Friday, April 30, 2010

Wall St Financial Reform NOT done until -Securities Lending / "Stock Loan" on an OPEN regulated exchange & clearing platform

and the invaluable information, so-called "market color" gleaned from customers' accounts implicit in Prime Brokerage operations.

Is NYDE next for NYSE - could ADD derivatives trading, clearing - why not?

For over a century the NYSE has functioned and functioned well as a trusted, regulated and most important OPEN "market place" displaying timely relevant data for stocks, bonds and more recently I believe certain options (derivatives contracts upon stocks).

Importantly, the NYSE has reported stock margin borrowings for decades, and has assisted investors in understanding this - how much so called "market value" is accounted for by speculative money and associated speculators - failure to report such borrowing in the MBS derivatives and related "so-called" markets denies market participants a true measure of value - that of 100% "fully paid for" securities - a measure notably absent when single, discrete, and I might add too "discreet" firms.


TAKE AWAY THE ABILITY OF SINGLE FIRMS like Goldman Sachs, Morgan Stanley et al to make markets in certain types of contracts
when - as we have seen - pose too many, some insurmountable conflicts of interest.

This proposal continues to allow the Investment Banks to "create" new contracts - but the price discovery of OPEN markets is a liqidity enhancer; that is if the contracts themselves are viable in helping investors manage risk. Because as we know - at base - that's what it's all about.

Ending the siesta on the US taxpayers' dime one simply stated, easy to digest little blog at a time.

Monday, April 26, 2010

Of entities, instruments and leverage - for whose direct benefit? Banks - made simple(r) - just go back to banking or don't call it banking ok?

Banks chronology and SOCIAL purpose was historically 1) handled check clearing / payments, 2) accepted deposits, 3) made loans, 4) underwrote securities, 5) made markets in securities, 6) provided brokerage execution and investment advice to customers, 7) acted as trustee or custodian for customers accounts, 8) provided merger and acquisition advice, and to a much greater degree more recently 9) created, sold and traded UNREGISTERED securities and derivatives upon same and leveraged balance sheets based upon their own proprietary valuation models 10) used creative but seemingly legal ways to shift some assets off balance sheet at quarter's end, 11) hid true "indicative levels" for as long as they could (for reference see Mr Zuckerman on John Paulson's "The Greatest Trade Ever" book page 161, 7 lines from the bottom for feelings held at the time / color on certain Merrill Lynch traders mysteriously maintaining marks on Subprime mortgage backed securities.

Somewhere it seems to me along the tattered trail of banks, entities (Citigroup, for example, amassed it's believed over 2,000 separate on and OFF balance sheet special purpose entities), and alphabet soup of instruments; RMBS, CDOs, CDS, CPDO's and other assorted ABS Asset backed -securities; all generally fancy securitizations a few steps removed from what's been known for generations as "factoring" accounts receivable and leverage - for PROPRIETARY purposes ONLY.

There you have it - all laid out - like a fillet - NOW Congress - DO THE RIGHT THING - for and on behalf of the US taxpayers.

Calling a spade a shovel because that's what it is.
Cleave OFF the proprietary SPECULATIVE trading aspect from "banking", require central clearing provided by an INDEPENDENT, well funded 3rd party, posting of contracts for price discovery - to spread a little sunshine, eliminate confusion and let's all know who's who and who's investing for what aims and purposes.

But as the headline suggests - please don't continue insulting the intelligence of fellow Amerkans - don't call it "banking" when it's LEVERAGED PROPRIETARY SECURITIES / DERIVATIVES SPECULATION ON OR OFF BALANCE SHEET ON OR OFF SHORE OR OFF PLANET (trust me - I'm sure someone has been trying to figure out how to craft this craft.)

Ending the siesta on the US Taxpayers dime one little blog at a time.

Friday, April 23, 2010

Ask these witnesses - "Did they personally buy, sell, flip or refinance a house during the hockey stick era OR know anyone who did?"

Before the Senates Special Investigative Subcommittee - the Senators - should baseline testimony - with the headline.

