite a weakening dollar. A better-than-expected jobs report probably had something to do with that.
From Market Watch via Goldseek:
“Gold futures fell Thursday for a second session, continuing to pull back from the $1,000-an-ounce level as a slightly better than expected U.S. weekly jobless data reduced the metal’s safe-haven appeal.
The number of people filing for initial unemployment benefits fell to a seasonally adjusted 550,000 last week. Economists surveyed by MarketWatch expected claims to stand at 558,000.”
Cliff Stearns Questions Hank Paulson..
How about a little less grilling of Sarah Palin and a little more of Hank Paulson? Notice how much Paulson stammers..
Gold Spike Related to Chinese Derivative Contracts Busting?
Here’s a zinger that might explain gold’s sudden spike since yesterday:
“Some of the State Owned Enterprises that stated their potential intentions to default were Air China. China Eastern and Cosco. Mainly in part because they took major derivatives losses over the past year but also, concerns are arising that the derivatives that they were sold by these foreign institutions are garbage, underwater and may never see the light of day. So why continue to pay for them? So the concern in the financial world is that holders of these losing products may just walk away, not unlike a home owner with a $600,000 mortgage on a home valued at $475,000 deciding to just hand in their keys. However, read on…this has nothing to do with morgtgage backed products. This time, the concern may be over Oil.
They (Reuters) cited 6 foreign banks. Where the story gets really intriguing is that among the major derivatives providers according to Reuters but also widely known in the industry, are Goldman Sachs, UBS and JP Morgan.
Here is the looming problem. These products are worth billions. One report that a good friend of mine did showed that if Goldman Sachs for example were to take this one up the rear, they could stand to lose 15 billion dollars. (This number is by no means confirmed)……. I would imagine that China, being the biggest purchaser of US debt, could surely collapse the US institutions that were at one point deemed too big to fail if they decide to go ahead with this plan.
This is why I don’t take tonight’s news that China purchased 50 billion dollars of IMF bonds lightly. In fact, I take it very seriously. This is why I take the buzz on the floor over the past two days very seriously as well as I do the incredible spike in Gold today. Most importantly, I do not take lightly the recent 25% correction we have seen in the Chinese Stock Market. Can all these events be interconnected some how? Is the Chinese stock collapse giving us a hint?”
Money Dominates India’s Ruling Class
From Sainath at Counterpunch, an analysis of MPs (Members of Parliament) in the Lok Sabha (the lower house, or House of Commons, as opposed to the Rajya Sabha or House of Lords) in India:
“NEW is a coalition of over 1200 civil society groups working across the country. Their “Analysis of MPs of the 15th Lok Sabha (2009)” makes great reading and is the product of fine research and much hard work.
There were 3,437 candidates in the polls with assets of less than Rs. 1 million, says the report. Of these, just 15 (0.44 per cent) made it past the post. But your chances soar with your assets. Of 1,785 candidates in the Rs. 1 million to Rs. 5 million group, 116 (6 per cent) won. This win-ratio goes up to 19 per cent of candidates for the Rs.5 million to Rs.50 million segment. And of 322 candidates in the Rs.50 million plus or platinum tier, 106 (33 per cent) romped home.
The higher you climb the ladder of lucre, the better your chances. That’s obvious. But what’s striking is how bleak things are for non-millionaires. Even a modest improvement in your wealth helps. Say, you move from the below Rs. 1 million group to the Rs. 1-5 million group — your chances immediately improve at a higher rate than your wealth. (Of course that works only if you are already close to the Rs. 1 million mark.) So it’s not just that wealth has some impact on election outcomes — it influences them heavily and disproportionately as you go up the scale.
All of a piece with a society that only last year had 53 dollar billionaires (pre-meltdown), one that still has 836 million human beings who “get by” on less than Rs. 20 a day and which ranks 66th amongst 88 nations on the Global Hunger Index (just one notch above Zimbabwe). India has plummeted to rank 132 in the United Nations Human Development Index (one slot below Bhutan) as our billionaire count has risen. That wallows below Bolivia, Botswana, the Republic of the Congo and the Occupied Territories of Palestine in the HDI rankings. And never mind being worth billions - 60 per cent of adult rural Indians simply do not have bank accounts….”
