This is beyond a doubt the story of the week. Neil Barofsky has been a thorn in the side of the Treasury Department and the Fed since he first took office.
I doubt there will be criminal charges filed against Turbo Tim personally, since in his case the clueless CEO defense may have some traction. Unless, that is, they have wiretaps and/or emails showing collusion with some of the bailed out banks, in either insider trading or the manipulation of assets for extraordinary gains.
It is a boiling scandal, but emblematic of the corruption that has pervaded financial regulation in Washington for the past ten years at least. It did not start with Obama, but it may still bring down key members of his Administration.
April 28 (Bloomberg) — …That tense relationship [between Treasury and Barofsky] has grown out of Barofsky’s mandate to monitor and root out fraud and waste in the management of TARP, the $700 billion program passed in October 2008 to remove toxic debt from the banks. The special inspector general, in a series of reports, interviews and congressional hearings, has heaped criticism on the Treasury Department’s operation of the program.
Barofsky’s most recent broadside came on April 20, when a SIGTARP report labeled a housing-loan modification program funded with $50 billion of TARP money as ineffectual.
…The TARP watchdog has also criticized Treasury Secretary Timothy F. Geithner in reports and in congressional testimony for his handling of the process by which insurance giant American International Group Inc. was saved from insolvency in 2008, when Geithner was head of the Federal Reserve Bank of New York.
The secrecy that enveloped the deal was unwarranted, Barofsky says, adding that his probe of an alleged New York Fed coverup in the AIG case could result in criminal or civil charges.
In Senate Finance Committee testimony on April 20, Barofsky said SIGTARP would investigate seven AIG-linked mortgage-related securities similar to Abacus 2007-AC1, the instrument underwritten by Goldman Sachs Group Inc. that is at the center
This article by the Financial Times should remove any doubt in anyone’s mind that Goldman Sachs was willfully selling fraudulent financial instruments. It appears that they were working in conjunction with Ratings Agencies, Mortgage Origination Firms, and Hedge Funds to cheat investors.
"Cheat" means to circumvent or distort the normal price discovery process through misrepresentation, price manipulation, and omissions and distortion of key data.
Carl Levin summarized the situation in his opening statement this morning in tying together various Congressional hearings and investigations into aspects of the recent financial crisis and the underlying frauds. It sounds remarkably like the frauds that Enron had so recently inflicted on the American public.
In particular, Congressman Levin gave a good description of the key role that derivatives played in this control fraud.
"Of special concern was Goldman’s marketing of what are known as “synthetic” financial instruments. Ordinarily, the financial risk in a market, and hence the risk to the economy at large, is limited because the assets traded are finite. There are only so many houses, mortgages, shares of stock, bushels of corn or barrels of oil in which to invest.
But a synthetic instrument has no real assets. It is simply a bet on the performance of the assets it references. That means the number of synthetic instruments is limitless, and so is the risk they present to the economy. Synthetic structures referencing high-risk mortgages garnered hefty fees for Goldman Sachs and other investment banks. They assumed an ever-larger share of the financial markets, and contributed greatly to the severity of the crisis by magnifying the amount of risk in the system.
Increasingly, synthetics became bets made by people who had no interest in the referenced assets. Synthetics became the chips in a giant casino, one that created no economic growth even when it thrived, and then helped throttle the economy when the casino collapsed."
This is also a good description of the basis of the emerging scandal in the silver market, and other commodity markets such as those that Enron manipulated, in which synthetic bets are being used to manipulate price, and improbable sales are being misrepresented under the cover of secrecy and opaque markets as…
Here is a video interview on France 24 television with Max Keiser speaking on Goldman Sachs from almost one year ago.
By the way, NO ONE who is a serious player on Wall Street is legitimately surprised by this, and probably no one in regulatory bodies are either, unless they are just showing up to collect a paycheck and obtain free Internet access.
The antics of Goldman Sachs have been getting by on a ‘wink and a nod’ from the regulators and the market for some time. Why? Because they are powerful, and because like Lehman and their off balance sheet frauds, they are almost ALL doing it on Wall Street as part of the franchise. Goldman has just been a pig about it, and probably burned some insiders and powerful investors in their fraudulent Abacus trade.
