Wednesday, May 19, 2010

Goldman's day old bread - "top" ideas for customers flop

Today Bloomberg reported that Goldman Sach's top investment ideas for its customers flopped 7 out of 9 times. See story here

Is it any wonder?
An IDEA is information - once it sees the light of day - it's been baked into the "market" ALREADY. So why or what's the surprise?

It's day old ( or longer) bread - that's been nibbled on by the purveyors.

If not already obvious, in classic principal agent fashion, points to the insurmountable conflicts of interest in many if not all of today's markets. This is NOT ROCKET SCIENCE, it's not about being right or lucky, it's about this - recognizing the obvious then doing something about it (that means take action).

Ending the siesta on the taxpayer's dime one little blog at a time

Saturday, May 15, 2010

Greenbackhasvalue runs sixth in Woodbine's 7th race today & reMINDer to Central Bank(ers)!

The name of the entry is an important REMINDER to Central bankers who have their fingers on the button of the printing presses the world over - it is this:
It's Singular - - - Greenback NOT Greenback(S).

The official result is here

A reMINDer to stop the incessant flooding of the markets with financial paper - as it may soon need to find a landfill or sewage treatment - just like toilet papah.

Ending the BFD (Breach of Fiduciary Duty) one little blog at a time.

Goethe on Wall St Proprietary Hyper Trading and circle of profit traceable and owed to PUBLIC customers

The philosopher comes with analysis
And proves it had to be like this:
The first was so, the second so,
And hence the third and fourth was so
And were it not for the first and second here,
Then the third and fourth could never appear.
This is what all the students believe,
But they have never learned to weave.
-- GOETHE, Faust

Four Wall St's banks (Goldman, JP Morgan, BofA, Citigroup) reported PERFECT trading records during the first quarter, an unbroken string of daily trading profits OVER $100 million per DAY on many of the 63 such trading days.

Mr Cohn at Goldman stated after posting these results - The company’s fixed-income, currencies and commodities businesses and equities unit generate those returns by making markets for clients REALLY? rather than betting the firm’s own money, Chief Operating Officer Gary Cohn said yesterday at a financial services conference in New York.

“There is often speculation that proprietary trading revenues drive our outperformance in these businesses,” Cohn said. “Over the last 12 months, we have only recorded 11 loss days. It is implausible that a proprietary-driven business model could be right 96 percent of the time.”

OK Mr Cohn - I'm confused a little - please help - you report record TRADING profits - for and ONLY for customers' desired exposures - so then why not simply break out - riskless agency trades SEPARATE from principal - where firm capital is AT risk - perhaps that will help me and the rest of America and Congress understand - stay tuned sports fans.

Back to Goethe: So Goldman is +$B a fact - undenied.
So - who was on the losing side, if these banks were PERFECT in making money?
Who was Goldman making markets for? Or is it really fully, sometimes or never against public customers - Mr Blankfein?
Or is it more accurately just itself - under its "LTG (long term greedy) rubric"?

How can the public writ large, investors, public customers ascertain fair good quality executions, how can other fiduciaries ensure best execution to their principals, what effects are the derivatives markets subtly or not influenced by soft or hard dollars of trading commissions, directed brokerage among and thru prime brokerage arrangements?

Profits of Proprietary Trading owed to the Public - call in the intellectual support from Mr Stiglitz' Assymmetric Information skews markets. Information advantage is essential in order to make profits on trading, one side has to have SUPERIOR information, control or ability to influence the or a subject or related market(s); AND by definition the less well informed "dumb market order" traders also may not be possessed of similar market control, influence or risk management arbitrage techniques.

Is it any wonder that mutual funds, especially larger ones, have to try to conceal their buy / sell intentions by executing more position trades piecemeal and or thru ECN's and does this enhance the returns to mutual fund shareholders NET of costs of such trading? Or is it just the way it is - defined by only certain market makers? To suit appears ONLY certain narrow purposes.

Ending the BFD (Breach of fiduciary duty) by only certain Wall St entities upon not limited to the US public, Congress, Public and Private Pension plans, 401k plans participants - one little blog at a time.