Commercial Real Estate Worsening..
Commercial Mortgage-Backed Securities (financial instruments backed by debt derived from commercial real estate mortgages) are in growing trouble, says the Wall Street Journal:
“The CMBS sector is suffering two kinds of pain, which, according to credit rater Realpoint LLC, sent its delinquency rate to 3.14% in July, more than six times the level a year earlier. One is simply the result of bad underwriting. In the era of looser credit, Wall Street’s CMBS machine lent owners money on the assumption that occupancy and rents of their office buildings, hotels, stores or other commercial property would keep rising. In fact, the opposite has happened. The result is that a growing number of properties aren’t generating enough cash to make principal and interest payments.
The other kind of hurt is coming from the inability of property owners to refinance loans bundled into CMBS when these loans mature. By the end of 2012, some $153 billion in loans that make up CMBS are coming due, and close to $100 billion of that will face difficulty getting refinanced, according to Deutsche Bank. Even though the cash flows of these properties are enough to pay interest and principal on the debt, their values have fallen so far that borrowers won’t be able to extend existing mortgages or replace them with new debt. That means losses not only to the property owners but also to those who bought CMBS — including hedge funds, pension funds, mutual funds and other financial institutions — thus exacerbating the economic downturn...”
My Comment
So there you have the reality under the green shoots hype. The economy might be showing good signs - why wouldn’t it, the amount of money that’s been thrown into it - but in the long-run, the refusal to let the underlying problem correct itself only drags out the crisis and makes it worse. And that’s just CMBS, one part of the entire commercial real estate market. The whole market is $6.7 trillion.
The failing loans make up about 1/60th of the entire market, but since they’re widely dispersed in individual and institutional portfolios, their impact will be far greater and more cumulative than their numbers would suggest. That was what happened with residential ARMs.
We explain the whole crisis in “Mobs, Messiahs, and Markets” (check out the new paper-back edition that came out from John Wiley, August 24, 2009) - look at the financial sections - “Flattening the Globe” (that explains the un-Friedmanesque facts behind globalization) and the section called “Bubble Kings.”
It’s a quick and easy but thoroughly researched run-down of what happened in the financial markets. You’ll be able to figure it out, even if you never took a course in economics.
In fact, it might be harder for you if you did take college economics, where the underlying premise is that static models can do better than real world analysis in predicting what’s going to happen.
How many of these academic experts, including Ben Bernanke, anticipated what might happen and explained clearly and accurately why it would happen? None, it looks like.
There’s a lot of revisionism going on now..People are rewriting what they said two years ago or five, or even farther back. But the truth is, the emperor (expert opinion) has been caught out wearing a g-string. And nothing much else.
The experts are buck (excuse the term) naked….
Government Conspiracy Theory Blames Hybrid Mortgages for Depression
Tom di Lorenzo at Lew Rockwell blog has this:
“Following Alan Greenspan’s pathetic “don’t blame me” speeches and books, various Fed branches have parroted his view that the Greenspan Depression we are in was caused by thrifty Orientals whose savings drove down interest rates. So imagine my surprise upon receiving a hard copy of a Dallas Fed publicaton entitled “Taming the Credit Cycle by Limiting High-Risk Lending” and reading that “The present troubles emerged to a large extent from the growing use of hybrid adjustable-rate mortgages . . .” Huh? What happened to The New Yellow Peril?
There is no mention at all — not one word — of the role of Fed monetary policy in creating the housing bubble. The culprits, say these self-serving excuse makers (the author is Jeffrey W. Gunther), are “lightly regulated institutions” that are in need of the Fed’s “disciplining force.”
