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We’re from Wall Street, and we’re here to help

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Eric Lipton of The New York Times has a fascinating tale of Washington and Wall Street getting perhaps a little too cozy for their own good, detailing how BlackRock and Goldman Sachs went out of their way to try make themselves, er, ah, useful to Charles Millard after he was appointed by President Bush to run the Pension Benefit Guaranty Corp. The clear implication is that the attention the firms gave to Millard was intended to help win contracts managing billions of dollars in retirement funds.

But David Zaring on the Conglomerate blog wonders what all the fuss is about.

What happened was that a Lehman veteran got appointed to head the pension insurer by President Bush, decided to bring in some outside talent, about which the outside talent evinced enthusiastic interest. By talking to the guy wherever they could – even, gasp, on Sundays. And by providing him with some free information. Some might call that business, to the Times, it’s a scandal. Suggesting that it would be better to leave pension management to colorless bureaucratic lifers who never talk to anyone.

Whether any legal or ethical lines were crossed may be unclear, but the Times article portrays Millard, who left the PBGC in January, as being oblivious to the perception of possible conflicts. Indeed, despite having a background on Wall Street and in New York City government, Millard comes off looking like a bit of a rube, as in this email exchange cited by the Times:

“I just became head of the pension benefit guaranty corp in dc appointed by pres bush,” he wrote in a June 2007 e-mail message to John S. Weinberg, a vice chairman and a member of the family that has helped run Goldman since the 1930s. Mr. Millard told Mr. Weinberg, a longtime acquaintance, that he wanted to revamp the agency’s investment strategy.

Real estate investors go begging

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Investors in real estate funds can’t give their stakes away.

In another sign of more bad news to come for commercial real estate, NYPPEX Private Markets reports a sharp drop in prices for limited partnership stakes in real estate funds in the unregulated secondary market. NYPPEX says the average bid for these partnership shares plunged 61% over the past month to a price that represents roughly 22 cents on the dollar.

NYPPEX, one of the larger dealmakers in the secondary market for private equity ownership stakes, says the rapid deterioration in bid prices for commercial real estate funds reflects rising concern about “vacancies, rental rates and refinancing risks” on the properties the funds’ either control, or have ownership stakes in.

Goldman’s real estate gambit

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Matthew Goldstein.jpgIs history repeating itself at Goldman Sachs?

In late 2006, Goldman shrewdly began backing away from the residential mortgage market. With little fanfare, the firm began aggressively hedging its exposure to home loans, in particular mortgages to borrowers with shaky credit histories.

This savvy and somewhat stealthy strategy enabled Goldman to pawn off lots of its soon-to-be toxic mortgages and mortgage-backed securities on other institutions — forcing those foolhardy speculators to pay the price when the subprime market blew up.

from Rolfe Winkler:

Banks still need bigger cushions (Q2 TCE update)

reuters-logoIt was a surreal moment two weeks ago when analysts on Goldman Sachs’ earnings conference call pressed CFO David Viniar to jack up leverage. They seem to think that the worst of the credit crisis is behind us, so Goldman should goose its risk profile to increase returns. This is remarkably short-sighted.

Yes, leverage is down, but only relative to the obscene levels reached a year ago.  Measured by tangible common equity, the biggest banks are still levered over 20 to 1. If banks learn nothing else from the financial crisis, it’s that they should err on the side of prudence, carrying substantially more capital than appears necessary.

Goldman fires back on HFT

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Goldman Sachs is not known for being particularly forth coming with the press. The investment firm’s two favorite words for dealing with media inquiries are “no comment.”

But all of sudden Goldman is taking an aggressive stance when it comes to the subject of rapid-fire high frequency stock and commodities trading–an activity that is drawing increasing scrutiny from the press, regulators and even the folks on Capitol Hill.

Schumer aka Flash Gordon

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There’s an old joke in New York that the most dangerous place is the space between a TV camera and Sen. Chuck Schumer. And the New York Democrat’s love of the limelight certainly was on display late last week with regards to the increasingly controversial subject of high frequency trading.

Schumer’s staff didn’t waste time on Friday in announcing that the senator had sent a letter to the Securities and Exchange Commission, asking regulators to study some aspects of highly-automated stock and commodity trading.

Don’t mess with Goldman

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Poor Sergey Aleynikov.

The former Goldman Sachs programmer who allegedly stole some of the Wall Street firm’s top secret proprietary trading code picked the wrong firm to mess with–really. If Aleynikov had been an employee of UBS, he might only be facing a civil lawsuit right now–not federal criminal charges.

In March, nearly four months before Goldman ran to federal prosecutors with their concerns about Aleynikov, UBS was in New York State Supreme Court filing a civil lawsuit against three former employees, charging them with doing much the same thing the ex-Goldman employee did. The only difference is no criminal charges have been filed against the three former UBS employees.

The final straw with Citi

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 ”We have and will continue to exit several forms of proprietary risk-taking. Where we continue to take principal risk, we will only do so when we have proven teams and a clear source of advantage.” – Citigroup CEO Vikram Pandit on January 16, 2009. 
   
Don’t be fooled by Vikram Pandit’s playing the part of a prudent banker.

Instead of scaling back risky hedge fund-style trading, Citi is doing just the opposite. And that raises big questions about why the federal government continues to bail out this basket case of a bank, and why Pandit is allowed to remain at Citi’s helm.

from Rolfe Winkler:

Taxpayers did OK on Goldman, Buffett did better

UPDATED 3:25PM

NEW YORK, July 22 (Reuters) - Tim Geithner deserves a pat on the back, Hank Paulson a kick in the rear.

Goldman Sachs has announced the redemption of its TARP warrants for $1.1 billion. Including dividends, taxpayers will have made a 23 percent annualized return on their TARP investment in the firm. That's not bad considering the great terms Goldman received when Paulson issued the warrants in the first place.

Mack is no Blankfein, thankfully

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John Mack is being pilloried by some on Wall Street for not being more like Goldman Sachs’ Lloyd Blankfein, after Morgan Stanley reported a larger-than-expected second-quarter loss largely because of several onetime expenses.

But the “Be like Lloyd” rallying cry is mainly coming from traders with Twitter-like attention spans, who simply want Mack and Morgan Stanley to engage in the same kind of government-backed risk-taking that Blankfein’s Goldman Sachs is doing when it comes to proprietary trading.

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