Posts Tagged ‘accounting fraud’

NYT Muffs Merrill/Magnetar Piece (And Why is No One Investigating the Related Bonus Fraud?)

NYT Muffs Merrill/Magnetar Piece (And Why is No One Investigating the Related Bonus Fraud?)

By Yves Smith and Tom Adams, an attorney and former monoline executive, at Naked Capitalism 

Radar Marking an Earthquake's Epicenter

Louise Story has penned what presents itself as an important story at the New York Times, one that charges Merrill Lynch with misrepresenting the size of its subprime, specifically, collateralized debt obligation exposures, in the runup to the global financial crisis. The ruse the article depicts is a CDO called Pyxis., which purportedly served as a dumping ground for exposures Merrill could not unload. Initially, Merrill was able to escape reporting these positions because it claimed to have hedged the risk. In fact, the hedges failed, the bank was ultimately on the hook and was later forced to ‘fess up to the magnitude of its holdings. This revelation sounds juicy in that Citigroup and some of its recent senior executives paid fines to the SEC for similar, albeit less convoluted-sounding, misconduct.

But in fact, the story is astonishingly incomplete, to the point of being misleading. While Merrill’s probable accounting improprieties are noteworthy and merit investigation by the authorities, they are not the most important element of this episode. CDO abuses amounted to accounting fraud to enable employees and executives to loot their companies. Moreover, they were not perpetrated by isolated actors, but were part of what Bill Black calls a criminogenic environment.

To put it more simply, if you think Merrill’s misrepresentations to investors are a big deal, they are only a small aspect of the bigger, and frustratingly largely untold, tale of the role of CDOs in the crisis. CDOs were the epicenter of the upheaval, the device that magnified a what otherwise would have been contained subprime bubble into an economy-wrecking meltdown. When the music stopped, it was the dealers themselves that wound up holding much of the toxic paper they’d created. AAA rated CDOs went from haircuts of 2-4% in early 2006 to 95% in later 2007. The collapse in CDO valuations and the resulting inability to use CDOs as collateral for repo was a major, if not the major, cause of dealer illiquidity and insolvency which resulted in massive bailouts and backdoor subsidies.

Accounts like Ms. Story’s are blind man and the elephant affairs: at best, they do a good enough job of depicting, say, the trunk, but leave the beast…
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My Life as a White-Collar Criminal

My Life as a White-Collar Criminal

Courtesy of Sam Antar at White Collar Fraud 

Last Friday evening, Marcia MacMillan from CTV News Channel (a 24-hour news network in Canada) interviewed me and asked me what it’s like to be a white-collar criminal and what role, if any, did morality play in my decisions to commit crime. 

 

You can watch the interview by clicking on this link.

Reflecting on my own white-collar criminal mind leaves no doubt that money is not the only motivating force compelling hardcore criminals to commit crimes.  There was also a passion for the act, a sense of accomplishment, that made me enjoy committing my crimes. It is perhaps the same positive feelings of success that law-abiding citizens experience for a legitimate job well-done.  

To better understand the behavior of white-collar criminals, take morality out of the equation. During my years at Crazy Eddie, we never had a single conversation about the morality of our actions. We did not give a damn about right and wrong.

Hardcore criminals don’t question their unethical and immoral conduct.  Laws, morality, and ethics are weaknesses of other people. They don’t factor in except by limiting society’s behavior. In our society, morality dictates that people are entitled to the benefit of the doubt. Ironically, the “benefit of a doubt” limits the behavior of law-abiding citizens while giving criminals greater opportunity to commit their crimes.  After all, no one likes to be called "a paranoid" or "impolite."  

Our late President Ronald Reagan used to say "trust, but verify." That initial trust gives criminals the freedom to take steps to evade detection.  For example, Joseph T. Wells, founder of the Association of Certified Fraud Examiners, described certain steps I took during Crazy Eddie’s audit to successfully execute my crimes: 

Crazy Eddie’s auditors were provided a company office during their examination. They had a key to lock the desk—which they kept in a box of paperclips on top of the desk in full view. After the auditors left for the day, Eddie’s cohorts would unlock the desk, increase the inventory counts on the work-papers and photocopy the altered records. Were the auditors stupid? No, just too trusting. After all, no one wants…
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SP Futures Reach Apex of Fraud As Earnings Season Arrives and Bank Accounting Dodgy as Ever, Doing God’s Work

"THE PROBLEM OF POWER IS HOW TO ACHIEVE ITS RESPONSIBLE USE RATHER THAN ITS IRRESPONSIBLE AND INDULGENT USE — OF HOW TO GET MEN OF POWER TO LIVE FOR THE PUBLIC RATHER THAN OFF THE PUBLIC." ROBERT F. KENNEDY

SP Futures Reach Apex of Fraud As Earnings Season Arrives and Bank Accounting Dodgy as Ever, Doing God’s Work

Courtesy of JESSE’S CAFÉ AMÉRICAIN

"At what point shall we expect the approach of danger? By what means shall we fortify against it? Shall we expect some transatlantic military giant, to step the Ocean, and crush us at a blow?

