Archive for 2010

John Paulson Needs A Good Lawyer

Simon Johnson’s view of the charges against GS for fraud is more optimistic than those of several other commentators – he sees this development as a first step towards examining the fraud at the heart of Wall Street. – Ilene 

John Paulson Needs A Good Lawyer

Courtesy of Simon Johnson, co-author of 13 Bankers: The Wall Street Takeover and the Next Financial Meltdown, at Baseline Scenario 

Of all the reactions so far to various dimensions of Goldman fraudulent securities “Fab” scandal, one stands out.  On Bill Maher’s show, Friday night, I argued that John Paulson – the investor who helped design the CDO at the heart of the affair – should face serious legal consequences. 

On the show, David Remnick of the New Yorker pointed out that Paulson has not been indicted.  And since then numerous people have argued that Paulson did nothing wrong – rather that the fault purely lies with Goldman for not disclosing fully to investors who had designed the CDO.

But this is to mistake the nature of the crime here – and also to misread the legal strategy of the SEC.

The obvious targets are Goldman’s top executives, whom we know were deeply engaged with the housing side of their business in early 2007 – because it was an important part of their book and they were well aware that the market was in general going bad.

Either Goldman’s executives were well aware of the “Fab” and its implications – in which case they face serious potential criminal and civil…
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Simon Johnson: “If John Paulson Avoids Charges, It Shows How Broken Our System Is”

Courtesy of Tyler Durden

“[Goldman] designed something intentionally complex that’s basically a mechanism of transferring money from you to John Paulson. John Paulson, it is true, has not been charged with anything. But he was involved in designing the security. For all we know right now it was probably his idea and if he walks away without being charged, it shows how broken our system is.” This is Simon Johnson discussing the Goldman fraud charges on Friday night with Bill Maher. Could the public’s attention now be shifting ever more toward those top performing hedge fund managers who year after year made billions, and instead of praising them for their acumen, are now seeing a sentiment shift toward one of wealth merely as a result of massive criminal collusion between the hedge funds and the big banks… well big bank, cause Goldman is really all that’s left of the traditional broker/dealer complex. Which once again invokes our long-standing point: the DOJ should immediately break up Goldman Sachs into many smaller entities, due to the firm’s unquestionable (allegedly) criminal monopolistic impact on the marketplace. Christine Varney – wake the #&$* up! And whatever happened to that FBI investigation into SAC? Will Stevie Cohen be next as the mid-term elections approach and the public demands blood from someone?

Watch the Simon Johnson interview on Bill Maher 7 minutes into the clip below. The entire 10 minute clip is worthy of your attention.

Below is the full Q&A following the show, in which the case for accelerated action against Goldman by the administration is made.





Merrill Lynch Accused of Same Fraud as Goldman Sachs; Tip of the Iceberg of Fraud Charges

Merrill Lynch Accused of Same Fraud as Goldman Sachs; Tip of the Iceberg of Fraud Charges

Courtesy of Mish 

Merrill Lynch now stands accused of the same fraudulent actions as Goldman Sachs. Please consider Merrill Used Same Alleged Fraud as Goldman, Bank Says

Merrill Lynch & Co. engaged in the same investor fraud that the U.S. Securities and Exchange Commission accused Goldman Sachs Group Inc. of committing, according to a bank that sued the firm in New York last year.

Cooperatieve Centrale Raiffeisen-Boerenleenbank BA, known as Rabobank, claims Merrill, now a unit of Bank of America Corp., failed to tell it a key fact in advising on a synthetic collateralized debt obligation. Omitted was Merrill’s relationship with another client betting against the investment, which resulted in a loss of $45 million, Rabobank claims.

“This is the tip of the iceberg in regard to Goldman Sachs and certain other banks who were stacking the deck against CDO investors,” said Jon Pickhardt, an attorney with Quinn Emanuel Urquhart Oliver & Hedges, who is representing Netherlands-based Rabobank.

Goldman Sachs, the most profitable securities firm in Wall Street history, created and sold CDOs tied to subprime mortgages in early 2007, as the U.S. housing market faltered, without disclosing that Paulson helped pick the underlying securities and bet against them, the SEC said in a statement yesterday.

The SEC allegations are “unfounded in law and fact, and we will vigorously contest them,” Goldman said in a statement.