My Conment
Mr. di Lorenzo can relax - this new tack does nothing to exonerate Greenspan. Look at this USA Today piece from early 2004, when housing was already showing bubbl-y tendencies:
“He [Greenspan] said a Fed study suggested many homeowners could have saved tens of thousands of dollars in the last decade if they had ARMs. Those savings would not have been realized, however, had interest rates shot up.
“American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage,” Greenspan said.”
Read through the whole piece and it’s clear that American house buyers actually “preferred the stability” of the traditional fixed rate mortgages. In other words, it was only a concerted PR effort by Greenspan & Co. that changed people’s tastes in this.
Let that put an end to any moralizing of this issue. Yes - rampant consumerism and debt binging exacerbated the problem. But the problem wasn’t caused by some moral defect in American consumers. It was caused by policies deliberately pushed by the federal government in the hope that the consumer would succumb. The chairman of the Federal Reserve thus acted no differently from any confidence man or grifter who spots a mark (a naive, uninformed person easy to manipulate), then sets about winning the mark’s confidence before baiting the trap….
You can see the chairman’s own words to the national association of credit unions on February 23, 2004. (Skip down to the last 2-3 paragraphs to catch the gist)
And now, just like any con man, the Fed chairman too blames his victims.
They had it coming to them...
More Dollar Decline Imminent?
I’m not any place where I can blog easily but I had to post this paragraph from Jim Willie’s newsletter on a possible dollar debacle in the coming week/weeks…
I’m hearing that US embassies are being instructed to buy the local currency (?) -Is this really in the works, is it scare-mongering, gossip, disinformation…?
Who knows, but it’s worth posting.
Be alert.
I note that gold, after looking like it would correct, now seems to have gone back up and the dollar is teetering again…as it’s done many a time.
I’m ready to move if I have to.
Down here in the pampas, swine flu is rampant. People go in and out of Buenos Aires with masks. The portenos don’t have the best reputation on the continent, and this is making it worse. Everyone is holding their breath anyway - with or without masks.
The winds are beginning to blow in from the delta, as they always do at this time of year. It feels like brisk spring weather in the US. Prices in the city are high but everyone is waiting for something to happen. Don’t buy now, says an expat blogger who watches real estate. Everything’s about to come down. People are pushing up the prices to squeeze out the last penny before things crash.
Don’t have anything to do with them, says a Brazilian businessman. “Them” means Argentines - who are said to be arrogant…touchy….corrupt…drama queens…
One the other hand, everyone likes the Brazilians. They’re the Italians of South America.
In Argentina, they have farms and food…and they cry, goes a Brazilian saying. In Brazil, they don’t have food. And they dance.
It’s true.I had lunch at a restaurant on the banks of the Rio dela Plata with an American - a just-retired attorney from Virginia - who is down here looking for property. He was talking about vaccinations. Some of his theories were definitely paranoid - but it’s the kind of paranoia that’s plausible these days. He wanted to drop his American citizenship, but was afraid it would raise a red flag. He talked about the exit tax and how it prevented the wealthy from leaving. It was the first time in my life I was grateful for not being a financial success.
I suggested that the purloined letter strategy might be the best. Hide right out in the open, in the most obvious place. We discussed what that would be. It was a toss up between getting a job at Goldman Sachs, working for the Pentagon, or emigrating to some member of the Axis of Evil.
He had fish. I had a salad - an odd choice in this meat-saturated culture. But I’m on a budget. Wandering the globe on your own steam would be ruinous without one. For me, a night at a restaurant means a couple of days of rice and beans to make up for it. I haven’t couch-surfed yet, but it may yet be in the cards, if this trip gets prolonged.
