Remember, "Capitalism" did not cause oour problems...we did.
http://econmom.blogspot.com/2008/12/this-is-not-capitalism.html
Saturday, May 8, 2010
Amazing Woman
Louise Yamada is brilliant. She is experienced, classy, and pays no attention to hype. She only looks at the facts.
It would be my dream to have lunch with this woman someday.
It would be my dream to have lunch with this woman someday.
Friday, May 7, 2010
Market Turmoil
From the beginning, I have been saying that this Great Recession was caused by too much debt. Consumers, households, corporations, governments (state, local, and federal) all took on too much debt . I have said this situation is going to get worse. It has.
I cannot believe the level of denial I see when I watch financial news. Nouriel Roubini and Pimco's El-Erian were on Squawk box, and they were right again. Although the hosts would not swallow, the truth...of course.
Reckless lending, borrowing and excessive leverage destroyed this economy. Not insightful economists who saw the crisis coming.
Yesterday something "went wrong" when the DOW dropped 900+ points in minutes. It must have been a "mistake".
Yeah, I am sure if the DOW would have been up 900 points they would have been trying to find out which guys made the "mistake".
Really? Trading is trading, no matter how fast it happens. It just scared the shit out of them.
The bulls are just mad they were wrong... again.
I cannot believe the level of denial I see when I watch financial news. Nouriel Roubini and Pimco's El-Erian were on Squawk box, and they were right again. Although the hosts would not swallow, the truth...of course.
Reckless lending, borrowing and excessive leverage destroyed this economy. Not insightful economists who saw the crisis coming.
Yesterday something "went wrong" when the DOW dropped 900+ points in minutes. It must have been a "mistake".
Yeah, I am sure if the DOW would have been up 900 points they would have been trying to find out which guys made the "mistake".
Really? Trading is trading, no matter how fast it happens. It just scared the shit out of them.
The bulls are just mad they were wrong... again.
Wednesday, May 5, 2010
Citizenship Stripped from Shazad?
I cannot believe the LIBERALS! There was actually one (I am not sure what state she was representing but she was a Democrat) on CNN that said the Times Square Bomber (If he is guilty he is a bomber, whether or not it exploded.) SHOULD NOT be stripped of his citizenship!
Are you kidding me? What are we going to do? Re-assimilate him?
How the blank did he become a citizen in the first place? Must be a greeeeaaaaaaaaattttt process we have in place.
Are you kidding me? What are we going to do? Re-assimilate him?
How the blank did he become a citizen in the first place? Must be a greeeeaaaaaaaaattttt process we have in place.
Monday, May 3, 2010
As Promised... Alledged Goldman Violations
Note: You must read the previous post to understand this one
The following are the SEC regulations that the SEC alleges Goldman violated:
From Section 17(a) of the Securities Act of 1933:
FRAUDULENT INTERSTATE TRANSACTIONS
SEC. 17. (a) It shall be unlawful for any person in the offer or sale of any securities or any security-based swap agreement (as defined in section 206B of the Gramm-Leach-Bliley Act) by the use of any means or instruments of transportation or communication in interstate commerce or by use of the mails, directly or indirectly—
(1) to employ any device, scheme, or artifice to defraud, or
(2) to obtain money or property by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; or
(3) to engage in any transaction, practice, or course of business which operates or would operate as a fraud or deceit upon the purchaser.
From Section 10 (b) of the Securities Act of 1934:
(3) INDEPENDENCE.—
(A) IN GENERAL.—Each member of the audit committee of the issuer shall be a member of the board of directors of the issuer, and shall otherwise be independent.
(B) CRITERIA.—In order to be considered to be independent for purposes of this paragraph, a member of an audit committee of an issuer may not, other than in his or
Sec. 11 SECURITIES EXCHANGE ACT OF 1934 66 her capacity as a member of the audit committee, the board of directors, or any other board committee—
(i) accept any consulting, advisory, or other compensatory fee from the issuer; or
(ii) be an affiliated person of the issuer or any subsidiary thereof.
From the Exchange Act Rule 10b-5:
Rule 10b-5 -- Employment of Manipulative and Deceptive Devices
It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange,
To employ any device, scheme, or artifice to defraud,
To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or
To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person,
in connection with the purchase or sale of any security.
I am not a lawyer, but the case looks pretty tight to me. They obviously violated 10(b) of the 1934 act when they let Paulson pick the securities for the CDO they were selling. Clearly, Paulsons hedge fund was not "independent". The other two might be more difficult to prove, but that one looks like a slam dunk. Draw your own conclusions.
Sorry - still don't have the analogy - if anyone does, please comment.