“When one major firm becomes aware of the creative instrument of others, there is historically an effort to replicate them,” said Jacob Frenkel, a former SEC lawyer now in private practice in Potomac, Maryland.

SEC spokesman John Heine declined to comment on whether it is investigating Merrill’s actions.

Merrill loaded the Norma CDO with bad assets, Rabobank claims. Rabobank seeks $45 million in damages, according to a complaint filed in state court in June 2009. Rabobank initially provided a secured loan of almost $60 million to Merrill, according to its complaint.

No Surprise

That Merrill Lynch now stands accused should not surprise anyone. Nor will it be any surprise if Morgan Stanley and Citigroup are accused of similar dealings. Indeed, it may be interesting to see who is not accused.

Goldman’s statement The SEC allegations are “unfounded in law and fact, and we will vigorously contest them” is an interesting theoretical debate.

Accusations that Goldman…
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Yesterday Germany, Today UK, Tomorrow The World: Goldman’s Response To Lawsuits By Everyone – Q1 Stub Bonuses!

Courtesy of Tyler Durden

As expected, the line of people preparing to sue Goldman is now longer than the posers who bought the iPad on launch day. Reuters reports that British Prime Minister Gordon Brown, who himself has been in hot water over his much lamented decision to sell UK’s gold despite protests from the BOE and likely under the guidance of Goldman and JPM, wants an investigation into the Goldman affair by the FSA, and is saying that impacted UK banks will be considering legal action. Furthermore, GB slammed Goldman after the TimesOnline reported that Goldman will pay $5.6 billion in bonuses for just three months work, including 600 million pounds for London-based staff. Among other things, the ratings-strapped politician, who as recently as ten years ago was doing the bidding precisely of Goldman and its cronies when dumping the gold stash, accused the bank of “moral bankruptcy.” We assume is referring to Chapter 11. Of course, that would imply that Brown’s hypocrisy should be sufficient for immediate Chapter 7 liquidation proceedings.

From Reuters:

Brown, who is fighting an election campaign, piled pressure on Wall Street’s most powerful bank, accusing it of “moral bankruptcy” over reported plans to pay big bonuses.

“I want a special investigation done into the entanglement of Goldman Sachs and the companies there with other banks and what happened,” Brown told BBC television.

“There are hundreds of millions of pounds have been traded here and it looks as if people were misled about what happened. I want the Financial Services Authority (FSA) to investigate it immediately,” he said.

“I know that the banks themselves will be considering legal action,” Brown said, apparently referring to European banks that lost money on the product marketed by Goldman Sachs.

“We will work with the Securities and Exchange Commission in the United States,” he said.

A spokeswoman for the FSA declined comment. “We would never confirm or deny we are investigating anybody,” she said.

And here is the latest confirmation that Goldman is pursuing nothing less than a first derivative of accelerated wealth transfer before the world ends: the Times of London has discovered that the firm is paying an unprecedented stub bonus of $5.6 billion for the first quarter. Goldman knows its days are numbered so it will pay off as much as it…
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A Goldman Opportunity for Reform?

Courtesy of Leo Kolivakis

Please read my latest entry and post your comments here:

http://pensionpulse.blogspot.com/2010/04/goldman-opportunity-for-reform.html

Thank you,

Leo Kolivakis





GS, the SEC and Timing

Courtesy of Bruce Krasting

It is possible that the SEC investigation into the bad acts of Goldman Sachs evolved over a period of time and the decision to announces formal charges just happened to take place on Friday. I doubt that very much.

A few thoughts:

-This investigation has been ongoing for a long time. At some point we will know when it was initiated and when Goldie became aware of it. Reuters has a report quoting an unnamed source that the Wells Notice relating to the SEC inquiry was delivered six months ago. My own instincts on this are that is was even longer than that. This could easily have been going on for a year.

-Mary Schapiro (head of SEC) does not go to the bathroom without first checking with Rahm Emanuel. To say that this is a high profile case is a silly understatement. This is THE case of the century. The decision to go forward with a public complaint last Friday was done with the President’s knowledge and approval.

-Everyone in D.C. has been pointing to the financial markets as a measure of the “success” of their policies. They point to DOW 11,000, they point to narrowing credit spreads, and they look at wealth creation as the “report card” which validates their actions. I don’t believe these folks are stupid at all. They knew full well that the initial reaction of the markets would be very broadly negative. They must have considered that the SEC action could have lasting consequences to the capital markets. They knew that they had spent a kings ransom to bring the banks back to life, they must also know that this step could have the effect of undermining all of that.