Many of these witnesses are good people - but it's also clear that what they undoubtedly saw, heard or did themselves during the hockey stick era - got lost on the way to the office and clearly got lost in their models - NO Matter how many data points or need to back into income numbers as Mr Raiter, formerly of S&P testified.

Another suggestion today hoped to end the siesta on the US taxpayers' dime.

Ratings Agencies - Triple AAA is not the same as Triple AAA - huh? True.

Mr Cifuentes, testifying before todays Senate Special Investigative Subcommittee chaired by Senator Carl Levin (D-MI) offered "a second level of complexity of the "tall building" as both determined AND defined and changeable by a ratings agency (S&P, Mooodys' or Fitch)." paraphrased.

Yet a third level of complexity also exists - that of the headline - a Triple AAA rated municipal is NOT the same credit as a triple AAA MBS - NOT the same as a triple AAA agency or sovereign.

Hence - this writer suggests - that ratings carry the category - such that category comes first - like RMBS - AAA - so that the ratings agency's distinction implicit in their models is disclosed to ALL end users - aka investors like insurance companies and pension plans.

Even better would be to tag it with the vintage year of initial rating - so that a new rating marque -

2006 - RMBS - AAA

discloses easily referenced information.

Ending the siesta on the US taxpayers' dime.

Tuesday, April 20, 2010

RE: SEC's 2004 CSE's - EU should and could sue US regulators

In summary and simply stated - in 2004 the EU backs off on regulating the European operations of US investment banks based upon the SEC's promise to oversee them here. But as you'll read below -the SEC does not regulate same - except on paper.

Based upon Mary Schapiro's testimony, Cspan TV link here

today in response to Barney Frank's (D-RI)questions - "...(in 2004) the SEC stepped up to the EU's requirement for CSE or SIBHC Supervised Investment Bank Holding Company. CSE is an acronym for what was deemed a "consolidated" "supervised" "entity" applicable "only to the largest most sophisticated players" a quote from SEC's 2004 55 minute debate in April 2004 (not a typo) see link here

at the end and from the beginning there was NO such consolidated or group wide supervision upon said entities PERFORMED by the SEC - appears a fraud upon the EU financial regulators - at least it seems to this writer.

Instead - the opposite seems to have occurred - ALARMINGLY - said regulation let Wall St investment banks / broker dealers to VOLUNTARILY comply (there was as Ms Schapiro stated today - no statutory authority for CSE / SIBHC - hence the voluntary compliance understanding wink and a nod) - used proprietary value at risk measures (VAR) to:

  1. value their own assets to model not market and
  2. determine their own required minimum net regulatory capital

but perhaps I'm construing the English language incorrectly?

In sum - Not only was there NO SEC supervision, these firms were allowed to use their own proprietary valuation models to value assets (the compensation and bonus base) and determine their OWN capital cushions; yet the EU was expecting something - I'll bet just a wee bit different.

Any questions, reactions, comments or corrections appreciated.

Tuesday, April 13, 2010

Wamu's Mr Killinger - FDIC's Seizure unfair - NOT a "clubby enough member of Wall St's TBTF Club" or a member of the wrong Federal Reserve District?

Before the Senate Governmental Affairs subcommittee chaired by Senator Levin (D-MI) hearing just now - Mr Killinger stated:

  1. WAMU was UNFAIRLY seized by its regulator,
  2. NOT protected from short sellers in July 2008, as hundreds of other banks were;
  3. raised $10B in new capital in 2008, NOT asked by OTS, its primary regulator to raise more,
  4. scaled back sub prime originations market share by over two thirds since 2005, from 11% to 4%,
  5. was EXCLUDED from the hundreds of phone calls and meetings in summer of 2008 between US Treasury and Federal Reserve officials and Wall St banks,
  6. was seized before:
  7. a) the FDIC's bank deposit insurance increase to $250k (in the trillions),
  8. b) TARP funds (hundreds of billions) and
  9. c) indirect bank capital markets support programs (Trillions) and
  10. d) the FDIC's TLGP (low cost, FDIC insured bank debt issuance, hundreds of billions) program.
  11. and that WAMU was well positioned to work its way through the financial crisis
  12. and that WAMU was not treated the same as other financial institutions
  13. WAMU "oxygen" of liquidity was choked off
Instead ALL of the TBTF club members were allowed the benefits with fewer competitors - absent Wamu and I suspect, but subject to proof, perhaps Wachovia, another "potential victim" OUTSIDE the clubby confines of Mr Geithner's NY Federal Reserve district.

