by ilene - June 30th, 2010 11:40 pm
Courtesy of Karl Denninger at The Market Ticker
When the government began rescuing it from collapse in the fall of 2008 with what has become a $182 billion lifeline, A.I.G. was required to forfeit its right to sue several banks — including Goldman, Société Générale, Deutsche Bank and Merrill Lynch — over any irregularities with most of the mortgage securities it insured in the precrisis years.
But after the Securities and Exchange Commission’s civil fraud suit filed in April against Goldman for possibly misrepresenting a mortgage deal to investors, A.I.G. executives and shareholders are asking whether A.I.G. may have been misled by Goldman into insuring mortgage deals that the bank and others may have known were flawed.
If you’re a big bank, when things go south the government will force those who dealt with you to give up their right to sue you for your misrepresentations!
“This really suggests they had myopia and they were looking at it entirely through the perspective of the banks,” Mr. Skeel said.
No, it says in plain English that if you’re a bank there are no laws.
There are no laws about money-laundering that will be enforced.
There are no laws about bribery that will be enforced.
There are no laws about bid-rigging that will be enforced.
There are no laws about emitting fraudulent securities that will be enforced.
And there are no laws about intentionally screwing counterparties that will be enforced.
Everyone else has to follow these laws.
But if you’re a big bank, you can do all these things and more, and there is absolutely no criminal or civil enforcement available to anyone to do anything about it.
May I ask, quite politely, why the American public peacefully accepts this state of affairs?
Picture credits: Jr. Deputy Accountant
by ilene - June 28th, 2010 5:17 pm
The Financial Reform Bill, which I’ve nicknamed The Let’s Not Allow Our Largest Donors To Embarrass Us Again Act of 2010, is not a total failure, but it fails miserably to address perhaps the worst part of the crisis - Too Big To Fail.
The bill doesn’t really address the Hexopoly of Too Big To Fail Banks. I’m also calling theseThe Systemic Six.
The big six banks (Goldie, Morgan, JP, B of A, Wells and Citi) will be limited in their hedge fund investments and trading activity, but not very limited. The interconnectedness, however, is unchanged, and this is the very crux of the matter.
Citi was saved to prevent it from dragging Wells down, Wachovia, Merrill, Morgan were all "assisted" to prevent Goldman and JPMorgan Chase from going down, and on and on. We were told that the dominoes were already falling after Lehman and so emergency measures (bailouts) were necessary.
And for arguments sake, let’s say this was true at the time or was the best option to prevent the Depression. OK, fine. But so why doesn’t the new legislation address that and seek a change for the fact that these six banks (and others) can cause such a massive chain reaction? It’s a shocking gap in the provisions of the bill.
And don’t even get me started on the Fannie and Freddie omission (consider those cans kicked down the road). If Finance Reform were a wedding, Fannie and Freddie would be placed at the farthest table from the action, over by the kitchen doors like the ugly cousins of the banks that they truly are.
Oh well, maybe we’ll get it right after the next economic evisceration. For now, The Hexopoly orThe Systemic Six are here to stay.
by ilene - June 5th, 2010 10:36 am
So how did America solve the problem of the Too Big To Fail Banks? Simple, we doubled the size of them. Now they’re too gigantic to fail.
You couldn’t make this stuff up.
Here’s Stephen Grocer in the WSJ with this incredible story (emphasis Daddy’s):
Citi, BofA, J.P. Morgan and Wells Fargo now control $7.7 trillion in assets and $3.2 trillion in deposits as of March 30. To put that in perspective: The $7.7 trillion in assets is almost double the combined assets of the next 46 biggest banksand 37% more in deposits.
More importantly, those four banks control more assets today than they did in December 2007, when Deal Journal first wrote about “too big to fail.” Back then J.P. Morgan, Citigroup, BofA and Wells held $4.95 trillion in assets.
In the brokerage business, we have a term called Concentrated Position, meaning an account with a greater-than-normal percentage of assets in one or two large holdings. Accounts with concentrated positions are seen to carry more risk (obviously) and are ineligible for margin privileges in some cases. Essentially, the entire banking system has become one big concentrated position account, in worse shape than it was in before the crash (thanks to mergers and attrition, no doubt, but still).