Thursday, May 13, 2010

South Beach diet replaced by South Med diet rich in Greek, Spanish, Portuguese sacrifice - supposedly - but who's next

ON paper only - austerity measures - fiscal diets - forced waist (better stated, waste) trimming - assuming the citizen's basic needs including the essential need of to be heard, to be "represented" - don't take to the streets. Will the media, like Bloomberg on Flash Crash Thursday, spend just enough screen time showing and more importantly ZOOMING in on the street riot to stoke fear - in the markets and elsewhere?

OR more importantly will politicians, agree on a new fiscal fortitude and comply - what then may become the new payoff medium - digital greenbacks, or coupons or just coming back to the age old cycle of soliciting, then peddling of indulgences?

Or is there a silver lining - a full fledged decline for fiscal obesity, an approaching end for human diabetes - will the new austerity challenge the erstwhile fiscal, corporate junk food diet - on the go, at the kitchen tables, on the streets and in and among political capital(s)?

Would the US benefit from similar belt tightening - oh yes; but politically untenable seems for decades and now - then again me asks - whether capitalism would have defeated communism 20 years ago - or is it as Yogi Berra intoned "It ain't over until the Fat Lady sings"

How about that Yogi-ism - a neat connection to necessary consumption constraints - can't wait til it's over.

Ending the siesta on the taxpayers' dime one little, easy to read blog at a time.

Monday, May 10, 2010

Goldmans' Abacus CDO - party's connections...

The parties: Mr Paulson, IKB, ACA and Goldman.

What do all the parties have IN common? Answer = Goldman
Which party insisted on an independent 3rd party collateral manager? Answer = IKB
Which party came up with the idea for this Abacus? Answer = Mr Paulson
Which party found investors including IKB? Answer = Goldman
Which party did Mr Paulson send his lists to? Answer = Goldman
Which party assumed Mr Paulson was an investor? Answer = ACA
Which party had 100% control of above information? Answer, as nearly always = Goldman.

Which party selectively shared same? Answer = Goldman
Why? Answer = ask Goldman, and ask for the tape recordings of trader's conversations.

Or in the alternative, Subtract Goldman from the transaction -from beginning to end, then ask yourself would there likely have been more or less awareness, and information known, and SHARED? Seems More to this writer.

Also - how many deals did IKB buy BEFORE this particular CDO? Were all, some or none of those deals generated indeed requested by other Goldman customers like Mr Paulson?

What are such deals?
How did buyers fare?
In contrast to the parties' which requested short specific MBS credits?

We may never know - but appears that we should huh?

Do the math - connect the dots - open BOTH your eyes and see the obvious. Subject to proof.

Euro bailed out (for now) - IBGYBG replaces prudence in markets; so why is Gold down right now?

When the debt comes due on the EU's massive near $1 Trillion package of support for certain countries; what will those in the markets deduce? Debt has that unique quality of the need to provide for repayment, a due date and interest rate upon same.

Or is it all expected to be rolled over, refunded in better weather?
Yet another example, of the triumph of corrosive consumption over prudence.

Gold traders KNOW that if the EMU countries NEED to raise cash - they will look to sell into the strongest asset - GOLD - hence today's morning trading seems to reflect that sentiment. As illustration, the same effect showed up in bona fide Triple AAA rated MBS in 2008/9 - that in times of panic, crisis - the not so obvious asset to be sold depends on what's been strongest recently.

And for the US Fed:
  1. What is the source of authority to swap ~$30B of US dollars for equivalent amount of Euro.
  2. Where are these dollars sitting now - that they can just be shipped / swapped for Euro?
  3. And same question for the Euro - where is this currency coming from? The vault holding recent vintage, newly printed "dinEURO"?
  4. And what is the connection to the Fed's charter "full employment, asset and price stability" with the implicit but unrequested approval of US Congress; the source of the Fed's statutory existence.
  5. Has the Fed become a de facto 4th branch of government? The ability to enter into agreements with other sovereign entities - no need for Congress' vote, or at minimum review, advise and consent?
  6. Is it any wonder we have a push for more Fed transparency, including holdings, valuation and counterparties and to generally audit the Fed.
Since the Fed's guarantee is to receive Euro at a future date; with the "support" known to the market is this then a case of blatant, heavy handed massive shock and awe inspired currency manipulation? Fed and the ECB / EMU against short sellers, some say speculative short sellers? Is this what it's come to?
Or the Fed and the ECB / EMU et al unite in show of massive vote of confidence in a system - home and abroad that by definition is losing confidence or at least in denial of same; it's baseball season - in the world financial markets - batter up; watch out for more curve balls and sinkers.