Jim Willie:
“The globe is losing patience with leadership and management of the USGovt ship at sea. They simply refuse to offer a credible solution to the primary keynote crack in the hull, falling housing prices and cratered mortgages, each of which work their destructive magic to wreck the banks. The home loan modifications are a farce, a travesty not designed to modify but rather to frame a series of loan forbearances. The motive for not fixing the mortgage mess is mysterious to the masses, but not here. Jackass claims have been consistent, that effective loan modifications would alter the underlying mortgage bonds drastically. The Powerz wanted enough time delay to rejigger as many mortgage bonds as possible into new securities, thus rendering impossible any legal challenges to the original mortgage package process that was loaded with fraud to the hilt. Any drastic alteration of mortgage bonds would reveal vast fraud of two types. Many mortgage bonds did not have clearly certificate property titles with careful registrations. And then the coyote ugly part, that many mortgage bonds were simply counterfeits sold into a frenzy filled credit market designed to process the most vile vermin on paper. The USDollar is vulnerable here and now, as a new wave of bank losses is imminent from numerous types of mortgages along with some basic types. Let’s see if the grapevine is correct, that the USDollar will begin to see a trashing initiative starting this weekend, out of Asia. They must be impatient beyond description. This autumn is expected to see some rather tumultuous events unfold, as the US financial structures are breaking across most of its ramparts even as loyalty to it is fading like a mist. There will be no return to the US of yesteryear, only a tragic march.”
Madoff Feeder Funds Sued for Complicity in Fraud
After having said I won’t touch the Madoff story until my site gets a bit more protection, I
couldn’t resist this latest confirmation of something I said way back in December - that the feeder funds probably knew perfectly well what was going on and that “philanthropy” in many instances was just a cover for criminal activity or for misuse of funds. Note the similarity to the scandals at Fannie and Acorn, where the mandate to help poorer people get housing loans also provided moral cover for crime.One critic correctly points out that Madoff targeted charities, precisely because their pay out every year was only 5% of their capital. This was ideal for a Ponzi scheme, since it allowed Madoff to give out very little of what he took in each year.
“the American Jewish Congress which “defends Jewish interests at home and abroad through public policy advocacy using diplomacy, legislation and the courts.” It reported about 24 million dollars in assets, but only spends about 3 million dollars per year. At that rate, it could have continued its work through 2017 without further fundraising or investment income. Instead they invested their money with Bernie Madoff, losing 87% of the endowment!” [Who Made Off With Our Tzedakkah? Time to blame the victims," Daniel E. Loeb]
I told you back then that people who’d made out like bandits would be suing as though they were victims. How did I know that? Well - I taught high school. There’s nothing about human nature, good and bad, you don’t see there..
I know how well-heeled non-profits operate. Half the time, money meant to benefit children never gets to them. It ends up in the pockets of administrators, lawyers, and various salesmen and middlemen.
The whole educational/research establishment is rife with fraud of all kinds. Some of it is unintentional fraud - where the money gets to the intended recipient, although the activity of the recipient (the research or whatever else) is pretty much a dead-end or a waste. But in other cases, the fraud is intentional, as below.
Here’s the latest from Fox News:
“Also among those sued Tuesday is one of the leading educational philanthropies in the United States, which claims it was wiped out by Madoff’s far-reaching fraud.
The complaint filed Tuesday alleges the Picower Foundation and several related entities made nearly $7 billion by investing with Madoff. At least $5.1 billion of that came out of the pockets of victims of a giant Ponzi scheme, and should be returned, it [the complaint by court-appointed trustee Irving Picard] said.”
And more:
“The Palm Beach, Fla.-based foundation had given millions to the Massachusetts Institute of Technology, Human Rights First and the New York Public Library. It also funded diabetes research at Harvard Medical School.
The trustee’s Picower complaint says Madoff managed accounts that earned astronomical returns over 13 years. One purported to earn 950 percent in 1999.”
My Comment
Very different from the spin we first heard, right? Remember they were telling us back in January that the funds returned very average earnings and no one could be expected to have seen through the scheme? Turns out that that wasn’t quite the way it was. Nearly thousand percent returns? How hard is that to question?
This also confirms what I said in “Nationalization in a Time of Monopoly,” as well as in a later piece “Nightmare on Wall Street”: A lot of the fraud was committed at the height of the bubble economy and involved a number of players. [Note: Obviously, Picard's allegations are just that at the moment. We will have to wait and see how the suit plays out to get a better idea and hear more of the evidence on either side].
