Posts Tagged ‘financial fraud’

Runaway Feedback Loops, Wealth Concentration and Gaming-The-System

Runaway Feedback Loops, Wealth Concentration and Gaming-The-System

Courtesy of Charles Hugh Smith, Of Two Minds

Canada, Newfoundland and Labrador, iceberg in ocean

Positive feedback loops soon reach the runaway/self-destruction stage. Concentrations of wealth and gaming-the-system are reaching just such levels.

Positive feedback loops lead to runaway scenarios. The classic example is global warming and the Arctic ice cap. As temperatures rise, the the ice melts, exposing more land or seawater. Ice reflects solar radiation, and so as it shrinks then more solar radiation is absorbed, raising temperatures more, which melts the ice faster, which then leads to more solar radiation being absorbed, and so on.

The runaway feedback loop leads to the disappearance of the Arctic ice and a much warmer planet.

Nature has multiple feedback loops, and so the solar radiation flux may be acting to reduce temperatures as the positive feedback of melting ice raises temperatures. But the point is that positive feedback is self-reinforcing and it speeds up processes as it gathers momentum.

We can see runaway feedback loops in the economy and society, not just in Nature. One of the key runaway feedbacks in the U.S. is the concentration of wealth and political power.

As wealth has become concentrated in the top 1/10th of 1%, then the political power that can be purchased with that wealth also rises, which then enables the wealthy to increase their wealth via "Federal entrepreneurship" and other means.

The political process--once potentially a force resisting or moderating wealth--has been completely captured by an ever-expanding army of lobbyists, the fast-spinning revolving door between the Central State and corporations and unprecedented levels of corporate/Elites campaign contributions.

The judiciary, theoretically a force which could have resisted this concentration of wealth and political power, has also been co-opted by a marriage of ideology and wealth/power. Thus the courts have gutted every attempt at limiting corporate/insider influence over the processes of governance; the courts have enabled corporations to have the "right to free (paid) speech" unburdened by the obligations that go with such rights.

The wealth/power feedback has reached runaway levels. "Reforms" are gutted in backroom deals, votes to benefit the banking/mortgage/foreclosure industry are done on voice calls to evade public scrutiny, and a thousand other games and tricks are played daily to subvert the common good for the benefit of the few and their armies of technocrat toadies.

The other positive feedback loop approaching runaway levels is the Entitlement/Welfare State, both
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The Normalization of Sociopathology in America

The Normalization of Sociopathology in America 

Courtesy of Charles Hugh Smith, Of Two Minds

The moral rot at the center of American life results from a normalization of pathologies--sociopathic and psychopathic states and behaviors are now "normal" or incentivized. Moral behavior is institutionally punished.

My entry on the moral rot which has taken hold in all socio-economic levels of America drew a number of insightful responsesRunaway Feedback Loops, Wealth Concentration and Gaming-The-System (October 13, 2010).

While the American/Western worldview holds that we are autonomous individuals exercising free will at every moment, in reality we are all heavily programmed by our socio-economic class conditions. What is so striking about present-day America is the way in which the narcissistic, no-moral-compass social pathologies of entitlement, denial and fabrication of "truth"/reality has been "normalized" (accepted as normal behavior and thinking) in all social classes.

Before we analyze that further, let’s get some direct experiences from three observant readers.

First up in Freeacre, one of the proprietors of the excellent Trout Clan Campfire blog:

Here are my examples (of the feedback loops you described):

Thirty-one years ago, when I was pregnant with my son, a friend in San Francisco explained to me that I should go down and apply for welfare. He told me the the social workers basically tell you the right answers to give when applying. They ask the question and you just say agree with whatever it is. That’s the game. (I didn’t do it, choosing to marry the father of our child and live a life of penury instead…)

2) We finally were able to buy a house in Portland. Our next door neighbor lived in one exactly like ours. But, she was divorced and had two kids. Her kids went to church school for free, got free clothing and medical care, her mom collected her rent from the state, she got food stamps, and on and on. Her ex even got a penile implant due to an unfortunate motorcycle accident! We ended up losing our home and car and having to declare bankruptcy due to our son’s medical bills for cancer.

3) Years later, when my husband got cancer and I had to pay his COBRA payments up front, I had hardly any money for food or the house payment from my job at the Tahoe Daily Tribune. When I inquired what we could do to qualify for some assistance, the social


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Goldman Faces “Near Record Fine” In London

Goldman Faces "Near Record Fine" In London

Courtesy of JESSE’S CAFÉ AMÉRICAIN

Even this ‘near record fine’ is likely to be little more than a wrist slap, a manageable cost of doing business compared to the massive profits and bonuses obtained from such dealings.