Never! All the armies of Europe, Asia and Africa combined, with all the treasure of the earth in their military chest; with a Bonaparte for a commander, could not by force, take a drink from the Ohio, or make a track on the Blue Ridge, in a trial of a thousand years.

At what point, then, is the approach of danger to be expected? I answer, if it ever reach us it must spring up amongst us. It cannot come from abroad. If destruction be our lot, we must ourselves be its author and finisher. As a nation of freemen, we must live through all time, or die by suicide." Abraham Lincoln

Earnings season begins again this week in the States.

Investors remain skittish despite rosy predictions for earnings. This may be because of the suspicion that there are continuing misrepresentations of the true financial picture being permitted by the regulators, the ratings agencies, and the accountants.

For example, Bloomberg reports that if Bank of America Corp., JPMorgan Chase & Co. and Wells Fargo were taking the appropriate reserves against loan losses, it would virtually wipe out all their expected profits for 2010. And I suggest that this loss estimate is likely to be conservative. But of course this is not going to happen in the land of extend and pretend.’

Reserves against losses? We don’t need no…
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Fraud and Failure: Bo Cutter’s Indictment of the Finance Industry (Part 1)

Fraud and Failure: Bo Cutter’s Indictment of the Finance Industry (Part 1)

By William Black, courtesy of New Deal 2.0

money-noose-150Bill Black explains how Bo Cutter’s defense of Tim Geithner reveals the fraud and failure that plagued the financial sector long before the crisis.

Bo Cutter has presented the best possible defense of Treasury Secretary Geithner.

It is a remarkable defense because it is premised on a scathing indictment of Wall Street, theoclassical economics, modern finance, and the sycophants that the financial community installed as anti-regulators. Indeed, Bo’s account is sometimes particularly credible because it is a confession. Bo was a managing partner of Warburg Pincus, a major global private equity firm and led President Obama’s Office of Management and Budget (OMB) transition team. His defense of Geithner provides so rich a vein of ore that I will mine it in three installments: (1) Bo’s indictment of the finance industry, Greenspan, Geithner, Paulson and Bernanke, (2) the martyrdom of Geithner, and (3) Geithner as Bo’s Last Action Hero.

Bo’s explanation of Geithner’s unique virtues begins the indictment.

It comes down to this: the combination of brains, guts, calmness, and a willingness to act are virtually non-existent in Washington in any era, but particularly in this one. When you find the combination in a significant cabinet level job, you should value it.

[T]his crisis was long in coming and it was a totally integrated failure of intellectual traditions, global macro-economic imbalances, government policy making, regulatory supervision, financial sector greed, incomprehensible boards of directors, absences without leave, and breath-taking management short-sightedness. No one and no institution put together an understanding of the set of factors that triggered this particular debacle. Tim [Geithner] is included in this “no one”, but so is everyone else.

I think the last two years have revealed the single largest failure of senior management in the financial sector, and of the board system in American history. I think I am correct in saying that there was not a single independent director in America who stood up on this issue. I do not understand why every board of every institution that failed was not asked to resign immediately.

Bo’s indictment is compelling, but his logic proves a deeper failure. There is no reason to restrict his indictment to “the last two years.” The senior managers’ and directors’ failure did not begin with the recession.…
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Zero Hedge

Federal Decision On Mask Mandate Imminent: Report

Courtesy of ZeroHedge View original post here.

Despite Dr. Anthony Fauci's claim that the federal government wouldn't adopt any new confusing and unscientific mask or vaccine guidance, CNN reports that federal officials are preparing to announce new nation-wide masking guidance after NYC and California ordered public workers to either provide proof of their vaccination status or mask up, while LA has ordered people to wear masks in public once again. According to CNN, the decision is "imminent", and could arrive as soon as Tuesday....



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Phil's Favorites

Bonds and Inflation

 

Bonds and Inflation

Courtesy of Michael Batnick

So this is different. Inflation has never been this high, with bond yields this low.

Rates should, in theory, be a way to gauge what market participants think about future inflation. Higher inflation would cripple today’s coupons, so again, in theory, investors would demand higher rates for that risk.

But investing isn’t about theories. At some point, we need to acknowledge reality. It’s probably time we update our models, mental and otherwise.

There are varying explanations as to why this relationship may no longer hold, and I t...



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Digital Currencies

Is Amazon About To Start Accepting Crypto?

Courtesy of ZeroHedge

For the first time ever, Amazon has shown itself to be interested in crypto with a new major hire within its payments-focused team.

Posted on Thursday, the new role seeks an experienced product leader with expertise in blockchain, central bank digital currencies and cryptocurrencies to “develop the case for the capabilities which should be developed” and drive overall product vision.

The Payments Acceptance & Experience team is seeking an experienced product leader to develop Amazon’s Digital Currency and Blockchain strategy and product roadmap

The Amazon Payment Acceptance & Experie...