Far-fetched conspiracy theory?
Not at all. There are only a limited set of powerful actors at the highest levels of Wall Street. Bernie Madoff wasn’t a sidekick. He played at the top. The people at the top knew him (I mean, SEC honchos, leading bankers and money managers, government bigwigs). He didn’t do all this without a wink and a nod.
Which means there’s more going on here than meets even Picard’s eye. But until I get my site better protected, I’m not planning on digging any more…
Meanwhile, on the Madoff connection to the mob, there’s an interesting post at Deep Capture blog, which has this:
“After Milken was indicted, Black rallied to Milken’s defense. It was Black [Leon Black], more than anyone, who prevented Drexel from firing Milken. And Black has remained obstinately loyal to the criminal Milken ever since. After Milken went to prison, Black founded the Apollo Group, an investment partnership that received most of its initial funding from a French aristocrat named Rene Thierry Magon de La Villehuchet.
Among Black’s first moves as an independent “prominent investor” was to launch a takeover bid for Executive Life, a bankrupt insurance and financial services conglomerate…….Later, though, it emerged that Black’s takeover of Executive Life had been illegal because he had secretly been fronting for certain French investors, including Monsieur Rene Thierry de La Villehuchet. Some of the French investors had illegally parked stock with Black to hide their involvement (“parking stock” being one of the favorite techniques of the Milken-Boesky-Thorp crew, and a recurrent theme in the 98-count indictment that sent Milken to jail).”
The French aristocrat, Rene Thierry de la Villehuchet, was the manager of one of the Madoff feeder funds. He killed himself earlier this year, reportedly from a sense of honor toward his clients whose money was lost in the scam. But if the account at DeepCapture is to be believed, he seems to have been involved in rather shady deals even before getting together with Madoff.
Financial Follies: Condo Builders Under Water
In the news today, AP reports:
“Multifamily construction plunged 46.1 percent to an annual rate of 90,000 units after a 23 percent fall in March. Permits for multifamily construction dropped 19.9 percent to 121,000 units. Analysts said apartment construction is being hurt by a glut of condominiums on the market and by tightening credit conditions for commercial real estate.”
My Comment
Oh, my. This made my day. Condo flippers and developers are in big trouble.
Overlook the opening of this article, with that plaintive reference to a ” modest rebound in single-family home construction in April” that “raised hopes.”
Hopes should not be raised. That’s pretty clear by now. Not unless you’re being paid to pump houses for some rash developer who ran out of buyers for his pet eye-sore. We can think of a number of things that should be raised - black flags, eyebrows, interest rates…..but not hopes.
I’ve been checking condo prices all over the world and it’s the same news. From Panama to Kuala Lumpur, from Miami to Baltimore. Commercial developers are in trouble.
If that doesn’t warm the cockles of your heart and put a smile on your face, I don’t know what will. These wretched companies drove up housing by 100-300% (and more) in some cities and literally chased people on small or fixed incomes out of places they’d been living for years.
And don’t tell me they added any real value.
In New York. construction in one building was so shoddy, the Buildings Department had to intervene. I personally inspected a condo where, when the owner kicked the wall, her foot went right through. Many of them were aesthetic monstrosities that ruined the skyline, polluted the air, and destroyed the architectural beauty of the places where they metastasized.
Now there’s a glut and the developers are losing their shirts.
Miami’s condo king, Jorge Perez, is sitting on top of a market with the biggest glut in the country. Since 2003, nearly 23000 condos were added to downtown Miami, and 33% of them remain unsold. The financial hurricane hit just when Perez, the “tropical Trump,” had opened his newest project, Icon Brickell, a boutique hotel combined with over 1,640 luxury apartments and squeezed into three towers. Only 18 units have sold so far. Perez (once estimated to have a net worth of $1.3 billion) is in big money trouble. His company, Related Group, lost $1 billion in 2008 and ran up debt of $2 billion, $700 million from Icon Brickell alone.
It just doesn’t get better than that….
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