March 2, 2010 NY Times reported the economic downturn was NOT as severe as expected; in fact the bailout has softened the blow in NY - read it here,%20bailout%20softens%20blow&st=cse

YES Mr Kaufman -Wall St banks were treated differently (read better) than WAMU - WHY?

CAN YOU SAY - NEW YORK FEDERAL RESERVE DISTRICT MEMBER BANKS - where clearly membership has its privileges.


Wednesday, April 7, 2010

FCIC - April 7, 2010 - Two, make that three Stunners!

As posted here in 2009 -the financial services industry should PAY for the costs of the FCIC - today's testimony turned up at least two stunning, make that three revelatory statements.

STUNNER #1-Nestor Dominguez, head of Citigroup CDO's, late in the day tossed out, "but it didn't extend the housing bubble" - as a paranthetical to Ms. Brooksley Born's line of questioning upon RMBS, Cash CDO's, and Synthetic CDO's. Synthetic CDO's were created primarily, but not limited to bundling then securitizing Credit Default Swaps (CDS) upon CDO's. CDO's were created by combining tranches of different, usually mezzanine level, RMBS into a new structure - ostensibly to create an improved, more highly rated security, the result of different, diversified cash flows and underlying house collateral.

Not just an innocuous statement, but it's a veritable Stunner IMO - the it he was referring to were synthetic CDOs. The opposite of synthetic CDOs are cash CDO's funded by RMBS or in parlance of the old days, REMICs. So the logical conclusion - I at least reached - and reached months ago - was that greater issuance of RMBS and Cash CDO's were - at least in part - underpinning, if not causing or driving the escalation of house prices aka the "housing bubble"!

Subtract the RMBS and CDO issuance and there simply would NOT have been the money to pay to originate more paper. At any point in time - any of these Investment banks - could have and should have said NO to buying any more mortgage originations; we know now that few refused.

STUNNER #2 - the second stunner - and also near the end the day - Mr Bushnell, Citigroup head of risk management, was asked by Mr Angelides, when senior management and board of directors of Citigroup became aware of the "liquidity puts" - was it only in late September / early October 2007; yes Mr Bushnell responded that that was a fair characterization along with his revelation that he provided the Board with basic tutorials around the same time.

Along with Mr Prince's statement (and Mr Rubin's previous statements in interviews prior to the FCIC hearings) that prior to September 2007 - he "didn't know about the Super Senior CDO's" in Mr Angelides questioning. Wonder - how much of Citi's profits and traders, managers' executives officers' compensation were comprised of mark to model gains from 2003 to 2007 up to that point?

Yet two months later, Citigroup went oops and disclosed November 4, 2007 "exposure" now amounted to $55B comprised of $16B Super Senior CDO's, $27B Liquidity and Par Put's upon same/similar, $12B Subprime with below AAA ratings from the Citigroup Risk and Audit committee presentation to senior management NOT the $13B reported publicly on June 30, July 11, or October 15, 2007.

"Didn't know" ? - WTF - talk about a potential violation of several years worth of Sarbanes Oxley personal certifications surrounding internal controls! Can we expect, Mr Thomas' statements to cause an action requesting clawbacks of "hockey stick era" compensation?

I now recall the the one and the same Cititgroup needed a guarantee upon $300B in assets in 2008, continues to sponsor the Rose Bowl - and yes, paid it's registered reps over $2B in CASH retention bonuses in March 2009 to simply stay on the job.

STUNNER #3 - Example of a wasted email, Mr Bowen, Citibank Chief of Mortgage underwriting, in 2006 (not a typo) warned senior management including Robert Rubin, that upwards of 60% of mortgages were "defective" meaning not up to Citi's own standards - yet had been packaged off to investors - with puts under reps and warrants back to? You guessed it - Citibank.

Only OPM yet again - this time Taxpayers' money; some things don't seem to change; I can at least hold out some hope.