The excuses being made for Goldman by some on Bloomberg Television and CNBC are setting new lows in journalism. It was just a simple failure to disclosure Paulson’s involvement right? Almost a technicality. No one forced the customers to buy those fraudulently packaged and labeled assets or stocks (this was a favorite excuse from Joe Kernan during the Internet/tech bubble collapse). No involvement from the Ratings Agencies in the purposeful crafting of a fraudulent financial instrument. Guest Calls Cramer a ‘PR Man for Goldman Sachs’ and is ejected from the show by the resident money honey.
Why, these derivatives were SO complex that the poor Goldman management barely understood them themselves. They were tricked by Paulson. Tourre is a rogue trader. Bernie Madoff ate their Series 7 cheatsheets. Compliance was seconded to the Riviera. Lloyd was busy doing missionary work in Bangkok. More regulation will just hurt the recovery.
Don’t just regulate them. Break them up. And audit the Fed.
I am glad the professor is from HEC. I did my international business MBA sequence (an extended field trip for adults, but the refreshments were good) at the ‘other’ business school in Paris at La Defense, ESSEC.
Out all day on university visits with my son, returned to see the miracle GDP recovery number bull the market higher, after Goldman Sachs had cast a pall of gloom the prior day. Le Proprietaire had investments that leaned towards smelling bear trap, and was gratified to see the gains, especially after a day reviewing prospective tuition and fees.
There is little doubt in this mind that the number will be revised lower, and the chain deflator lowball will prove to be transitory, and the recovery will be ephemeral, at least based on real numbers. The Clunkers programs pulled sales forward, which is a useful thing only if there is the follow up of systemic reform. The consumer is flat on their back, and median wages and employment are going nowhere. One can stoke monetary inflation with enough Fed expansion, but without the vitality that bestows permanence and self-sufficiency.
A reader sent in this prescient warning from 1995, when then Treasury Secretary Robert Rubin, late of Goldman Sachs, mentor to Larry and Timmy of the current US ship of state, wanted to unleash the power of the big money center banks to ensure their "efficiency and international competitiveness."
If only the US had rejected the Rubin – Greenspan doctrine then, and firmly said no to freewheeling finance, and not succumbed to the hundreds of millions of dollars in lobbying and donations spread about Washington in that 1990′s campaign by Wall Street that culminated in Fed preemptive action, followed by a massive lobbying campaign led by Sandy Weill.
In December 1996, with the support of Chairman Alan Greenspan, the Federal Reserve Board issues a precedent-shattering decision permitting bank holding companies to own investment bank affiliates with up to 25 percent of their business in securities underwriting (up from 10 percent).
This expansion of the loophole created by the Fed’s 1987 reinterpretation of Section 20 of Glass-Steagall effectively renders Glass-Steagall obsolete. Virtually any bank holding company wanting to engage in securities business would be able to stay under the 25 percent limit on revenue. However, the law remains on the books, and along with the Bank Holding Company Act, does impose other restrictions on banks, such as prohibiting them from owning insurance-underwriting companies.
There are many things going on in the Greece vs Institutions+Germany negotiations, and many more on the fringe of the talks, with opinions being vented left and right, not least of all in the media, often driven more by a particular agenda than by facts or know-how.
What most fail to acknowledge is to what extent the position of the creditor institutions is powered by economic religion, and that is a shame, because it makes it very difficult for the average reader and viewer to understand what happens, and why.
While Ben Bernanke will never agree that global economic growth has ground to a halt as a result of his monetary policies, a phenomenon which in the past year has been dubbed "secular stagnation" by the very serious weathermen (and will certainly never admit the reason for such stagnation), with every passing month one thing becomes clear: there can be no growth and certainly no prosperity for the broader population with a $200 trillion (and rising at over ...
The tug of war between the bulls and bears has created an unusual situation this year, a historically tight trading range! The chart below reflects that the Dow Jones has traded within a 6.68% high to low trading range this year. That is the 4th tightest trading range through May, in the past 115 years.
CLICK ON CHART TO ENLARGE
The inset table to the right looks at future performance of the Dow following narrow trading ranges through May. As you can see, most of the time the market has ended the year to the upside. Will it be different this time?