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Biotech/COVID-19

US is split between the vaccinated and unvaccinated - and deaths and hospitalizations reflect this divide

 

US is split between the vaccinated and unvaccinated – and deaths and hospitalizations reflect this divide

As coronavirus cases surge, unvaccinated people are accounting for nearly all hospitalizations and deaths. Fat Camera/E+ via Getty Images

Courtesy of Rodney E. Rohde, Texas State University and Ryan McNamara, University of North Carolina at Chapel Hill ...



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Chart School

Investing with Channels - Review

Courtesy of Read the Ticker

The US has a lot of debt, to sell more units of the debt to non US buyers the FED and Treasury must get the unit price of the debt down.

This video assumes a 'risk on' bullish bias into the Nov 2022 US mid terms. The bias assumes a US dollar trending down from it current high price of $93 on the DXY.






Chart 1 - US Dollar Channels


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Chart 2 - Ethereum/USD


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Politics

New York defines illegal firearms use as a 'public nuisance' in bid to pierce gun industry's powerful liability shield

 

New York defines illegal firearms use as a ‘public nuisance’ in bid to pierce gun industry’s powerful liability shield

Illegal gun use is now a public nuisance in New York. AP Photo/Bebeto Matthews

Courtesy of Timothy D. Lytton, Georgia State University

Could calling the illegal use of firearms a “public nuisance” bring an end to the gun industry’s immunity from civil lawsuits? ...



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Promotions

Free Webinar Wednesday: July 7, 1:00 pm EST

 

Don't miss Phil's Webinar on July 7 at 1:00 pm EST. It's FREE and open to all who wish to join.

Click here: 

https://attendee.gotowebinar.com/register/6552545459443187211

Join us to learn Phil's trading tactics and strategies in real-time!

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Kimble Charting Solutions

Crude Oil Cleared For Blast Off On This Dual Breakout?

Courtesy of Chris Kimble

Is Crude Oil about to blast off and hit much higher prices? It might be worth being aware of what could be taking place this month in this important commodity!

Crude Oil has created lower highs over the past 13-years, since peaking back in 2008, along line (1).

It created a “Double Top at (2), then it proceeded to decline more than 60% in four months.

The countertrend rally in Crude Oil has it attempting to break above its 13-year falling resistance as well as its double top at (3).

A successful breakout at (3) would suggest Crude Oil is about to mo...



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ValueWalk

Managing Investments As A Charity Or Nonprofit

By Anna Peel. Originally published at ValueWalk.

Maintaining financial viability is a constant challenge for charities and nonprofit organizations.

Q4 2020 hedge fund letters, conferences and more

The past year has underscored that challenge. The pandemic has not just affected investment returns – it’s also had serious implications for charitable activities and the ability to fundraise. For some organizations, it’s even raised doubts about whether they can continue to operate.

Finding ways to generate long-term, sustainable returns for ...



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Mapping The Market

Suez Canal: Critical Waterway Comes to a Halt

 

Suez Canal: Critical Waterway Comes to a Halt

Courtesy of Marcus Lu, Visual Capitalist

The Suez Canal: A Critical Waterway Comes to a Halt

On March 23, 2021, a massive ship named Ever Given became lodged in the Suez Canal, completely blocking traffic in both directions. According to the Suez Canal Authority, the 1,312 foot long (400 m) container ship ran aground during a sandstorm that caused low visibility, impacting the ship’s navigation. The vessel is owned by Taiwanese shipping firm, Evergreen Marine.

With over 2...



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The Technical Traders

Adaptive Fibonacci Price Modeling System Suggests Market Peak May Be Near

Courtesy of Technical Traders

Our Adaptive Fibonacci Price Modeling system is suggesting a moderate price peak may be already setting up in the NASDAQ while the Dow Jones, S&P500, and Transportation Index continue to rally beyond the projected Fibonacci Price Expansion Levels.  This indicates that capital may be shifting away from the already lofty Technology sector and into Basic Materials, Financials, Energy, Consumer Staples, Utilities, as well as other sectors.

This type of a structural market shift indicates a move away from speculation and towards Blue Chip returns. It suggests traders and investors are expecting the US consumer to come back strong (or at least hold up the market at...



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Lee's Free Thinking

Texas, Florida, Arizona, Georgia - The Branch COVIDIANS Are Still Burning Down the House

 

Texas, Florida, Arizona, Georgia – The Branch COVIDIANS Are Still Burning Down the House

Courtesy of Lee Adler, WallStreetExaminer 

The numbers of new cases in some of the hardest hit COVID19 states have started to plateau, or even decline, over the past few days. A few pundits have noted it and concluded that it was a hopeful sign. 

Is it real or is something else going on? Like a restriction in the numbers of tests, or simply the inability to test enough, or are some people simply giving up on getting tested? Because as we all know from our dear leader, the less testing, the less...



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Insider Scoop

Economic Data Scheduled For Friday

Courtesy of Benzinga

  • Data on nonfarm payrolls and unemployment rate for March will be released at 8:30 a.m. ET.
  • US Services Purchasing Managers' Index for March is scheduled for release at 9:45 a.m. ET.
  • The ISM's non-manufacturing index for March will be released at 10:00 a.m. ET.
  • The Baker Hughes North American rig count report for the latest week is scheduled for release at 1:00 p.m. ET.
...

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