Opinion

Felix Salmon

Goldman Sachs datapoint of the day

By Felix Salmon
April 24, 2009

Tyler at Zero Hedge has been rooting around in NYSE statistics, and finds that Goldman Sachs traded over 1 billion shares for its own account last week — more than half the principal program trading from NYSE member firms, and more than 20% of all program trading on the exchange. My feeling is that this is a function of the decline of big liquid hedge funds with essentially unlimited funding capacity: Goldman is stepping in to take advantage of the lack of liquidity in the non-bank financial sector.

But how can Goldman take advantage of that lack of liquidity in the hedge-fund world? Just because it has access to unlimited government liquidity itself. Essentially, the US taxpayer is lending at extremely low rates to the world’s largest hedge fund, even as the world’s largest hedge fund is trying to extricate itself from any responsibility to the US taxpayer by repaying TARP funds.

According to Jon Unia, Goldman has made $600 million over the past four months just from the fact that the government has guaranteed a large chunk of the company’s debt — I think that’s the difference between Goldman’s funding costs with the guarantee and the amount it would have had to pay without it. That money alone makes the difference between Goldman making a profit and making a loss. If you add in the pretty artificial profits they’re getting from their NYSE program trading activities, I’m sure the hidden subsidy to Goldman Sachs gets even bigger. And that’s not even counting all the money funneled to Goldman via AIG.

Goldman Sachs claims to be a bastion of free-market capitalism. But that’s not how it’s making its money these days.

Update: Goldman Sachs spokesman Ed Canaday responds:

The NYSE report that Zero Hedge discussed shows Goldman Sachs trading over 1 billion shares in the principal program trading category. What the table doesn’t show, but a deeper look at the numbers reveals is that the vast majority of this total is trades by our quantitative trading desk. This desk is participating in a relatively new NYSE program called Supplemental Liquidity Providers. The NYSE started the program to attract liquidity to the exchange. As an SLP, this the desk makes markets in NYSE stocks. They often do high-frequency trading (which is simply auto-quote market making) where they send out hundreds of “baskets” of stocks at one time. Program trading, as defined by the NYSE report is any strategy that sends out a “basket” of 15+ stocks at one time. I am happy to discuss this with you if that description doesn’t make sense.

On another part of the post, you reference the FDIC-guaranteed debt program (aka the TLGP). I don’t understand how it is the US taxpayer who is essentially lending to GS and the other banks since the FDIC and this program are funded by the banks themselves. I also have difficulty understanding the $600 million savings that is sourced to Jon Unia. Do you know how he arrived at this number?

No, I don’t know where Unia gets his $600 million number, but I don’t believe for a minute that the TLGP guarantees are coming at anything approaching a market rate — not with bank CDS spreads where they are. There’s an implicit subsidy from taxpayers insofar as FDIC guarantees are vastly cheaper than any private-sector insurer would charge for the same service.

Comments
33 comments so far | RSS Comments RSS

The government guarantee you mention is the FDIC Temporary Liquidity Guarantee Program (TLGP). Goldman is far from the only bank to have participated in the program. They have issued $28bn whereas, for example, JPMorgan has issued $38bn and Bank of America $44bn. Why single out Goldman over this?

As for the NYSE program trading volumes, essentially, a lot of ‘principal’ transactions are technically put in this class even though they are customer flows (e.g., exchange for physical trades), because of the way the bank executes the trade.

Furthermore, Goldman has a large program trading execution service for clients and is the largest prime broker to hedge funds. No surprise that they have the biggest market share in this space, and those ‘principal’ trades are unlikely to be all actual proprietary trades.

Posted by furry_goat | Report as abusive
 

Furthermore, incidentally you also misquote him on the $600m figure – he mentions a loss of $600m for the four months of Dec-Mar rather than a $600m profit in the same period if it were not for TLGP). Of course, his figure is also WRONG – GS had a net $780m loss in Dec and $1.81bn profit in Jan-Mar. Doesn’t take a genius to work out that the difference does not equal $600m.