Wednesday’s action was almost a 180 degree turn from Tuesday’s with the S&P 500 up 0.92% and the NASDAQ 1.47%. Sone vague belief in (yet another) resolution in Greece seemed to be the catalyst. Greek Prime Minister Alexis Tsipras said on Wednesday the negotiations are on the “final stretch” towards a positive deal, Reuters reported. Later in the day, German Finance Minister Wolfgang Schaeuble said there was not much progress in the Greek debt talks and he was surprised by the upbeat tone from some Greek government officials. Athens must make a 300 million euro payment to the International Monetary Fund on June 5, ahead of several other payments due to the IMF later in the month, for a total of 1.6 billion euros.
We’ll see if yesterday’s move was the head fake or today’s was shortly.
Early last week, stocks broke out, with the S&P 500 setting a new high with blue skies overhead. But then the market basically flat-lined for the rest of the week as bulls just couldn’t gather the fuel and conviction to take prices higher. In fact, the technical picture now has turned a bit defensive, at least for the short term, thus joining what has been a neutral-to-defensive tilt to our fundamentals-based Outlook rankings.
In this weekly update, I give my view of the current market environment, offer a technical analysis of the S&P 500 chart, review our weekly fundamentals-based SectorCast rankings of the ten U.S. business sectors, and then offer up some actionable trading ideas, including a sector rotation strategy using ETFs and an enhanced version using top-ranked stocks from the t...
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Understanding the new normal of a business model is key to the success of any company. The managment of companies need to adapt to the changing demand, but first they must recognize what changes are taking place. Big Pharma's business model is changing rapidly, and much like the airline industry, there will be but a handful of pharma companies left at the end of this path.
Most Big Pharma companies have traditionally done everything from research and development (R&D) through to commercialisation themselves. Research was proprietary, and diseases were cherry picked on the back of academic research that was done using NIH grants. This was in the heyday of research, where multiple companies had drugs for the same target (Mevocor, Zocor, Crestor, Lipitor), and could reap the rewards on multiple scales. However, in the c...
Bitcoin, the virtual digital currency, has been called the future of banking, a dangerous fad, and almost everything in between, but we're finally about to get some solid data to help settle the debate.
On Monday, the Nasdaq (NDAQ) stock exchange said it would ...
Chris Kimble likes the idea of shorting the US dollar if it bounces higher. Phil's likes the dollar better long here. These views are not inconsistent, actually, the dollar could bounce and drop again. We'll be watching.
Phil writes: If the Fed begins to tighten OR if Greece defaults OR if China begins to fall apart OR if Japan begins to unwind, then the Dollar could move 10% higher. Without any of those things happening – you still have the Fed pursuing a relatively stronger currency policy than the rest of the G8. So, if anything, I think the pressure should be up, not down.
UNLESS that 95 line does ultimately fail (as opposed to this being bullish consolidation at the prior breakout point), then I'd prefer to sell the UUP Jan $25 puts for $0.85 and buy the Sept $24 call...
Back in December, I wrote a post on my blog where I compared the performances of various ETFs related to the oil industry. I was looking for the best possible proxy to match the moves of oil prices if you didn't want to play with futures. At the time, I concluded that for medium term trades, USO and the leveraged ETFs UCO and SCO were the most promising. Longer term, broader ETFs like OIH and XLE might make better investment if oil prices do recover to more profitable prices since ETF linked to futures like USO, UCO and SCO do suffer from decay. It also seemed that DIG and DUG could be promising if OIH could recover as it should with the price of oil, but that they don't make a good proxy for the price of oil itself.
Kim Parlee interviews Phil on Money Talk. Be sure to watch the replays if you missed the show live on Wednesday night (it was recorded on Monday). As usual, Phil provides an excellent program packed with macro analysis, important lessons and trading ideas. ~ Ilene
The replay is now available on BNN's website. For the three part series, click on the links below.
Part 1 is here (discussing the macro outlook for the markets)
Part 2 is here. (discussing our main trading strategies)
Part 3 is here. (reviewing our pick of th...
This is a non-trading topic, but I wanted to post it during trading hours so as many eyes can see it as possible. Feel free to contact me directly at email@example.com with any questions.
Last fall there was some discussion on the PSW board regarding setting up a YouCaring donation page for a PSW member, Shadowfax. Since then, we have been looking into ways to help get him additional medical services and to pay down his medical debts. After following those leads, we are ready to move ahead with the YouCaring site. (Link is posted below.) Any help you can give will be greatly appreciated; not only to help aid in his medical bill debt, but to also show what a great community this group is.
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