Reuters blog archive
from The Great Debate:
The great 19th century English jurist, Sir James Fitzjames Stephens, once wrote that murderers were hung not for reasons of revenge or deterrence -- but to underscore what a serious breach of the social compact had been committed.
Federal District Judge Jed S. Rakoff was making a similar point when he recently called attention to the lack of criminal prosecutions in the wake of the 2008 financial crisis. Consider the 1980s Savings and Loan crisis. The losses were minuscule compared to this recent paroxysm, but they still led to hundreds of criminal convictions.
That looks highly unlikely here. The federal statute of limitations for fraud, generally five years, is rapidly running down. There are reportedly a few cases in process. But the odds are that if there are any indictments, they will be in the pattern of the indictment of Goldman Sachs banker Fabrice Tourre, who has been left holding the bag for a complex scheme to load up clients with worthless securities. Email trails leave little doubt that far more senior figures were aware of the purpose of the deal. The firm also executed other similar deals that haven’t been prosecuted.
The big banks have compiled an amazing record of dishonest, and outright criminal, behavior -- suggesting that there is no ethical or legal standard that can stand in the way of a chance to fatten the bottom line. Here are some samples, all drawn from the cases settled in the 2000s:
from Unstructured Finance:
By Katya Wachtel
For Omega Advisors' Steve Einhorn, the window of sleep-able hours is narrowing.
"One needs to know whats going on around the world. I turn in around midnight so I can monitor what's going on in China and Japan," Einhorn, vice chairman at Leon Cooperman's $7billion fund, said at the Reuters Global Investment Summit last week. "A decade ago, did I and most others focus on what's going on in China? No. Now we wait for the November manufacturing index for China to come out. The day is longer because of that. I am up around 6 in the morning; I review what has gone on overnight in Asia and in Europe. I spend an hour in front of the machine at home, going through data and news releases" before he's out the door.
This was undoubtedly the most common refrain when we asked some of Wall Street's savviest money managers and investors how they begin their day, and with what must-read literature, during the week-long summit.
from Bethany McLean:
Last week, New York Attorney General Eric Schneiderman, who is the co-chairman of the Residential Mortgage-Backed Securities Working Group – which President Obama formed earlier this year to investigate who was responsible for the misconduct that led to the financial crisis – filed a complaint against JPMorgan Chase. The complaint, which seeks an unspecified amount in damages (but says that investors lost $22.5 billion), alleges widespread wrongdoing at Bear Stearns in the run-up to the financial crisis. JPMorgan Chase, of course, acquired Bear in 2008. Apparently, this is just the beginning of a Schneiderman onslaught. “We do expect this to be a matter of very significant liability, and there are others to come that will also reflect the same quantum of damages,” Schneiderman said in an interview with Bloomberg Television. “We’re looking at tens of billions of dollars, not just by one institution, but by quite a few.”
The prevailing opinion seems to be, Yay! Someone is finally making, or at least trying to make, the banks pay for their sins. But while there is one big positive to the complaint, overall I don’t think there’s any reason to cheer.
By Antony Currie
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
Maybe Jamie Dimon wasn’t so clever with Bear Stearns after all. Back in March 2008, the JPMorgan chief executive looked pretty shrewd picking up the collapsed investment bank on the cheap, even after raising his offer five-fold to $10 a share. Dimon stuffed the Federal Reserve Bank of New York with $29 billion of Bear’s worst-looking mortgage assets. Not only did those securities wind up making money, but a new lawsuit filed by New York’s top lawman shows that JPMorgan didn’t cover all its bases.
from Unstructured Finance:
By Matthew Goldstein
There is an opaque financial market where pricing is determined by a cadre of Wall Street banks and private emails show that behind the scenes many in the market don't even believe in what they are doing.
The Libor price fixing scandal? Sure. But what I'm talking about here is the market for the CDOs, which at the end of the day you can still argue did more harm to the world financial system than the allegations now emerging from the Libor scandal.
from Christopher Whalen:
Some disclosures: I review the new book, "Reckless Endangerment: How outsized ambition, greed, and corruption led to economic Armageddon", by Gretchen Morgenson and Josh Rosner, not because both authors are my friends. They are. Nor do I review this book because it concisely summarizes the confluence of public policy and private avarice we all know as the subprime mortgage crisis. It does, and more.
No, I review this book because it names names. Names and more names, one after another, in that prosecutorial serial fashion readers of Morgenson know very well. The kind of relentless recitation of the facts and names meant to allow readers to follow the logical chain of a criminal act to an indictment.
from Funds Hub:
Fund service providers were back in force at the GAIM hedge funds conference in Monaco this year, a small sign that the industry, while not exactly brimming with confidence, has at least crawled out of the doldrums of 2009.
The service providers including fund auditors, custodians and prime brokers, have drawn in their horns since the early years of the millennium when they were often the main sponsors of cocktails and dinners at large hedge fund events.
from Funds Hub:
Goldman's "fabulous Fab" Tourre is off - Reuters
Bear Stearns rejected deal with Paulson - Guardian
Is Greece a sovereign version of Bear Stearns? The world had better hope not. But it's tempting to draw parallels between an incipient Hellenic bailout and the rescue of Wall Street's biggest outlier.
There are of course huge differences between a smallish investment bank and a Mediterranean state. But the European Union's challenge is remarkably similar to the one Federal Reserve Chairman Ben Bernanke faced nearly two years ago: how to help out one of its weakest constituents without encouraging moral hazard and further contagion or complacency.