But hey, since everyone’s quoting others like a game of ‘Chinese Whispers’, let me point you to where the original $600m figure originated, Barrons’:
http://online.barrons.com/article/SB1240 01886675331247.html
Note that they say the TLGP *COULD* add up to $600m in savings OVER A YEAR versus non-TLGP debt. That figure also depends significantly on the perceived credit risk of GS… the figure could be less if their perceived credit risk improves (which it probably will if the firm continues to generate revenue)

Posted by furry_goat | Report as abusive
 

Interesting headline-grabbing story; however, it’s overly simplistic and misleading. I guess a blogger like Felix needs to keep writing and feeding readers something to debate about.
Govt is giving cheap equity and debt funding to all the large financial institutions, praying that they will turn profitable as quickly as possible. GS is making money mostly from bigger spreads and market distortions, not from balance sheet bets as the writer speculates; of course, unless the writer is a better financial analysts than the few I use and respect. On the other hand, WFC if making record profits, without making a single out-going call, from govt-subsidized lower interest rates and lower mortgage spreads, from their mortgage financing business. AND behind that – Fanny and Freddie are back stopping all losses from all conforming loans.
I’m not here to judge whether WFC and BoA are making money more honorably than GS. At leat GS is providing a service by maintaining a secondary market. We NEED risk takers.

Posted by 20yrinvestor | Report as abusive
 

For who are interested,

http://www.goldmansachs666.com/

As you can guess from the URL itself, a heavily biased blog (you can guess in which direction) that’s following Goldman’s activity daily.

 

The Morgan guy who set up the goldmansachs666.com is working on his next projects – pimpco666, jpmorgan666 citigroup666, and morganstanley 666. If you think he is a righteous selfless defender of public interest, think again. He certainly is enjoying his new-found fame. As he said it himself, he’s having the time of his life.

Posted by ex banker | Report as abusive
 

I think the point Felix was trying to make is that Goldman is the only one of that group that is aggressively trying to return government funds.
The $600M savings number could be wrong, but if GS wants to give the TARP back, does that imply they don’t need access to the TLGp either?
Also, is GS666 an ex MS guy? I thought he was just a regular old conspiracy theorist, either way, more entertainment than substance there.

Posted by Rustbelt | Report as abusive
 

Rustbelt,

As has been mentioned elsewhere, the ability to participate in TLGP is not linked to TARP. Instead, participants must pay fees to the FDIC. There are non-TARP banks who have issued debt through TLGP. Felix’s whole point about Goldman trying to ‘extricate itself from any responsibility to the US taxpayer by repaying TARP funds’ is flawed.

This constant Goldman-bashing from Felix and various other blogs is getting pretty old and annoying. Furthermore, neither of the two sources he quotes, and upon which he bases his ramblings, are accurate.

Posted by furry_goat | Report as abusive
 

“Goldman Sachs claims to be a bastion of free-market capitalism”

Do they actually say that?

 

Rustbelt – when I said the Morgan guy who started goldmansachs666 I meant Mike Morgan, not ex Morgan. Sorry for the confusion.

Posted by ex banker | Report as abusive
 

Does anyone not see the conflict of interest when a single entity can generate more than half the volume of the entire NYSE? I am afraid that if we let quantative trading take over, it’s akin to Skynet (of Terminator fame) gaining self awareness. That didn’t turn out well…

Posted by anonymous | Report as abusive
 

seems the SEC is actively engaged in controlling liquidity manipulation by ‘electing’ those whom they’d rather have be the manipulators.

Posted by Monte | Report as abusive
 

Come join the zerohedges Tin Foil Hat Club

http://zerohedgestinhatclub.blogspot.com

Posted by zerobrains | Report as abusive
 

Please ask Ed Canaday to put me on his email list for when he sends out those \”baskets\” each day. This would be very helpful, thanks in advance.

Posted by downjones | Report as abusive
 

Yes, they wreak havoc by naked shorting others out of existence.

Posted by jim | Report as abusive
 

Sir Salmon,

Although one could commend you for awakening the Giant Sachs, one could also caution you from breaking the 1st rule, even if it was whispered in Chinese.

Plus, it seems like the furry goat squad has invented a decoder ring to transform those whispers into hay for strawmen to torch with glee & scare the neighbors away from the family jewels.

I think it best if one would kindly encourage you to pick up a shovel again and start digging a little deeper, for there’s plenty of GOLD in them there hills and TD can’t do it alone. I guess this is only because I’ve seen the nugggets you’ve dug up in the past and the illuminating yarn that you wove from the bounty.