Given the foregoing I have to assume that at some point the SEC sat down with Blankfein and said, “Do you want to pay a big fine, not admit any guilt and agree to be good boys in the future?” Again a guess: If on Friday the announcement had been that GS had agreed to a $3b fine and the case was closed GS’s stock would have risen and the broad market would not be worrying about how sloppy things are going to be in the next few weeks. I think Blankfein would have written a very big check to avoid the…
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High-Frequency Trading as High-Tech Robbery

High-Frequency Trading as High-Tech Robbery

By MIKE WHITNEY writing at CounterPunch 

train robbery, picture from wikimediaThe Securities and Exchange Commission (SEC) knows that High-Frequency Trading (HFT) manipulates the market and bilks investors out of tens of billions of dollars every year. But SEC chairman Mary Schapiro refuses to step in and take action. Instead, she’s concocted an elaborate "information gathering" scheme, that does nothing to address the main problem. Schapiro’s plan--to track large blocks of trades by large institutional investors-- is an attempt to placate congress while the big Wall Street HFT traders to continue to rake in obscene profits. It achieves nothing, except provide the cover Schapiro needs to avoid doing her job.

High-frequency trading (HFT) is algorithmic-computer trading that finds "statistical patterns and pricing anomalies" by scanning the various stock exchanges. It’s high-speed robo-trading that oftentimes executes orders without human intervention. But don’t be confused by all the glitzy "state-of-the-art" technology. HFT is not a way of "allocating capital more efficiently", but of ripping people off in broad daylight.

It all boils down to this: HFT allows one group of investors to see the data on other people’s orders ahead of time and use their supercomputers to buy in front of them. It’s called frontloading, and it goes on every day right under Schapiros nose.

In an interview on CNBC, HFT-expert Joe Saluzzi was asked if the big HFT players were able to see other investors orders (and execute trades) before them. Saluzzi said, "Yes. The answer is absolutely yes. The exchanges supply you with the data, giving you the flash order, and if your fixed connection goes into their lines first, you are disadvantaging the retail and institutional investor."

The brash way that this scam is carried off is nearly beyond belief. The deep-pocket bank/brokerages actually pay the NYSE and the NASDAQ to "colocate" their behemoth computers ON THE FLOOR OF THE EXCHANGES so they can shave off critical milliseconds after they’ve gotten a first-peak at incoming trades. It’s like parking the company forklift in front of the local bank vault to ease the transfer of purloined cash. Due to the impressive research of bloggers like Zero Hedge’s, Tyler Durden and Market Ticker’s, Karl Denniger, many people have a fairly good grasp of HFT and understand that the SEC needs to act. But Schapiro has continued to drag her feet while issuing endless proclamations about pursuing the wrongdoers. She needs to…
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Wealth Dispersion and General Thoughts on the Future of Economics on a Saturday Afternoon

Wealth Dispersion and General Thoughts on the Future of Economics on a Saturday Afternoon

Courtesy of Jesse’s Americain Cafe

Image Of Thinking Man's Brain Through Bowler Hat

Here is an interesting graph of wealth distribution, or dispersion, as I call it from Cherchez La Verite.

I am not sure I agree with his conclusions or even his premise, not because I disagree but because it requires some thinking and leisure to digest it. But the data is most interesting.

I wonder if any of the quant economists have performed simulations on virtual populations, and then examined the results of varying different tax rates, and concentrations of wealth because of fiscal policy and regulatory structure, among other things.

I have an hypothesis that great concentrations of wealth lead to economic stagnation, but I am afraid that I have not the means or the talent anymore to conduct that type of research.

The difficulty in a study like this is that the assumptions are greatly magnified into the results. If you assume certain buying, spending, and savings behaviours, the downstream impact can greatly alter, and even distort, the outcomes.

And when people reason through this verbally, rather than perform a structured simulation based on transactions, the distortions increase by an order of magnitude or more based on their own biases.

I used to create simulations like this all the time, for industrial and commercial purposes, and also did a decent amount of econometric modeling. So I am sure someone is doing it somewhere. But I suspect they are doing it in think tanks and places where the outcome is predetermined by the basis of their grant.

