Posts Tagged ‘collateralized debt obligations’

SEC Charges Goldman Sachs With Fraud On Subprime Mortgages, Paulson & Co. Implicated

SEC Charges Goldman Sachs With Fraud On Subprime Mortgages, Paulson & Co. Implicated

Courtesy of Zero Hedge  

Washington, D.C., April 16, 2010 — The Securities and Exchange Commission today charged Goldman, Sachs & Co. and one of its vice presidents for defrauding investors by misstating and omitting key facts about a financial product tied to subprime mortgages as the U.S. housing market was beginning to falter.

The SEC alleges that Goldman Sachs structured and marketed a synthetic collateralized debt obligation (CDO) that hinged on the performance of subprime residential mortgage-backed securities (RMBS). Goldman Sachs failed to disclose to investors vital information about the CDO, in particular the role that a major hedge fund played in the portfolio selection process and the fact that the hedge fund had taken a short position against the CDO.

"The product was new and complex but the deception and conflicts are old and simple," said Robert Khuzami, Director of the Division of Enforcement. "Goldman wrongly permitted a client that was betting against the mortgage market to heavily influence which mortgage securities to include in an investment portfolio, while telling other investors that the securities were selected by an independent, objective third party." 

Kenneth Lench, Chief of the SEC’s Structured and New Products Unit, added, "The SEC continues to investigate the practices of investment banks and others involved in the securitization of complex financial products tied to the U.S. housing market as it was beginning to show signs of distress."

The SEC alleges that one of the world’s largest hedge funds, Paulson & Co., paid Goldman Sachs to structure a transaction in which Paulson & Co. could take short positions against mortgage securities chosen by Paulson & Co. based on a belief that the securities would experience credit events.

According to the SEC’s complaint, filed in U.S. District Court for the Southern District of New York, the marketing materials for the CDO known as ABACUS 2007-AC1 (ABACUS) all represented that the RMBS portfolio underlying the CDO was selected by ACA Management LLC (ACA), a third party with expertise in analyzing credit risk in RMBS. The SEC alleges that undisclosed in the marketing materials and unbeknownst to investors, the Paulson & Co. hedge fund, which was poised to benefit if the RMBS defaulted, played a significant role in selecting which RMBS should make up the portfolio.

The SEC’s complaint alleges that after participating in the…
continue reading


Tags: , , , , , , , , , , , , , , ,




How to Corner the Gold Market

How to Corner the Gold Market

Courtesy of Janet Tavakoli, published previously at Janet’s website and in The Huffington Post 

Janet Tavakoli[For a pdf copy, click here.] 

First, let your greed overcome all regard for the stability of the global market, and overcome your aversion to illegal activities. Stay away from people like me, and fly under the radar, because I’d like to see you thrown in jail. Most Washington officials, regulators, and Wall Street managers are probably safe to hang around, especially if you cut them in for a piece of the action or give them vague promises of a future lucrative job.

Pump up the gold story. Get your friends to tell retail investors to buy some gold every month. Get your buddies in the financial business to offer exchange traded gold funds (ETFs) that claim to buy physical gold. This will sound safe to retail investors, but in fact, the ETFs are very risky. This will serve your purpose when you are ready to start a panic. These particular ETFs will allow the "gold" to be commingled with the custodian’s gold, and the custodian can lease out the gold. Moreover, the "gold" custodian can give it to a sub custodian that the manager doesn’t know. The sub custodian can give it to yet another sub custodian unknown to the original custodian. The manager will never audit the gold, and the gold is not "allocated" to a particular investor. Since this is an "exchange traded" gold fund, investors will probably assume the gold is regulated by the Commodities Futures Trading Commission (CFTC), but it isn’t. By the time investors wake up to the probability that there is very little actual gold backing their investment, your plan will be ready to execute.

Now you are ready to execute your plan.*

Step 1: Let everyone in the futures markets know you are buying gold, speculating in gold, and want to take physical delivery. It helps that China openly announced it wants to increase its gold reserves; the market isn’t looking too hard at you. At first, act like you’re naïve. Buy on margin and pyramid up by reinvesting your profits when you have them.