Incredible siesta continuing on the US taxpayer dime, absent authority from Taxpayers' representatives; what's become of US electorate immune response - denial, depression, what's next - the next generation SSRI? Specifically designed to target / deactivate recognition of financial "reality?"

Friday, May 7, 2010

If Bankrupt - question to self - can you act as a trustee - Greek and other Implications...for Vitamin C, K, R, F

When the holiday "trip" from financial reality is ended
(when Assets are marked to a real, traded market, not simply a ratings based marque of value, as seems to be the past and current mis-practice),
Who will be left standing and statutorily qualified to serve as a trustee for citizens of:
Certain Government agencies
Certain Banks
City of Los Angeles,
States, Counties around the US

Just take a look at assets compared to liabilities - both on and off the books. The matching principal, though a requirement appears liberally construed, rendering "official books and records" viewed with an asterisk.

And likely a root of what Mr Blankfien stated in today's interview with David Faber of CNBC, ~"it's not about fundamentals, appears rather a current crisis of CONFIDENCE" - me wonders if adding a dose of recognition (an action verb) of real, not model value to financial statements and disclosures might help to assuage those malnourished in Vitamin C (confidence) and at the same time also boost Vitamin K (Knowledge) so that more can enjoy Vitamin R (Reality); and avoid Vitamin F (Fantasy).

As last I checked, insolvency precludes that institution from acting as a Trustee.
Just wondering...when all those assets might see the light of / and reaction from a real market.

And let's not forget, the US is a member and major funding source of?
The IMF; US Taxpayers bailing out those (erstwhile) Greek revelers

Ending the siesta on the US taxpayers dime one little easy to read blog at time.

Wednesday, May 5, 2010

Ratings, ratings, ratings, level 2, level 3 - what about Real Trades, Actual Transactions aka Volume to assign value

At today's FCIC hearing witnesses cited MBS Ratings were "triple AAA, senior tranches, super seniors" BUT something very impotent was missin' - those securities had not seen the light of day in an Arms length trade - 100% different breed of cat compared to an MBS that was bought and sold!

Where was the or any VOLUME of trading goin' on - on most of the toxic derivatives building up on and off the balance sheets of the CSE's?
Perhaps an analysis of MBS trading VOLUME month to month would show - as stated here in July 2007 that many of these securities probably traded "by appointment" i.e. infrequently, read less than hoped for - yet the AAA ratings persisted.

Speakin' of volume - and the lack thereof excuse me, the volume WAS goin' on somewhere as penned earlier today ON and OFF sponsors', issuers' often notably one and the same underwriters' balance sheets! And as if Wall Streeters don't know this - when a company is holding a block of stock ready to issue into the market from a shelf offering - it will have what?
OVERHANG - yes - like a HANGOVER.
A dampening, more realistically a depressing effect on that stock - the stock which is BEING traded in and on the markets; YET somehow the same Wall Streeters reckoned that the OVERHANG of MBS and related derivatives inventory was above and beyond the dilutive effect of more of the same flooding the market!

So - it doesn't take much to see some conflicts - the rising waves of CASH compensation were SO enjoyable during 2003 to 2007 that executives state "No one saw the crash, the tsunami" but as Mr Angelides said today there were warning signs - ignored by those who's firms WERE holding back the flood waters of MBS and related derivatives; stored on and off balance sheet, totally self created, held, NOT sold (and why was/is that?), month after month, "ratified" in the parlance of Wall St respondents (a reversal of their PRIMARY defense against public customers) and this IMPORTANTLY NOT ONE WALL ST CSE IS SUING ANOTHER BASED ON LACK OF CAPACITY - HUH?