The following are the SEC regulations that the SEC alleges Goldman violated:
From Section 17(a) of the Securities Act of 1933:
FRAUDULENT INTERSTATE TRANSACTIONS
SEC. 17. (a) It shall be unlawful for any person in the offer or sale of any securities or any security-based swap agreement (as defined in section 206B of the Gramm-Leach-Bliley Act) by the use of any means or instruments of transportation or communication in interstate commerce or by use of the mails, directly or indirectly—
(1) to employ any device, scheme, or artifice to defraud, or
(2) to obtain money or property by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; or
(3) to engage in any transaction, practice, or course of business which operates or would operate as a fraud or deceit upon the purchaser.
From Section 10 (b) of the Securities Act of 1934:
(3) INDEPENDENCE.—
(A) IN GENERAL.—Each member of the audit committee of the issuer shall be a member of the board of directors of the issuer, and shall otherwise be independent.
(B) CRITERIA.—In order to be considered to be independent for purposes of this paragraph, a member of an audit committee of an issuer may not, other than in his or
Sec. 11 SECURITIES EXCHANGE ACT OF 1934 66 her capacity as a member of the audit committee, the board of directors, or any other board committee—
(i) accept any consulting, advisory, or other compensatory fee from the issuer; or
(ii) be an affiliated person of the issuer or any subsidiary thereof.
From the Exchange Act Rule 10b-5:
Rule 10b-5 -- Employment of Manipulative and Deceptive Devices
It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange,
To employ any device, scheme, or artifice to defraud,
To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or
To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person,
in connection with the purchase or sale of any security.
I am not a lawyer, but the case looks pretty tight to me. They obviously violated 10(b) of the 1934 act when they let Paulson pick the securities for the CDO they were selling. Clearly, Paulsons hedge fund was not "independent". The other two might be more difficult to prove, but that one looks like a slam dunk. Draw your own conclusions.
Sorry - still don't have the analogy - if anyone does, please comment.
In the SEC's words...
Robert Khuzami, Director of the Division of Enforcement at the SEC sums up the case against Goldman best, since he is the one bringing the charges*:
"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."
What pops out at me is "..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 third party."
PROBLEM: THE THIRD PARTY WAS NOT INDEPENDENT. THEREFORE, GOLDMAN WAS LYING (what prosecutors call fraud) TO THE BUYER OF THE CDO's THEY WERE SELLING!
In addition:
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.
I understand that Goldman is a "market maker" and that they were not acting as an "investment advisor" on this deal. Market makers are not obligated to disclose to buyers or sellers who is on the other side of a trade. A market, by definition requires a buyer and seller, each of whom have different perspectives, preferences and perhaps even different information. Goldman's clients understand this too. The PROBLEM is that Goldman LIED about the fact that the firm which selected the securities in the CDO was not only NOT independent; but short. According to the SEC, Goldman, in its own prospectus on the CDO it was selling, guaranteed that the party selecting the components of the CDO was INDEPENDENT. This was not true. It was the same party that was on the other side of the trade.
So, let's try to come up with a good analogy, because most of them out there are insufficient to explain the SEC's case.
My God...I can't come up with one. I love analogies, but I don't think there is one in this case. I bet if I read:
Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Exchange Act Rule 10b-5
I would be able to come up with one. I will read it and get back to you on that. Did you see the date of the Act? 1933! I am sure it was written in reponse to activities later blamed for causing the crash of 1929 and the Great Depression.
I am sure the SEC code is probably as arcane and complex as...well...umm...perhaps a CDO! But I will still read that section.
My point is this: Goldman has been doing deals like this for years. Does this make them bad people? NO. Should they be demonized? Perhaps not. They, like all people who make mistakes, probably thought they were doing what was right. However, they probably do violate SEC rules...often. This time they got caught. This time they got caught breaking the rules of the game.
Are the rules of the game fair and just? I have no idea. Probably not. Is the entire financial system based on an incentive problems? Yes. To name a few: FDIC, too big to fail, and commercial banks being allowed to participate in proprietary trading.
Their are "bad guys" everywhere. The government, the over leveraged public, overleveraged firms, the big banks, the Wall Street firms, the relators, the ratings agencies...and more.
Some facts remain:
Goldman, and the other investment banks will never be the same. Financial reform is coming, like it or not. Goldman will probably settle. (I doubt this will go to trial.) But their stock is overvalued...along with most of the financials.
And if Lloyd Blankfein does not stop talking so much, public sentiment is going to turn even more harshly against Goldman. The average American is hurting. Nothing ticks them off more than hearing a guy who needed their tax dollars to save his firm talk about how Goldman is so successful because it pays its brilliant employees so well. If they are all so brilliant, why did they need the Government to save their asses? He is just WAY out of touch with the average person out there. People really do not want to hear him on Charlie Rose whining about how he didn't want to be a leader during this crisis because it was hard. Or how his poor people have been working 19 hour days. I mean...my God...who the hell cares? Did it reduce their effective hourly wage, say, from $2000 an hour, to $1000 an hour? I don't blanking care Blankenfein! Their are regular people all over the country who work at least that hard. All I know is Wall Street, and hence their livelihood, wouldn't exist without the average American Taxpayer. The free market would have destroyed their risk laden business model. And our stupid government should have let it.