Concentrated wealth magnifies the needs and predispositions of the holder. Since the amount they require for basic necessities can only consume so much, one would think that the amount spent on the aggregate of necessities will eventually be reduced. And what they do with their excess of necessity wealth is going to be greatly influenced by their character. Are they a gambler, who inherited the wealth? Are they productive and beneficent? Are they dissolute and venal?

And what about government? Taxation can concentrate enormous wealth in the government. What sort of government does one have, or does one assume? Are they warlike, productive, redistributive, and how corrupt? What about corporations? They can be like small governments, and levy taxes through monopoly…
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Janet Tavakoli: Did Goldman Sachs Commit Fraud?

Janet Tavakoli: Did Goldman Sachs Commit Fraud?

Courtesy of JESSE’S CAFÉ AMÉRICAIN

Highlights:

Yes. The only thing that was surprising how long the SEC took to do it.

The complaint does not go quite far enough. It was a blatant fraud, more than just a failure to disclose information.

And this may be the beginning of a lot of questions about a lot of investment banks. It has massive implications IF the SEC does its job right, which they have not done in the past. 

  Tavakoli Structured Finance 


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Guest Post: Floating Alternative To Nabucco Pipeline Moving Toward Implementation

Courtesy of Tyler Durden

Submitted by Yossef Bodansky of OilPrice.com

Floating Alternative to Nabucco Pipeline Moving Toward Implementation

Romania, Azerbaijan, and Georgia on April 13, 2010, took a major step toward the implementation of a substitute energy distribution network to substitute for the US-backed Nabucco strategic gas pipeline complex.

Azerbaijan Minister of Industry and Energy Natik Aliyev, Romanian Minister of Economy, Commerce and Business Environment Adriean Videanu, and Georgian Energy Minister Alexander Khetaguri met in Bucharest to sign a new agreement in the gas sector. The new agreement constitutes an expansion of the late February agreement that was limited to LNG exports to Romania. The new agreement set forth modalities for exporting LNG to the rest of the European Union (EU) via Romania. The new project will now be known as the Azerbaijan-Georgia-Romania-Interconnection project (AGRI).

The April 13, 2010, agreement also included specific modalities for the joint construction of two terminals to transport natural gas from the Caspian Sea to Europe across the Black Sea, as well as the setting up of an AGRI headquarters in Bucharest in the next few months.

Bucharest considers the new agreement to be a milestone in the development of natural gas exports to the EU. “Romania will insist this one becomes one of the priority projects at the European level,” Videanu said at the signing ceremony. “The project brings energy resources from the Caspian zone to the EU.” With the AGRI online, he stressed, Romania would play “a very important rôle” in gas supplies to Europe. The AGRI agreement aimed to provide for “possible avenues for gas transit diversification to Europe from Azerbaijan”, explained another senior Romanian official.

For political reasons, all senior officials were quick to state that the new AGRI was not competition to Nabucco, let alone a substitute, despite the reality that this was, in fact, an almost inevitable outcome of AGRI. For example, the Romanian Ambassador to Azerbaijan Nikolae Ureke noted that AGRI was intended to fill in the gaps created by continued delays in the Nabucco project. “The reason of nonrealizability of this project is the shortcoming of finance. We hope that Nabucco project will be realized next year as planned. AGRI project isn’t a competitor for Nabucco, it is a complementary project. Europe needs alternative projects for guarantee of energy sources. It would cause the falling of a high gas price.” SOCAR…
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Phil's Favorites

Are Stock Buybacks Driving Wealth Inequality?

 

Are Stock Buybacks Driving Wealth Inequality?

Courtesy of 

 

 

It’s not lost on me that we’re posting this on a day where the S&P 500 trades above 3100 for the first time…

Ben Hunt joins Michael Batnick and Downtown Josh Brown at The Compound to explain what he’s so angry about – he sees wealth inequality as being driven by hijacked narratives about capitalism, stock buybacks, central banks and the managerial overclass orchestrating it all.

Fo...