When it comes to "control' see my submission to the FDIC August 2009 here

More on Ratings - some lessons seemingly forgotten, and ratings DO NOT EQUAL VALUE - never have never will!!
A rating is only ONE characteristic, supposed marque of value, ONE ratings agency's opinion. Coins can be graded brilliant uncirculated or proof - that doesn't CAUSE a third party to pay par or any value whatsoever, let alone the holder's expectation of value will be assigned in a trade, Postage Stamps the same way.

Why would these executives, managers, supervisors believe any different unless of course they were listening TO - instead of ASKING hard hitting, tackle NOT touch football questions of - their (conflicted) prop traders or their auditors - ya' think?

Lessons of Enron and Worldcom BONDS - oh how about the WPPS (Washington Public Power Supply) bonds - all rated solid investment grade, some even at the top rung - and what happened? Poof - accounting scandal here, fraud there, as if MBS were above ANY fray!
Let alone - sub prime, interest only or Alt A - was the underwriting at origination a AAA process? You know and everyone KNEW the answer to that WHEN - AT THE TIME - it was goin' on - correct me if I am wrong.

Incredible siesta continuing on the US taxpayers' dime - hoping to see some major Compensation Clawback, Jail time for some singularly obsessed with RATINGS!

Wall St Fraud - may better be proved by what was NOT done, choices NOT made, reps & warranties NOT made

Yes - it's all about Information - that can create value but before value is conceieved we must consider the epistemology of the acquisition, indeed awareness of the presence of information which may become knowledge - leading to expectations, concerns, and risk and reward, indeed pricing of same.

So when Wall St spends upwards of billions of dollars per annum on systems and people - who has the MOST information?
The house.
Financial markets are based upon "fair dealing" - so is it fair to:
NOT share the other side of a trade?
Is it fair to hide the genesis of the idea to create the transaction?
Is it fair to NOT share with a 3rd party collateral manager, there to act as an arms length intermediary so as to avoid certain conflicts, the purpose, parties of a transaction?

Would Goldman feel treated fairly if in the position of their customers and denied information known and possessed? I doubt it.

Join me in the Clawback Coalition for the recovery of billions of past CASH bonuses paid to certain Wall St traders, managers, supervisors and officers and boards.

Cash bonuses the result of CONVERSION - fraudulent asset valuations on and off balance sheet at certain investment banks. Simply stated Asset values set the stage, the compensation base of proprietary traders' cash compensation.

Join me - one word comes to mind for these types of individuals - JAIL.

2,000 X Leverage - UNAVOIDABLE result of implicit and explicit leverage in MBS derivatives - why it's still a casino until US creditors wake up

A buyer who puts down 20% $100k allows purchase of a $500k house = 5 times leverage.
A different buyer who puts down the same $100k but as 10% down can buy a house for $1MM = 10 X leverage.
A buyer who puts ZERO $ down = 100 X leverage.

And when Wall St Banks or CSE's then underwrote, issued securities or derivatives - distributed to reliant buyers, then amassed same on balance sheet at 20 or more X leverage = what?

Minimum, 2,000 times total leverage (20 times 100 x leverage in the case of zero down mortgages) when underlying mortgages were interest only or made for more than 100% of property value - GREATER than 2,000 x economic and financial leverage!

Regulators - personally unaware?
No regulator - Mr Bernanke, Mr Greenspan, Mr Geithner, Mr Paulson, others? They drove to work with eye's closed, entered their neighborhoods then homes each evening - UNAWARE OF - HOUSE FLIPPING?????

Perhaps Regulators were in a bubble - a MENTAL, MODEL bubble - indeed one of their OWN choice and creation.

Upon one asset class - REAL ESTATE - overvalued by any measure - come on - no one in authority or CEO leadership could see this?

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

It's clear - RATINGS did not change upon Bear's or Lehman's AAA holdings - rather...

When Bear Stearns and when Lehman's customers, clearing banks and counterparties - walked away -
it was NOT due to a change in the AAA ratings of their holdings -
there was NO such ratings agency change -
the KNOWN and widely held belief that AAA securities ratings were one thing -
NOT TO BE RELIED UPON OR TRUSTED - in so far as as far back as 2007 the ratings agencies began holding meetings with CSE's on exactly that topic.