Step 2: Get the banks to let you finance your gold.

Step 3: Book up all of the space at gold refiners, so that no one else can do…
continue reading


Tags: , , , , , , ,




The Audacity Of Synthetics

Karl Denninger discusses an article posted here several weeks ago, John Paulson and the Greatest Pump and Short Fraud Ever, by Mark Mitchell at Deep Capture. - Ilene 

The Audacity Of Synthetics

Courtesy of Karl Denninger, The Market Ticker

DeepCapture has picked up something I’ve written about before, but none of these folks seem to put together the "big picture", as I outlined yesterday on my Blogtalk show.

As Fiderer explains, Paulson asked the banks to create those CDOs “so that they could be sold to some suckers at close to par. That way, Paulson’s hedge fund could approach some other sucker who would sell an insurance policy, or credit default swap, on the newly minted CDOs. Bear, Deutsche and Goldman knew perfectly well what Paulson’s motivation was. He made no secret of his belief that the CDOs subordinate claims on the mortgage collateral were close to worthless. By the time others have figured out the fatal flaws in these securities which had been ignored by the rating agencies, Paulson could collect up to $5 billion.

Let’s step back a second.

A "CDO", or "Collateralized Debt Obligation", is in theory a very simple instrument.  It is, at it’s core, a collection of income-producing "assets" that have a cash flow that can be diced up paid to people who have purchased components of the CDO.

The usual thought process when someone says "CDO" is that some bank bought a bunch of bonds, compiled them into a CDO and then sold off the tranches.

The CDO itself is typically held off-balance sheet in a SIV/SPV, lest the bank be forced to recognize it as part of it’s "assets."  This is permissible because the bank doesn’t own the assets, the legal entity does, and it got the money to buy them from the people who bought the tranches that were issued.  The banks do this because they get a nice fee for filing the papers to establish the entity along with a management fee to act as the servicer – that is, the "guy in the middle" who takes the money that comes in from the debt instruments and slices it up, paying out those funds to the buyers of the CDO’s tranches.

So you can think of a CDO, in it’s simplest form, as a way of taking a


continue reading


Tags: , , , , , , , ,




John Paulson and the Greatest Pump and Short Fraud Ever

John Paulson and the Greatest Pump and Short Fraud Ever

Courtesy of Mark Mitchell at Deep Capture

John Paulson - the business insider By now, everybody knows that the market for collateralized debt obligations was riddled with fraud in the lead-up to the financial crisis. What is less known is the fact that hedge fund managers helped create and inflate the market for these toxic securities specifically so that they could bet against them and profit from the inevitable collapse.

An example of a particularly sordid scheme, orchestrated by hedge fund billionaire John Paulson, was discovered some time ago by David Fiderer, a blogger for the Huffington Post. The information in Fiderer’s blog is rather incriminating, and, of course, the mainstream media is not on the case, so I think it bears repeating.

In a close reading of Wall Street Journal Gregory Zuckerman’s book, “The Greatest Trade Ever”, an otherwise starry-eyed account of Paulson’s bets against the mortgage market, Fiderer discovered this nugget:

Paulson and [partner Paolo Pellegrini] were eager to find ways to expand their wager against risky mortgages. Accumulating it in the market sometimes proved to be a slow process. So they made appointments with bankers at Bear Stearns, Deutsche Bank (NYSE:DB), Goldman Sachs (NYSE:GS), and other banks to ask if they would create CDOs that Paulson & Co. could essentially bet against.

As Fiderer explains, Paulson asked the banks to create those CDOs “so that they could be sold to some suckers at close to par. That way, Paulson’s hedge fund could approach some other sucker who would sell an insurance policy, or credit default swap, on the newly minted CDOs. Bear, Deutsche and Goldman knew perfectly well what Paulson’s motivation was. He made no secret of his belief that the CDOs subordinate claims on the mortgage collateral were close to worthless. By the time others have figured out the fatal flaws in these securities which had been ignored by the rating agencies, Paulson could collect up to $5 billion.