When you need the government to bail you out, you follow their rules. Is this right, or just? Perhaps not. But it is a reality our financial institutions must face because of their greed and ignorance. It is what it is.
*The info and quotes I am using here come directly from the SEC itself.
http://www.sec.gov/news/press/2010/2010-59.htm
"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."
What pops out at me is "..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 third party."
PROBLEM: THE THIRD PARTY WAS NOT INDEPENDENT. THEREFORE, GOLDMAN WAS LYING (what prosecutors call fraud) TO THE BUYER OF THE CDO's THEY WERE SELLING!
In addition:
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.
I understand that Goldman is a "market maker" and that they were not acting as an "investment advisor" on this deal. Market makers are not obligated to disclose to buyers or sellers who is on the other side of a trade. A market, by definition requires a buyer and seller, each of whom have different perspectives, preferences and perhaps even different information. Goldman's clients understand this too. The PROBLEM is that Goldman LIED about the fact that the firm which selected the securities in the CDO was not only NOT independent; but short. According to the SEC, Goldman, in its own prospectus on the CDO it was selling, guaranteed that the party selecting the components of the CDO was INDEPENDENT. This was not true. It was the same party that was on the other side of the trade.
So, let's try to come up with a good analogy, because most of them out there are insufficient to explain the SEC's case.
My God...I can't come up with one. I love analogies, but I don't think there is one in this case. I bet if I read:
Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Exchange Act Rule 10b-5
I would be able to come up with one. I will read it and get back to you on that. Did you see the date of the Act? 1933! I am sure it was written in reponse to activities later blamed for causing the crash of 1929 and the Great Depression.
I am sure the SEC code is probably as arcane and complex as...well...umm...perhaps a CDO! But I will still read that section.
My point is this: Goldman has been doing deals like this for years. Does this make them bad people? NO. Should they be demonized? Perhaps not. They, like all people who make mistakes, probably thought they were doing what was right. However, they probably do violate SEC rules...often. This time they got caught. This time they got caught breaking the rules of the game.
Are the rules of the game fair and just? I have no idea. Probably not. Is the entire financial system based on an incentive problems? Yes. To name a few: FDIC, too big to fail, and commercial banks being allowed to participate in proprietary trading.
Their are "bad guys" everywhere. The government, the over leveraged public, overleveraged firms, the big banks, the Wall Street firms, the relators, the ratings agencies...and more.
Some facts remain:
Goldman, and the other investment banks will never be the same. Financial reform is coming, like it or not. Goldman will probably settle. (I doubt this will go to trial.) But their stock is overvalued...along with most of the financials.
And if Lloyd Blankfein does not stop talking so much, public sentiment is going to turn even more harshly against Goldman. The average American is hurting. Nothing ticks them off more than hearing a guy who needed their tax dollars to save his firm talk about how Goldman is so successful because it pays its brilliant employees so well. If they are all so brilliant, why did they need the Government to save their asses? He is just WAY out of touch with the average person out there. People really do not want to hear him on Charlie Rose whining about how he didn't want to be a leader during this crisis because it was hard. Or how his poor people have been working 19 hour days. I mean...my God...who the hell cares? Did it reduce their effective hourly wage, say, from $2000 an hour, to $1000 an hour? I don't blanking care Blankenfein! Their are regular people all over the country who work at least that hard. All I know is Wall Street, and hence their livelihood, wouldn't exist without the average American Taxpayer. The free market would have destroyed their risk laden business model. And our stupid government should have let it.
When you need the government to bail you out, you follow their rules. Is this right, or just? Perhaps not. But it is a reality our financial institutions must face because of their greed and ignorance. It is what it is.
*The info and quotes I am using here come directly from the SEC itself.
http://www.sec.gov/news/press/2010/2010-59.htm
Sunday, May 2, 2010
Mulling "The Big Short"
"The Big Short" by Michael Lewis is great. Buy it. Read it.
Betweeen reading that book and the interview(s) I saw with Lloyd Blankfein this weekend, my brain is rebooting. Processing it all...and trying to decide what to do with it.
When that happens, I promise a fabulous post.
Betweeen reading that book and the interview(s) I saw with Lloyd Blankfein this weekend, my brain is rebooting. Processing it all...and trying to decide what to do with it.
When that happens, I promise a fabulous post.
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