This is an interesting solution to the systemic risk problem we were all carrying on about over the last few years. Bravo.
Hat Tip Daniel Hicks (NewsAudit)
by ilene - May 31st, 2010 1:51 am
Courtesy of Karl Denninger at The Market Ticker
From a report emailed to me over the weekend:
At the core of the foreclosure-prevention strategy is ignoring delinquencies. The percentage of older delinquent loans not yet in foreclosure is startling: 60% have at least 12 missed payments, and 35% have at least 18 missed payments. Add to this that three-fourths of delinquent loans are not in foreclosure, and we see that hidden losses well exceed those in the open.
Uh, they’re not being "ignored" – this is systemic and intentional fraud.
Remember, these loans are either being held by someone or securitized into some sort of package. When you have a loan that has no chance of "curing" (to cure a loan with 12 missed payments the borrower would have to come up with the 12 payments to bring it current!) that loan should be carried at its recovery value – that is, the value of the collateral that can be seized and sold, LESS the cost of eviction, remediation and resale.
Does anyone recall all the entries I’ve written about getting competent legal and accounting (tax) advice before proceeding with any sort of action regarding walking away, short sales or foreclosure? This same report says:
Many homeowners would be better off going into foreclosure, than doing a short sale. Short sales are fraught with potential legal, credit, and complicated tax issues. For example, someone who refinanced could owe capital gains taxes, which are not forgiven under federal and California temporary debt relief acts. In the foreclosure route, borrowers can live in their house mortgage-free for at least one year, maybe two years. Both short sales and foreclosures are reported as “account not paid in full”, and are equally damaging to a credit score. An exception exists if short sellers can negotiate better terms with their lender on recourse liens. The other possible advantage to a short sale is the ability to get a mortgage again in 2 years (Fannie, Freddie), rather than having to wait 3-5 years after a foreclosure.
Homeowners pursue short sales, unaware of the problems they are creating for themselves. Their agents never warned them of deficiencies, ruined credit, taxes due on forgiven debt, or legal consequences. Agents made flowery promises to get listings, and now the lawsuits are starting.
by ilene - May 19th, 2010 5:30 pm
Great Denninger quotable: "No nation can survive when the rule of law becomes subordinate to a handful of rich and powerful people who simply steal anything they want with impunity. The economy of such a nation ultimately is bled dry by that corruption and theft, with the people over time refusing to innovate and provide their effort when it will simply be robbed away from them."
Courtesy of Karl Denninger at The Market Ticker
Are you listening Mr. Obama?
First, let’s look at the idiocy among so-called "reporters"
Swaps Soar on Germany’s ‘Act of Desperation’: Credit Markets
Desperation? Or is it more like this?
Merkel Seeks EU Rules After German Short-Selling Ban (Update1)
You know, like the rule of law, for instance?
“The lack of rules and limits can make behavior in financial markets driven purely by the profit motive destructive and lead to an existential threat to financial stability in Europe and even the world,” Merkel told lawmakers in Berlin today. “The market alone won’t correct these mistakes.”
Yes indeed. But the profit motive isn’t evil or bad. It’s only bad and troublesome when it comes with lawlessness and conflicts of interest.
As the housing crisis mounted in early 2007, Goldman Sachs was busy selling risky, mortgage-related securities issued by its longtime client, Washington Mutual, a major bank based in Seattle.
Although Goldman had decided months earlier that the mortgage market was headed for a fall, it continued to sell the WaMu securities to investors. While Goldman put its imprimatur on that offering, traders in the same Goldman unit were not so sanguine about WaMu’s prospects:they were betting that the value of WaMu’s stock and other securities would decline.