Bear Stearns“Paulson not only initiated these transactions, he also specified the terms he wanted, identifying which mortgages would be stuffed into the CDOs, and how the CDOs should be structured. Within the overall framework set by Paulson’s team, banks and investors were allowed to do some minor tweaking.”

It is not clear which banks ultimately participated in Paulson’s scam, but Fiderer quotes…
continue reading


Tags: , , , , , , , , ,




The Banks Must Be Restrained, The Financial System Must Be Reformed

The Banks Must Be Restrained, The Financial System Must Be Reformed

Courtesy of Jesse’s Café Américain

Mass Protests Are Held During The G20 World Leaders Summit

There has been a loss of perspective with regard to the financial sector led by the Anglo-American banking interests.

This will have to change before there can be a sustainable economic recovery. This will be difficult to accomplish, because there exists a fusion of corporate and government desires to control the distribution of wealth and power that is opposed to any significant reforms.

"A certain type of person strives to become a master over all, and to extend his force, his will to power, and to subdue all that resists it. But he encounters the power of others, and comes to an arrangement, a union, with those that are like him: thus they work together to serve the will to power. And the process goes on." Friedrich Nietzsche, The Will to Power

Until then, the world will experience a series of asset bubbles and an increasing disparity in wealth between the productive and administrative sectors of the economy. This will continue until it becomes unsustainable, and unstable. And then it will change.

UK Telegraph
Ex-Fed chief Paul Volcker’s ‘telling’ words on derivatives industry
By Louise Armitstead
9:41PM GMT 08 Dec 2009

The former US Federal Reserve chairman told an audience that included some of the world’s most senior financiers that their industry’s "single most important" contribution in the last 25 years has been automatic telling machines, which he said had at least proved "useful".

Echoing FSA chairman Lord Turner’s comments that banks are "socially useless", Mr Volcker told delegates who had been discussing how to rebuild the financial system to "wake up". He said credit default swaps and collateralised debt obligations had taken the economy "right to the brink of disaster" and added that the economy had grown at "greater rates of speed" during the 1960s without such products.

When one stunned audience member suggested that Mr Volcker did not really mean bond markets and securitisations had contributed "nothing at all", he replied: "You can innovate as much as you like, but do it within a structure that doesn’t put the whole economy at risk."

He said he agreed with George Soros, the billionaire investor, who said investment banks must stick to serving clients and "proprietary trading should be pushed out
continue reading


Tags: , , , , ,




 
 
 

Phil's Favorites

Brief Summary of Friday's stock market action

 

It was a good idea from Paul Krugman on Thursday, but by Friday, hopes for a sane approach to economic matters all but disappeared...

What about calling off the trade war that has been depressing business investment? This seems unlikely, because protectionism is right up there with racism as a core Trump value. And merely postponing tariffs might not help, since it wouldn’t resolve the uncertainty that may be the trade war’s biggest cost.

The truth is that Trump doesn’t have a Plan B, and probably can’t come up with one. On the other hand, he might not have to. Who needs competent policy when you’re the chosen one and the ...



more from Ilene

Zero Hedge

How Negative Interest Rates Screw Up The Economy

 

By Wolf Richter via WolfStreet.com, as published at Zero Hedge

Now they’re clamoring for this NIRP absurdity in the US. How will this end?

This is the transcript from my podcast last Sunday, THE WOLF STREET REPORT:

Now there is talk everywhere that the United States too will descend into negative interest rates. And there are people on Wall Street and in the media that are hyping this absurd condition where government...



more from Tyler

Biotech

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...



more from Biotech

Kimble Charting Solutions

Bearish Divergences Similar To 2000 & 2007 In Play Again!

Courtesy of Chris Kimble

Does history at important junctures ever repeat itself exactly? Nope

Do look-alike patterns take place at important price points? Yup

This chart looks at the S&P 500 over the past 20-years.

In 2000 and 2007 bearish momentum divergences took place months ahead of the actual peak in stocks.

Currently, momentum has created a bearish divergence to the S&P 500 for the past 20-months, as the seems to have stopped on a dime at its 261% Fibonacci extension level of the 2007 highs/2009 lows.

Joe Friday Just The Fact Ma’am; A negative sign for the S&P 500 with the divergence in play, would take place if support b...



more from Kimble C.S.