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The Inevitable Finale Of The Nord Stream 2 Saga

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Europe is quickly becoming one of the most important export destinations for gas exporters. Production is decreasing quickly due to political and technical developments. The next few decades are promising for exporters. Nord Stream 2 is arguably one of the most contentious projects currently under development. Denmark recently granted the last necessary permit to start construction activities in its EEZ and analysts now agree that the project’s completion is only a matter of time. In reality, the pipeline’s future was decided long before construction even started due to external factors such as Poland’s decision to d...



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What happens To The Global Economy If Oil Collapses Below $40 - Part II

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In the first part of this research article, we shared our ADL predictive modeling research from July 10th, 2019 where we suggested that Oil prices would begin to collapse to levels near, or below, $40 throughout November and December of 2019.  Our ADL modeling system suggests that oil prices may continue lower well into early 2020 where the price is exp...



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Is Bitcoin a Macro Asset?

 

Is Bitcoin a Macro Asset?

Courtesy of 

As part of Coindesk’s popup podcast series centered around today’s Invest conference, I answered a few questions for Nolan Bauerly about Bitcoin from a wealth management perspective. I decided in December of 2017 that investing directly into crypto currencies was unnecessary and not a good use of a portfolio’s allocation slots. I remain in this posture today but I am openminded about how this may change in the future.

You can listen to this short exchange below:

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Silver Testing This Support For The First Time In 8-Years!

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Its been a good while since Silver bulls could say that it is testing support. Well, this week that can be said! Will this support test hold? Silver Bulls sure hope so!

This chart looks at Silver Futures over the past 10-years. Silver has spent the majority of the past 8-years inside of the pink shaded falling channel, as it has created lower highs and lower lows.

Silver broke above the top of this falling channel around 90-days ago at (1). It quickly rallied over 15%, before creating a large bearish reversal pattern, around 5-weeks after the bre...



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Gold Gann and Cycle Review

Courtesy of Read the Ticker

Gold has performed well, golden skies are here again. In fact it has been a straight line move, and this is typically unusual and a pause can be expected.

It seems the markets are happy again, new highs in the SP500, US 10 year interest rates look to re bound, negative interest may soften. The US FED has reversed their QT and now doing $250BN (not QE) repo. The main point is the FED has stopped QT, and will do QE forever. The evidence now is the FED put is under market risk and the possibility of excessive losses do not exist. 

Point: If in future if there is market risk, the FED will print it's way out of it.
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Today's Fed POMO TOMO FOMC Alphabet Soup Unspin

Courtesy of Lee Adler

But make no mistake, if the Fed wants money rates to stay down by another quarter, it will need to imagineer even more money.

That’s on top of the $281 billion it has already imagineered into existence since addressing its “one-off” repo market emergency on September 17. This came via  “Temporary” Repo Man Operations money, and $70.6 billion in Permanent Open Market Operations (POMO) money.

By my calculations that averages out to $7.4 billion per business day. That works out to a monthly pace of $155 billion or so.

If they keep this up, it will be more than enough to absorb every penny of new Treasury supply. That supply had caused the system to run out of money in mid September.  This flood of paper had been inundati...



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The Big Pharma Takeover of Medical Cannabis

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

 

The Big Pharma Takeover of Medical Cannabis

Courtesy of  , Visual Capitalist

The Big Pharma Takeover of Medical Cannabis

As evidence of cannabis’ many benefits mounts, so does the interest from the global pharmaceutical industry, known as Big Pharma. The entrance of such behemoths will radically transform the cannabis industry—once heavily stigmatized, it is now a potentially game-changing source of growth for countless co...



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Via Jean Luc 

Funny but probably true:

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Members' Corner

Despacito - How to Make Money the Old-Fashioned Way - SLOWLY!

Are you ready to retire?  

For most people, the purpose of investing is to build up enough wealth to allow you to retire.  In general, that's usually enough money to reliably generate a year's worth of your average income, each year into your retirement so that that, plus you Social Security, should be enough to pay your bills without having to draw down on your principle.

Unfortunately, as the last decade has shown us, we can't count on bonds to pay us more than 3% and the average return from the stock market over the past 20 years has been erratic - to say the least - with 4 negative years (2000, 2001, 2002 and 2008) and 14 positives, though mostly in the 10% range on the positives.  A string of losses like we had from 2000-02 could easily wipe out a decades worth of gains.

Still, the stock market has been better over the last 10 (7%) an...



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In My Top Strategies for 2017, Phil's chapter is Secret Santa’s Inflation Hedges for 2017.

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