It appears that financial regulations such as the Volcker rule are getting some traction with Goldman and their ilk, compelling them to spin off their proprietary trading desks to institutions that do not drink so directly from the subsidies of the Federal Reserve.

Still, regulation is not a set of rules, but a mindset to enforcement and investigation for the many, with no favoritism shown to the powerful few.

Financial fraud has been a major export from the US for the past ten years. As we have noted elsewhere, New York financial firms may find themselves persona non grata in many of the overseas markets, especially the sovereign financial asset markets, which they have abused repeatedly from their US and London centers.
 

Financial Times
Goldman now faces large fine in UK
By Megan Murphy and Brooke Masters in London
and Francesco Guerrera and Henny Sender in New York
September 8 2010 20:05

Goldman Sachs is facing a near-record fine from the UK’s financial regulator following a five-month investigation into the investment bank’s international business initiated in the wake of fraud charges against the company in the US.

The fine, which could be announced by the Financial Services Authority as early as Thursday morning, will deal a blow to Goldman’s efforts to put the high-profile fraud case behind it following the bank’s settlement with the US Securities and Exchange Commission probe in July for $550m.

The largest fine handed down by the UK regulator came three months ago, when JPMorgan paid a £33.3m for failing to keep client money in separate accounts.

Goldman, the world’s best-known investment bank, has seen its reputation tarnished in recent months as questions continue to swirl over whether it favoured the interests of some clients at the expense of others during the financial crisis.

The bank’s business model is also under pressure amid volatile markets and regulatory reforms that have forced it to shut some of its highly profitable “proprietary” trading operations.

On Wednesday it emerged that KKR, the private equity firm, is in early talks with individuals in Goldman


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A Summary of the Goldman Sachs Fraud Case, and the Downfall of Icons

A Summary of the Goldman Sachs Fraud Case, and the Downfall of Icons

Scallop Shells Lined Up for a Seashell Game

Courtesy of JESSE’S CAFÉ AMÉRICAIN

"Le secret des grandes fortunes sans cause apparente est un crime oublié, parce qu’ il a été proprement fait."

(The secret of great returns which are difficult to explain is a crime that has not yet been discovered because it has been carefully executed.)

Honoré de Balzac, Pere Goriot

There is quite a bit of spin surrounding the Goldman Sachs deal. The best debunking of the spin around the nature and quality of the SEC’s case was written by Barry Ritholz.

One of the best summaries of what the deal actually encompassed is excerpted below by Rolling Stone journalist Matt Taibbi.

"Here’s the Cliffs Notes version of the scandal: Back in 2007, Harvard-educated hedge-fund whiz John Paulson (no relation to then-Treasury secretary and former Goldman chief Hank Paulson) smartly decided the housing boom was a mirage. So he asked Goldman to put together a multibillion-dollar basket of crappy subprime investments that he could bet against. The bank gladly complied, taking a $15 million fee to do the deal and letting Paulson choose some of the toxic mortgages in the portfolio, which would come to be called Abacus.

What Paulson jammed into Abacus was mortgages lent to borrowers with low credit ratings, and mortgages from states like Florida, Arizona, Nevada and California that had recently seen wild home-price spikes. In metaphorical terms, Paulson was choosing, as sexual partners for future visitors to the Goldman bordello, a gang of IV drug users, Haitians and hemophiliacs, then buying life-insurance policies on the whole orgy. Goldman then turned around and sold this poisonous stuff to its customers as good, healthy investments.

Where Goldman broke the rules, according to the SEC, was in failing to disclose to its customers – in particular a German bank called IKB and a Dutch bank called ABN-AMRO – the full nature of Paulson’s involvement with the deal. Neither investor knew that the portfolio they were buying into had essentially been put together by a financial arsonist who was rooting for it all to blow up.

Goldman even kept its own collateral manager – a well-known and respectable company called ACA – in the dark. The bank hired the firm to approve the bad mortgages being selected by Paulson, but never bothered to tell ACA that Paulson was


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NY Fed Cited in Cover-Up By SIGTARP’s Barofsky – Possible Criminal Charges

NY Fed Cited in Cover-Up By SIGTARP’s Barofsky – Possible Criminal Charges

Courtesy of JESSE’S CAFÉ AMÉRICAIN

It’s never the crime, it’s always the cover up.

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.

Reform the financial system, and audit the Fed.

