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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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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!

 
 

All About Trends

Mid-Day Update

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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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Zero Hedge

Living The Grecovery Dream: Two Jobless Parents, Two Kids, One Cat All Living In A Car

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

Via KeepTalkingGreece blog,

Squeezed between steering wheel, handbrake, door and dashboard, Katerina reads in her history book, takes notes for school. Next to her, on the driver’s seat, cat Eddy stares right in the camera lens. It may look like a cute snapshot on a sunny day, if it wasn’t for a sad detail: a withering spring stuck in a roll of toilet paper.  A distinctive memory of a former normal life that turned into a grim reality for a family of four.

At night the seat where Katerina sits during the day turns into...



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Phil's Favorites

Chinese Growth Forecasts Crashed to a Paltry 3.9% and are Going Even Lower - One Chart

Chinese Growth Forecasts Crashed to a Paltry 3.9% and are Going Even Lower - One Chart

Courtesy of ZeroHedge

Up until a few years ago, conventional wisdom was that China would grow at nearly double digits as long as the eye could see. Then, however, something happened, and China's 9% growth became 8%, then 7% and even lower, as suddenly the Politburo made it quite clear China would not chase growth at any cost, especially when the cost is trillions in bad debt and other NPLs, as we have explained time and again. The collapse in Chinese growth expectations is shown best on the following formerly hockeysticking chart of IMF's revised Chinese growth projections which has completely collapsed in the past few years.

...



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Chart School

A New Look at the Total Return Roller Coaster

Courtesy of Doug Short.

Note from dshort: I received a recent email on historical total returns that prompted an update to my Roller Coaster Return series. I've updated the charts below based on monthly data through the September close.

Here's an interesting set of charts that will especially resonate with those of us who follow economic and market cycles.

Imagine that five years ago you invested $10,000 in the S&P 500. How much would it be worth today, with dividends reinvested but adjusted for inflation?

The purchasing power of your investment has increased to $19,967 for an annualized real return of 13.91%.


...



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OpTrader

Swing trading portfolio - week of October 20th, 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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Insider Scoop

UPDATE: Bank Of America Reiterates On ITT Educational Services As Shares Surge But Risks Remain

Courtesy of Benzinga.

Related ESI Urban Outfitters Drops On Q4 Profit Warning; Mead Johnson Nutrition Shares Spike Higher ITT Educational Services Shares Soar On Preliminary Results

In a report published Monday, Bank of America analyst Sara Gubins reiterated an Underperform rating on ITT Educational Services, Inc. (NYSE: ESI), and raised the price target from $7.00 to $8.00.

In the report, Bank of America noted, “ESI shares rall...



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Market Shadows

Falling Energy Prices: Sober Look takes a Sober Look

Falling Energy Prices: Sober Look takes a Sober Look

What do falling energy prices mean for the US consumer? Sober Look writes a brief yet thorough overview of the consequences of the correction in the price of crude oil. There are good aspects, particularly for the consumer, bad aspects, and out-right ugly possibilities. For more on this subject, read James Hamilton's How will Saudi Arabia respond to lower oil prices?  In previous eras, Saudi Arabia would tighten the supply to help increase prices, but in this "game of chicken," the rules m...



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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.

Here's this week's Stock World Weekly. Just sign in with your PSW user name and password. (Or take a free trial.)

#457319216 / gettyimages.com

 

...

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Sabrient

Sector Detector: Semiconductors get slammed as investors scramble to protect profits

Courtesy of Sabrient Systems and Gradient Analytics

Volatility continues to increase in the stock market and many of the leaders are breaking down. In particular, semiconductors took a rather big hit when one of the bellwethers warned of weakening global demand. Nevertheless, despite the significant headwinds, I do not think this spells the end of the bull market. But the technical damage to the charts is severe, particularly to the small caps, which are in full-blown correction mode. The large caps must show leadership and rally immediately -- or it will put at risk the critical and widely-anticipated year-end rally.

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 ...



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Option Review

Release Of Fed Minutes, Icahn Tweet Boost Shares In Apple

Shares in Apple (Ticker: AAPL) are near their highs of the session in the final hour of trading on Wednesday, adding to the muted gains seen earlier in the day, following the release of the September FOMC meeting minutes and after activist investor and Apple shareholder Carl Icahn tweeted, “Tmrw we’ll be sending an open letter to @tim_cook. Believe it will be interesting.” Icahn’s tweet hit the ether at 2:33 pm ET and was met with a spike in volume in Apple shares. The stock is currently up 2.0% on the day at $100.75 as of 3:15 pm ET.

Chart – Apple rally accelerate...



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Digital Currencies

Bitcoin Has Been Getting Obliterated

Joe has found a place for Bitcoins, and if you hold a lot of them, you won't like it.

Bitcoin Has Been Getting Obliterated

Courtesy of 

Remember Bitcoin?

There's not much to say about it, except that it's doing TERRIBLY.

Here's a chart going back to earlier this summer. Charts don't get uglier than this.

Bitcoinwisdom

Interestingly, the Bitcoin industry continues to be quite excited about the prospects for the digital currency, and there continue to be announcements about expand...



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Promotions

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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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