The Technical Traders

Do Good Traders Make Good Gamblers?

Courtesy of Technical Traders

Without breaking the rules, have you ever made a trade that was guaranteed to make you money? A trade that was literally guaranteed to succeed.

If you’re struggling to come up with an answer, we’ll give you a helping hand, the word you’re searching for is likely no. Every financial trade ever made – no matter how sound and well researched using technical analysis – carries with it an element of risk.

Outside factors beyond your control always have the possibility of turning profits into losses and ecstasy into agony. In many ways, trading is similar to gambling. For instance, you may think you know ...



more from Tech. Traders

Insider Scoop

Earnings Scheduled For August 22, 2019

Courtesy of Benzinga

Companies Reporting Before The Bell
  • Hormel Foods Corporation (NYSE: HRL) is estimated to report quarterly earnings at $0.36 per share on revenue of $2.29 billion.
  • BJ's Wholesale Club Holdings, Inc. (NYSE: BJ) is projected to report quarterly earnings at $0.37 per share on revenue of $3.38 billion.
  • DICK'S Sporting Good...


http://www.insidercow.com/ more from Insider

Chart School

Gold Gann Angle Update

Courtesy of Read the Ticker

Everything awesome? Gold over $1500. Central banks are printing money to generate fake demand. Germany issues first ever 30 year bond with negative interest rate. Crazy times!

Even Australia and New Zealand and considering negative interest rates and printing money, you know a bunch of lowly populated islands in the South Pacific with no aircraft carriers or nuclear weapons. They will need to do this to suppress their currency as they are export nations, as they need foreign currency to pay for foreign loans. But what is next, maybe Fiji will start printing their dollar. 

Now for a laugh, this Jason Pollock sold for more than $32M in 2012. 





Ok, now call Dan...

more from Chart School

Lee's Free Thinking

Watch Out Bears! Fed POMO Is Back!

Courtesy of Lee Adler

That’s right. The Fed is doing POMO again.  POMO means Permanent Open Market Operations. It’s a fancy way of saying that the Fed is buying Treasuries, pumping money into the financial markets.

Over the past 6 days, the Fed has bought $8.6 billion in T-bills and coupons. These are the first regular Fed POMO Treasury operations since the Fed ended outright QE in 2014.

Who is the Fed buying those Treasuries from?

The Primary Dealers. Who are the Primary Dealers?  I’ll let the New York Fed tell you:

Primary dealers are trading counterparties of the New York Fed in its implementation of monetary policy. They are also expected to make markets for the New York Fed on behalf of its official accountholders as needed, and to bid on a ...



more from Lee

Digital Currencies

New Zealand Becomes 1st Country To Legalize Payment Of Salaries In Crypto

Courtesy of ZeroHedge View original post here.

Bitcoin and other cryptocurrencies have been on a persistent upswing this year, but they're still pretty volatile. But during a time when even some of the most developed economies in the word are watching their currencies bounce around like the Argentine peso (just take a look at a six-month chart for GBPUSD), New Zealand has decided to take the plunge and become the first country to legalize payment in bitcoin, the FT reports.

The ruling by New Zealand’s tax authority allows salaries and wages to b...



more from Bitcoin

Mapping The Market

How IPOs Are Priced

Via Jean Luc 

Funny but probably true:

...

more from M.T.M.

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...



more from Our Members

Promotions

Free eBook - "My Top Strategies for 2017"

 

 

Here's a free ebook for you to check out! 

Phil has a chapter in a newly-released eBook that we think you’ll enjoy.

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

This chapter isn’t about risk or leverage. Phil present a few smart, practical ideas you can use as a hedge against inflation as well as hedging strategies designed to assist you in staying ahead of the markets.

Some other great content in this free eBook includes:

 

·       How 2017 Will Affect Oil, the US Dollar and the European Union

...

more from Promotions





About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

Learn more About Phil >>


As Seen On:




About Ilene:

Ilene is editor and affiliate program coordinator for PSW. She manages the site market shadows, archives, more. Contact Ilene to learn about our affiliate and content sharing programs.

Market Shadows >>