Got that? Oh, and it wasn’t just WaMu; the article documents trades against Bear Stearns, the State of New Jersey, AIG and Thornburg, with the worst being AIG that they profited from twice - first by their demise, then again when they managed to get paid at "par" for bets with AIG that were in fact worth zero as the company was bankrupt! Yet Lloyd has said:
“Questions have been raised that go to the heart of this institution’s most fundamental value: how we treat our clients.” — Lloyd C. Blankfein, Goldman Sachs’s C.E.O., at the
by ilene - May 13th, 2010 4:29 pm
Courtesy of Karl Denninger at The Market Ticker
May 13 (Bloomberg) — U.S. prosecutors and the Securities and Exchange Commission are cooperating in a preliminary criminal probe into whether banks misled investors about their participation in mortgage-bond deals, the Wall Street Journal said, citing a person familiar with the matter.
The list is a who’s who of the big banks. JP Morgan, Deutsche Bank, UBS, Citigroup, Goldman, Morgan Stanley.
All in all eight banks are being scrutinized by both the toothless SEC but more-importantly Andrew Cuomo, who wields a fairly nasty set of powers through NY’s Martin Act.
Cuomo is investigating whether Goldman, Morgan Stanley, UBS, Citigroup, Credit Suisse, Credit Agricole SA, Deutsche Bank and Bank of America Corp.’s Merrill Lynch misled rating companies to obtain higher ratings, the New York Times said. Cuomo issued subpoenas on Wednesday, the newspaper reported.
Hmmmm… now that’s a good sign.
We know from the public data flow, including testimony before the Congress, that firms did use their knowledge of rating agency models to "tailor" submissions. Whether this rises to the level of intentional deception for the purpose of gaming the system remains to be determined, but that this sort of thing happened isn’t conjecture – it’s admitted fact.
"Changes to prevent it from happening again" are insufficient. Those who were defrauded, if they indeed were, are entitled not only to recompense but to criminal sanction against wrong-doers as a means of dissuading firms and individuals from doing it again.
I’ll believe this is real when I see handcuffs come out.
by ilene - April 21st, 2010 5:45 pm
Courtesy of Tyler Durden
Paging Christine Varney. Finally, what Zero Hedge has been pounding the table on for months is starting to make it through to (some of) the ruling elite. In an interview with Dylan Ratigan, Bernie Sanders, who unfortunately is not quite representative of the prevailing DC groupthink yet, says: "it is not just a too big to fail problem, it is monopolistic control of the economy and the incredible concentration of ownership. If Teddy Roosevelt were here right now, the guy who broke up all the big special interests in his day: if he believed that two-thirds of the credit cards were being issued by four banks, does anyone think we should not be breaking these guys up."
He points out the following simple arguments for breaking up the big banks: 1) four largest banks issue two thirds of the credit cards, 2) they hold 50% of mortgages and 3) $7 trillion in assets (50% of GDP). One can extend these observations from the simple consumer facing side of the banking model, to the intrabanking world, where Goldman has a monopoly in virtually all fixed income and equity (including derivative) trading axes and has infinite visibility into market flow.
The argument for breaking them up is blatantly simple: to protect taxpayers against another TBTF episode, as well as to preempt their concentration of ownership which means "unbelievable power and monopolistic influence over the whole economy."
Sanders, following in William Black’s footsteps, is also painfully blunt: "the issue is not whether Congress regulates Wall Street, it’s the degree to which Wall Street regulates Congress."
No matter what kind of reform you bring forth, if a BofA is about to teeter, and take with it a significant part of the economy and millions of jobs they are going to be bailed out. What you have to do is break them up today."
In conclusion Bernie sumarizes our current predicament perfectly: "Take a breath for a moment and think about where we’re at. You have a middle class collapsing, you have small and medium sized businesses desperately in need of affordable credit so they can expand and create jobs, they’re not getting that help. What you have is a Wall Street living in a parallel universe playing…
by ilene - April 19th, 2010 12:00 pm
Call to break up the big banks – more to follow. – Ilene
Courtesy of Simon Johnson, co-author of 13 Bankers: The Wall Street Takeover and the Next Financial Meltdown, at Baseline Scenario
On a short-term tactical basis, Goldman Sachs clearly has little to fear. It has relatively deep pockets and will fight the securities “Fab” allegations tooth and nail; resolving that case, through all the appeals stages, will take many years. Friday’s announcement had a significant negative impact on the market perception of Goldman’s franchise value – partly because what they are accused of doing to unsuspecting customers is so disgusting. But, as a Bank of America analyst (Guy Mozkowski) points out this morning, the dollar amount of this specific allegation is small relative to Goldman’s overall business and – frankly – Goldman’s market position is so strong that most customers feel a lack of plausible alternatives.