When the CSE's in part engaged in IBGYBG (I'll be gone, you'll be gone) behaviors with ratings agencies - WHEN - INITIAL RATINGS WERE ASSIGNED - it's as if tainted beef was not only snuck into the market - it was created, it was discussed, it was negotiated by and between the issuers, and close if not the same controlled underwriters then sold with AAA ratings that were known to be less than what customers / buyers were likely led to believe; subject to proof.

Again ending the siesta on the US Taxpayer's dime one little, easy to read blog at a time.

Appears Wall St CSEs dramatic increased balance sheet leverage replaced Buyers' liquidity & became a nuclear waste REPOSITORY for Level 2 and 3 assets

AFTER same Wall St firms attracted buyers of Derivatives, buyers appetite sated, then CSE's continued to underwrite new cousins of Derivatives and first generation derivatives - did what? - piled up; where? On and off balance sheet of supposedly regulated entities.

It seems clear that CSE's under the SEC's supervision and extra supervision as pointed out by Ms Borne in today's FCIC hearing -
created liqudity,
witnessed, were on notice and indeed participated in the KILLING of markets,
i.e. the "liquidity" demand provided by erstwhile buyers of derivatives
buyers of their proprietary "housewares" which dried up - this appears:

CSE balance sheet leverage REPLACED liquidity - huh?
As was penned here last year - see link here Leverage blessed Leverage blessed prop trades and (proprietary) Asset Valuations

Yet the CASH bonus parade continued its march - huh?
See also

Cash bonuses the result of ASSET price conversion - an illicit if not an illegal "conversion" it appears, subject to proof; and subject to ""Clawback" if fraudulent or with intent to deceive markets.

CSE's were the largest, most sophisticated players, investment banks on Wall St. The SEC enacted Consolidated Supervised Entities in 2004, discarded 30 years old required capital calculations, allowed CSE's to use their OWN proprietary valuation models to calculate required capital - true not making it up.

Incandescent insights into the so called Economic or Financial Crisis - as if it applies uniformly to all financial institutions - one appears singularly engineered BY and as a RESULT of only certain NY Federal Reserve district banks and investment banks - "Wall St market makers" like Goldman, et al.

When any Investment Bank could have said NO - at any time - to more MBS derivatives underwritings, leverage and PROPRIETARY valuation; but didn't.

Ending the siesta on the US taxpayer's dime - one little blog at a time.

Sunday, May 2, 2010

Mr Blankfein - so how is that Goldman perennially earns MORE money than anyone?

Can we agree that it's because of the very essence of Goldman's franchise - INFORMATION; it's paid for and exceedingly valuable, otherwise why collect it in the first place? Dare I suggest an abomination - what if same information were shared with customers - then value would disappear.
Sort of like sharing water (or not) with others stranded on a desert island.

And he who has it (information) defines the situation just as he who has it controls the situation - yes; just like a parent with a child.

What is Goldman's IT budget for discretionary purposes i.e. non mandatory regulatory and compliance systems? Why spend the money? Of course, as the circle completes itself - it's better to know ALL available information and DECIDE whether to incorporate it, assign lesser weight or disregard completely.

Goldman and other Investment Banks - for purposes of gaining control and market share of certain customers, products and services; offered certain customized risk products / service not elsewhere available - namely but not limited to certain MBS derivatives.

Private label CDOs, CDOs Squared, and Synthetic CDO's - Goldman in this example, created, traded and valued same using its proprietary IT budget and passed itself off as a market maker, intermediary - BEREFT it seems, of any duty owed to customers.

When a market or market maker - to use your example from the interview on the Charlie Rose Show April 20, 2010 replace Goldman with NYSE.

Would it be a fair market for the NYSE to fail to disclose ALL information it possessed?

