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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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Chart School

The Big Four Economic Indicators: Real Retail Sales

Courtesy of Doug Short.

Note from dshort: With yesterday's release of the Consumer Price Index for October, I've updated Real Retail Sales for October.

Official recession calls are the responsibility of the NBER Business Cycle Dating Committee, which is understandably vague about the specific indicators on which they base their decisions. This committee statement is about as close as they get to identifying their method.

There is, however, a general belief that there are four big indicators that the committee weighs heavily in their cycle identification process. They are:

  • Industrial Production
  • Real Personal Income (excluding Transfer Payments)
  • Nonfarm Employment
  • Real Retail Sales
  • ...

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    Zero Hedge

    Every One Wants Dollars (Again)

    Courtesy of ZeroHedge. View original post here.

    Submitted by Marc To Market.

    A new phase in the markets began this month.  The Federal Reserve ended its QE3+ purchases.  The Bank of Japan unexpectedly and dramatically stepped up its asset purchases under its QQE operations.  The government's largest pension fund announced aggressive portfolio diversification plan. 

     

    Contrary to some press reports, the ECB remained unanimous in favor of additional measures to arrest the deflationary headwinds, if needed.  The staff was instructed to accelerate work on other assets that can be purchases to expand the ECB's balance sheet back toward the 2012 peak.  

     

    The softening of the flash PMI, and expectations that next week's flash HICP inflatio...



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    Phil's Favorites

    Bloomberg Sensationalism and Inaccuracies Regarding "Forced Nationalization of Crimea"

    Courtesy of Mish.

    A few days ago a friend emailed the Bloomberg article Russia Delivers a New Shock to Crimean Business: Forced Nationalization.

    I replied something along the lines of "interesting, but I am going to bounce this of Jacob Dreizin", a US citizen who provides frequent updates to me regarding Ukraine.

    I also bounced the article off Pater Tenebrarum at the Acting Man blog. Pater commented ...
    Russian oligarchs stealing stuff back from Ukrainian oligarchs would be my guess. I should add, the arbitrariness of this process is of course quite disturbing (regardless of the fact that Ukraine's oligarchs are a bunch of corrupt thieves). But this strikes me mainly as a case of politically motivated payback. The oligarchs all aligned themselv...



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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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    Market Shadows

    EZCH - Not So EZ Year

    EZCH - Not So EZ Year

    By Ilene 

    After a disappointing quarter and some probable tax-selling, EZchip might be a good turnaround for next year.

    So I'm thinking we'll sell a stock or two out of Paul's otherwise neglected Virtual Portfolio (check back) and add EZCH.

    ...

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    OpTrader

    Swing trading portfolio - week of November 17th, 2014

    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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    Sabrient

    Sector Detector: Investors make up new rules for their new market paradigm

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

    Courtesy of Sabrient Systems and Gradient Analytics

    By Scott Martindale

    Investors in U.S. equities seem to have embraced a new market paradigm in which upside spikes come more swiftly than the downside selloffs. Remember when it used to be the other way around? When fear was stronger than greed? The market is consolidating its gains off the early-October V-bottom reversal, and no one seems to be in any hurry to unload shares this time around, with the holidays rapidly approaching and all. After all, there are bright blue skies directly overhead giving hope and respite from the early freeze blanketing the country.

    In this weekly update, I give my view of the current market environment, offer...



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    Stock World Weekly

    Stock World Weekly

    Newsletter writers are available to chat with Members regarding topics presented in SWW, comments are found below each post.

    The newest Stock World Weekly is ready. Click here for the this weekend's reading and sign in with your PSW user name and password. 

    Picture credit: AnnaER at Pixabay. 

    ...

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    Digital Currencies

    Ukraine Central Bank Bans Bitcoin "To Protect Citizens" From Financing Terrorism

    If you would have supposed that Ukraine had enough problems to make banning bitcoins a backburner issue, you'd have been wrong. The rationale, "to protect consumers' rights" makes little to no sense... The other one, "to keep money in the country" makes more sense. 

    Ukraine Central Bank Bans Bitcoin "To Protect Citizens" From Financing Terrorism

    Courtesy of ZeroHedge. View original post here.

    The Hryvnia has collapsed to new record lows near 15/USD this morning. The Central Bank and bankers "agreed to keep UAH at 15-16/USD" but are &qu...



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    Option Review

    Yamana Gold call options sink

    Yamana Gold call options sink

    By Andrew Wilkinson at Interactive Brokers

    A four-year low for the spot price of gold has had a devastating impact on Yamana Gold (Ticker: AUY), with shares in the name down at the lowest price in six years. Some option traders were especially keen to sell premium and appear to see few signs of a lasting rebound within the next five months. The price of gold suffered again Wednesday as the dollar strengthened and stock prices advanced. The post price of gold fell to $1145 adding further pain to share prices of gold miners. Shares in Yamana Gold tumbled to $3.62 and the lowest price since 2008 as call option sellers used the April expiration contract to write premium at the $5.00 strike. That strike is now 38% above the price of the stock. Premium writers took in around 16-cents per contract o...



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    Pharmboy

    Biotechs & Bubbles

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

    Well PSW Subscribers....I am still here, barely.  From my last post a few months ago to now, nothing has changed much, but there are a few bargins out there that as investors, should be put on the watch list (again) and if so desired....buy a small amount.

    First, the media is on a tear against biotechs/pharma, ripping companies for their drug prices.  Gilead's HepC drug, Sovaldi, is priced at $84K for the 12-week treatment.  Pundits were screaming bloody murder that it was a total rip off, but when one investigates the other drugs out there, and the consequences of not taking Sovaldi vs. another drug combinations, then things become clearer.  For instance, Olysio (JNJ) is about $66,000 for a 12-week treatment, but is approved for fewer types of patients AND...



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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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