The main action, obviously, is in the potential widening of the investigation (good articles in the WSJ today, but behind their paywall). This is likely to include more Goldman deals as well as other major banks, most of which are generally presumed to have engaged in at least roughly parallel activities – although the precise degree of nondisclosure for adverse material information presumably varied. Two congressmen have reasonably already drawn the link to the AIG bailout (how much of that was made necessary by fundamentally fraudulent transactions?), Gordon Brown is piling on (a regulatory sheep trying to squeeze into wolf’s clothing for election day on May 6), and the German government would dearly love to blame the governance problems in its own banks (e.g., IKB) on someone else.
But as the White House surveys the battlefield this morning and considers how best to press home the advantage, one major fact dominates. Any pursuit of Goldman and others through our legal system increases uncertainty and could even cause a political…
by ilene - November 18th, 2009 8:34 pm
After a huge fall off in credit consistent with the fall in nominal GDP, we are seeing credit stabilise at a lower level. Debt to GDP ratios may not be lower, but as GDP is lower, so too is credit in the system. Yet there is a large difference between the haves and the have-nots, largely due to a difference in which banks received government largesse and which did not.
Bank analyst Don Coxe puts this in perspective for us:
A sustained U.S. economic recovery is unlikely until all banks, and not just the big institutions bailed out with government funds, start to recover from the effects of the financial crisis, according to longtime investment strategist Don Coxe.
Many banks that got funding from the government have seen their shares soar, while smaller, regional banks have not.
That’s a sign that investors believe the smaller banks are less well placed to participate in, and contribute to, the economic recovery, said the chairman of Coxe Advisors LLC in Chicago, who advises clients of the BMO Financial Group.
Think big banks – big business, small banks-smaller business. In effect, the credit flow for large multinationals is now back to normal. However, like consumers, small and medium-sized enterprises (SMEs) are finding a tougher reception. Revolving credit lines are being cut and loans are harder to come by (one reason Warren Buffett and Goldman Sachs are stepping into this space in this crucial holiday season).
This is a case of supply and demand constraints. One the one hand, credit supply is constrained because regional financials are loaded down with bad debts and have not received the same measure of bailout money that big banks have. On the other hand, SMEs are having to downsize and are demanding less credit.
"The thousands of regional U.S. banks on which an economic recovery depends have not participated in the sudden explosion of trading profits" of the biggest five U.S. banks, he said.
The state aid granted to large banks during the financial crisis has convinced investors the government will step in again in future to save the behemoths if needed. That has helped pull share prices back up from the 12-year lows hit in March.
by ilene - October 18th, 2009 1:37 am
Excellent interview with Elizabeth Warren. - Ilene
Courtesy of Edward Harrison at Credit Writedowns
Elizabeth Warren, chair of the Congressional Oversight Panel, is certainly looks to be fighting the good fight. At the conclusion of the Buttonwood Gathering in New York on Fixing Finance, she met with Tech Ticker’s Aaron Task and gave him quite an ear full.
Listen to what she has to say about the way of the land.
On the Obama Administration’s victory lap:
- “It is not the case people go to bed wondering if there will be an economy in the morning," she quips, but "we still have lot of serious problems."
On the banks:
- “They have all the money; they have all the lobbyists.”
- “I don’t understand how they can’t see that the world has changed in a fundamental way – it’s not business as usual. All I can say right now is they seem to be winning this argument.”
- "We see things getting worse in the housing market."
- "We have to get foreclosures under control."
On this moment in history:
- “This is a moment when all around the country people are saying we’ve had it about up to here with these large financial institutions that want to write the rules then take our money. I find it astonishing that they have the nerve to show up and say, ‘I’m a big financial institution. I took your money. And now I’m going to lobby against anything that might offer some protection to ordinary families in this marketplace.”
More below in the three part interview. Links below.
Warren: Housing Market Getting Worse – Tech Ticker