If Goldman were to put itself in the position of IKB - would it want to know that certain MBS were actually suggested for inclusion NOT by the independent collateral manager ACA but by Mr Paulson? Not necessarily; but failure to disclose that kind of information by Goldman assumes that IKB was not possessed of other information that once connected may have changed their decision - to buy more, buy less or buy the same amount of Abacus they wound up buying anyway. Later, it may have influenced their continued holding all or part of the Abacus deal - but then a related question is did Goldman provide accurate and FAIR "market price information" in the months following the underwriting and distribution? I'll bet this is an area that could yield useful, litmus test information in contrast to Mr fabulous Fab's subsequent customer marketing or proprietary trading activities.

UBS has long advertised on TV, that UBS stands for and combines to mean U and Us - as if there is a partnership; suggesting that the thousands of UBS employees are there, united for YOUR benefit. Goldman I recall, does not tend to advertise except for displaying the image of its name.

Mr B has stated many times that Goldmans' 35,000 employees don't know what the others are doing - as if position and risk limits are UNmonitored / UNsupervised / UNdiscussed - when in reality it's believed that every position, every minute or more frequently is summarized in the parlance "rolls up" to a level for a manager to see - why else does the manager / supervisor / managing director position exist - managing what?

Would it - let's frame the same challenge of the usefulness of information in a very graphic, stark indeed pornographic way -

It's dark, you're a man, you've been out and want to play in a pleasure palace.
Upon entering, incense invades you, you are led to a small private, dimly lit room, there are several silk sheets each covering someone on the other side; an attractive silhouette catches your interest - you take your pleasure - then out from behind the curtain emerges _____ (fill in the blank) - something different from your initial expectations - would you feel the same elation or feel tricked or _____ (fill in the blank)? Would you ask for a refund? Would you have penetrated armed with the information about the counterparty?

At the end of the day the experience was NOT what you expected correct? However, it doesn't immediately result in a conviction of good or bad, right or wrong rather this - it LEAVES OPEN the possibility of 1) negative, 2) positive or 3) neutral reactions; same, I believe is reasonably applied as with certain Abacus deals.

Redolent of a provocative movie from 2007 Lars and the Real Girl link to comments here

And as pointed out several times here Goldman as a regulated entity must address how it fulfilled NASD IM 2310-3 Obligations to Institutional Customers (see link to this in below posts) and in a civil litigation how it met its fiduciary duties to certain customers; extending to how it trained and supervised its customer facing employees (sales people), market makers, traders and proprietary traders.

From November 2009 here
and from January 2010 here

Yes Mr Blankfein - it's all about - INFORMATION and fair and fully disclosed markets.
Otherwise - certain customers may have a less than hoped for experience.

And last I checked Goldman and all other investment banks exist for what purpose?
As stated in a US Bancorp TV ad yesterday "As our country has grown, so have we" recognize the order of priorities?

Ending the siesta on the US taxpayer's dime every time.

Buffett - little patience for those who failed to DO due diligence - really? How about applied to Goldmans' lack of due diligence upon AIG

As reported in the NY Times, May 1 by Andrew Ross Sorkin, the sage held forth at his annual confab link here

And said this:

"He said those investors (in Goldman's questioned Abacus deal) should have conducted better due diligence. It's hard for me to get terribly sympathetic when a bank (IKB) makes a dumb credit bet."

Hmmmm...let's see - I recall that Goldman got $14B when AIG was bailed out.
Goldman was one of ONLY 16 counterparties to AIG - IN THE WORLD!

Thousands of other financial institutions AVOIDED AIG - including as posted here last year -

  • JP Morgan
  • Citigroup (Smith Barney)
  • Lehman Brothers
  • Berkshire Hathaway
  • Wells Fargo (a significant Berkshire holding)
  • GE Capital
  • And every major US insurance company
The link to the 16 lucky AIG counterparties is here
See page 24 for the LUCKY list - lucky because made whole, 100% on the CDS dollar and by all accounts failed Mr Buffett's self defined standard.

Or were there other exigent circumstances?
Was it because Goldman had been in a long running feud with AIG over collateral calls on the one and the same Credit Default Swaps (CDS) and Goldman had refused to pay up? Subject to proof, of course.

Ending the siesta on the US taxpayer's dime one little blog at a time.