Bloomberg 
Barofsky Says Criminal Charges Possible in Alleged AIG Coverup
By Richard Teitelbaum
28 April 2010

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


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Goldman Sachs: Too Big To Obey The Law

Call to break up the big banks – more to follow. – Ilene 

Goldman Sachs: Too Big To Obey The Law

13 Bankers 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…
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The Biggest Financial Deception of the Decade

The Biggest Financial Deception of the Decade

Courtesy of Jeff Clark, Editor, Casey’s Gold & Resource Report

Businessman in Handcuffs

Enron? Bear Stearns? Bernie Madoff? They’re all big stories about big losses and have hurt a lot of employees and investors. But none come close to getting my vote for the decade’s most dastardly deception…

First came Enron, with $65.5 billion in assets, going belly-up and becoming the largest bankruptcy in U.S. history at that time. Chairman Kenneth Lay said that Enron’s decision to file bankruptcy would “stabilize the company,” but over the next five years the company was completely liquidated. The stock went from a high of $84.63 in December 2000 to a whopping 26¢ one year later.

And what had we been told by the media? Fortune magazine dubbed Enron “America’s Most Innovative Company” for six consecutive years. A well-intentioned friend wanted to give me a gift subscription to the magazine for Christmas; I choked on my cocktail and luckily he assumed my drink was too strong. In the end, you can thank Enron for bringing us the Sarbanes-Oxley Act of 2002, a ghastly financial reporting regulation for which compliance is grossly expensive, and – stop the presses! – hasn’t prevented similar repeats.

Next came WorldCom filing for bankruptcy in 2002, their assets of $103.9 billion dwarfing Enron’s. “We will use this time under reorganization to regain our financial health and focus, while operating with the highest integrity,” assured CEO John Sidgmore. Was his eggnog spiked? Today, WorldCom stock certificates have been spotted as doilies under pancake house coffee mugs signifying it’s decaf.

Tyco, Adelphia, Peregrine Systems… it’s a crowded field around this time. But their stories of fraud and greed and mismanagement get boring after awhile. Just watch the closing credits from the movie Fun with Dick and Jane and you’ll see what I mean.

Bear Stearns set us all up for the Big Meltdown of 2008. It was B.S. (no, I mean Bear Stearns) that pioneered the asset-backed securities markets, and we all know how that turned out. Later we learned that as losses mounted in 2006 and 2007, the company was actually adding to its exposure of mortgage-backed assets, gearing itself up to 35:1. With net equity of $11.1 billion supporting $395 billion in assets, B.S. carried more leverage than a streetwalker’s push-up bra.

And during it all, Bear…
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ValueWalk

Delivering Alpha: Bill Ackman And Nelson Peltz [Full Video]

By VW Staff. Originally published at ValueWalk.


Complete video of Jim Cramer's conversation with two all-stars of the Delivering Alpha stage, Bill Ackman and Nelson Peltz, where they discuss a variety of investment topics.

Delivering Alpha unfiltered: Alpha All-Stars

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Zero Hedge

Greek Stocks, Economy Collapse, Suffer Worst Declines In History

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

The Athens Stock Exchange reopened on Monday and unsurprisingly, some folks were selling. 

Trading was suspended five weeks ago after PM Alexis Tsipras’ dramatic midnight referendum call precipitated capital controls and a lengthy bank "holiday." Shares opened lower by nearly 23% and the country’s banks traded limit-down, which makes sense because they are, after all, largely insolvent. Here’s NY Times:

The Athens Stock Exchange plunged 22.8 percent when it reopened on Monday after a five-week shutdown imposed by Greek authorities as part of efforts to pre...



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Phil's Favorites

Bad Deal Math: I have a Product, But Please Don't Buy It

Courtesy of Mish.

How often do you hear a car manufacturer (or any other manufacturer) tell people to "not" buy their product because they lose money if you do?

I highly suspect this is nothing more than a purposely calculated publicity stunt, but please consider California Has a Plan to End the Auto Industry as We Know It.
Sergio Marchionne had a funny thing to say about the $32,500 battery-powered Fiat 500e that his company markets in California as “eco-chic.” “I hope you don’t buy it,” he told his audience at a think tank in Washington in May 2014. He said he loses $14,000 on every 500e he sells and only produces the cars because state rules re­quire it.

So who’s fo...



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All About Trends

Mid-Day Update

Reminder: David is available to chat with Members, comments are found below each post.

Click here for the full report.




To learn more, sign up for David's free newsletter and receive the free report from All About Trends - "How To Outperform 90% Of Wall Street With Just $500 A Week." Tell David PSW sent you. - Ilene...

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Chart School

Three RTT Indicators

Courtesy of Read the Ticker.

readtheticker.com is primarily a Richard Wyckoff logic site, however through our research into Wyckoff logic the three indicators below make us very lazy in applying Richard Wyckoff logic.Why? Because if these indicators look handsome together then it most likely the Wyckoff logic is working very well.

These three indicators are NOT a trading system, but they do help with finding excellent well support accumulated stocks that show Mr Market is supporting them. Of course when indicators look ugly they will show stocks in a breakdown, thus less support by Mr Market.

RTT Steps

If the large market plays are accumulating the stock then they will control the range of BID and ASK and not let th...

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Insider Scoop

Benzinga's Weekend M&A Chatter

Courtesy of Benzinga.

Benzinga's M&A Chatter for Friday July 31 through Sunday Aug 2, 2015

The following are the M&A deals, rumors and chatter circulating on Wall Street for Friday July 27, 2015:

Yahoo to Acquire Polyvore

The Deal:
Yahoo!, Inc. (NASDAQ: YHOO) announced Friday that it has reached an agreement to acquire social shopping site Polyvore. Terms were not disclosed.

Yahoo closed at $36.67 on Friday, a loss of 2%.

Hearing Unconfirmed Market Chatter of Potential Costco Bid for Whole Foods

The Rumor:
Shares of Whole Foods Market, Inc. (NYSE: WFM) were boosted Friday, on unconfirmed market chatter of a potential offer from Costco Wholesa...



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Kimble Charting Solutions

Commodities – 20-Year bear market in play?

Courtesy of Chris Kimble.

CLICK ON CHART TO ENLARGE

This chart looks at the Thompson/Reuters Commodity Index on a monthly basis for the past 50 years

The index took off in the early 1970’s and rallied over 200% in a little over a decade at (1). Then it created a potential double top. What followed at (2)? An unwinding of the rally that lasted nearly 20-years, taking it to the bottom of its rising channel.

In the early 2000’s, the index took off again, gaining over 250% in a decades time at (3) and the rallied looks to have ended in 2011, as it was hitting the top of this long-term rising channel.

Since hitting the top of the channel the index has been pretty soft,...



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Market News

News You Can Use From Phil's Stock World

 

Financial Markets and Economy

Hedge Funds Boost Bullish Treasury Futures Bets to Two-Year High (Bloomberg)

As oil prices tanked, hedge-fund managers and other large speculators increased bullish bets on Treasury securities to the most in two years, even as the Federal Reserve moves closer to raising interest rates.

Crude Tumbles Near $46 Handle As US Oil Rig Count Rises For 2nd Week (Zero Hedge)

After last week's surge in total rig count, this week saw a modest 2 rig drop to 874 total rigs. However, oil rigs rose...



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Sabrient

Sector Detector: Lackluster earnings reports put eager bulls back into waiting mode

Reminder: Sabrient is available to chat with Members, comments are found below each post.

Courtesy of Sabrient Systems and Gradient Analytics

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 top-ranked sectors.

Corporate earnings reports have been mixed at best, interspersed with the occasional spectacular report -- primarily from mega-caps like Google (GOOGL), Facebook (FB), or Amazon (AMZN). Some of the bul...



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OpTrader

Swing trading portfolio

Reminder: OpTrader is available to chat with Members, comments are found below each post.

 

This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current  trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).

We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options. 

Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.

To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here ...



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Digital Currencies

Gold Spikes Back Above $1100, Bitcoin Jumps

Courtesy of ZeroHedge. View original post here.

Gold is jumping after the overnight double flash-crash...testing back towards $1100...

Bitcoin is back up to pre-"Greece is Fixed" levels...

Charts: Bloomberg and Bitcoinwisdom

...

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Pharmboy

Baxter's Spinoff

Reminder: Pharmboy and Ilene are available to chat with Members, comments are found below each post.

Baxter Int. (BAX) is splitting off its BioSciences division into a new company called Baxalta. Shares of Baxalta will be given as a tax-free dividend, in the ratio of one to one, to BAX holders on record on June 17, 2015. That means, if you want to receive the Baxalta dividend, you need to buy the stock this week (on or before June 12).

The Baxalta Spinoff

By Ilene with Trevor of Lowenthal Capital Partners and Paul Price

In its recent filing with the SEC, Baxter provides:

“This information statement is being ...



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Mapping The Market

An update on oil proxies

Courtesy of Jean-Luc Saillard

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. 

Since...



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Promotions

Watch the Phil Davis Special on Money Talk on BNN TV!

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...

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Help One Of Our Own PSW Members

"Hello PSW Members –

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 jennifersurovy@yahoo.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.

http://www.youcaring.com/medical-fundraiser/help-get-shadowfax-out-from-the-darkness-of-medical-bills-/126743

Thank you for you time!




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