Such a glorious tapestry would be quite fitting for your new home at the Chateau de Reuters, don’t you agree?

Posted by anonymyst | Report as abusive
 

\”Program trading, as defined by the NYSE report is any strategy that sends out a “basket” of 15+ stocks at one time. I am happy to discuss this with you if that description doesn’t make sense.\”

Sir Canaday,

Thank you for your generous offer (and please excuse me if I incorrectly assume that this offer is a public one).

While your description is rather sensible, it raises other more sensibly specific questions. Two of them immediately come to mind. Would you care to share the answers to one or both (feel free to choose)?

- How many of these \’baskets\’ as you define above also carry counterparty trades with Direxion and other leveraged and/or inverse ETF\’s?

AND/OR

(with respect for chinese walls & opaque mechanisms)

- What % of these \’baskets\’ are filled with shares of companies that comprise the underlying indices in which the Direxion 3x ETF\’s derive their \’value\’?

Please feel free to ask for clarification if my question is not quite sensible enough. Thank you for your efforts in maintaining proper disclosure and transparency for the benefit of your \’investors\’.

Posted by anonymyst | Report as abusive
 

The post is about the government/fed/Paulson actions being contrary to laws on the books at U.S. Code, Title 12, Chapter 16, § 1831o. Prompt corrective action.

(Attached is a link in the “website” field, pointing to the specific law at Cornell University’s website. http://www.law.cornell.edu/uscode/12/usc _sec_12_00001831—o000-.html …If this link is not easily accessible after my post, I will attempt to link it another way. Though one only need search for § 1831o. Prompt corrective action, and this will direct the reader to the law in question.)

The law is exhaustive and seeks to protect tax-payers from abuse. The above law, was written as a result of the Savings and Loan Scandal, to help American deal with future problems, emitting from financial institutions insured by the federal government (FDIC). It was made into law, to protect American people from financial tomfoolery, fraud and chicanery – emitting from large and small corporate financial firms. The term ‘shall’ is used to denote a mandate. A mandate is to denote a required action.

Title 12 Chapter 16
§ 1831o. Prompt corrective action
(a) Resolving problems to protect Deposit Insurance Fund
(1) Purpose
The purpose of this section is to resolve the problems of insured depository
institutions at the least possible long-term loss to the Deposit Insurance Fund
(at least possible long-term loss to tax payers).

(b) Definitions
(2) Other definitions …
(B) Capital distribution
The term “capital distribution” means—
(i) a distribution of cash or other property by any insured …
company to its owners made on account of that ownership…

(d) Provisions applicable to all institutions
(1) Capital distributions restricted
(A) In general
An insured depository institution shall make no capital distribution if,
after making the distribution, the institution would be undercapitalized.

(2) Management fees restricted
An insured depository institution shall pay no management fee to any person having
control of that institution if, after making the payment, the institution would be
undercapitalized.

What is being expressed is, that the blueprint for protecting U.S. tax payers is being acted AGAINST, such that it serves the private interests of firms like Goldman.

Generally when a firm becomes undercapitalized, and it is the federal government’s guarantee, to make common people whole, who have money with that firm, the federal government brings that company into stricter performance and eventual receivership. To do this laws are in place to protect the tax payer and government.

One of the first things to go are dividends, by mandate. The firm itself, cannot argue this. It is not optional, and not how prior cases are handled; when it is found a firm is undercapitalized. There is no place for the firm to produce some measured documentation saying contracts prior to receiving government funds, support , assurance or guarantee, take precedence and the government must take a back seat. The government is driving now. And they are in the front seat by default.

There is no secondary-obligation to pay shareholder dividends, after the government realizes a firm is undercapitalitzed. The weightier provision or intent of the law is to stop paying dividends immediately.
This is a first action. And questions are asked later. In other words, it is better to stop paying dividends and find out later the firm can afford to resume that activity. Not the other way around. The false (and illegal) action is to continue to pay the dividends and find out later, the company cannot/could not afford to pay them. So as is written into this law, the prudent thing is to stop the payment of dividends immediately.

A blue print for disaster, as learned from the Savings and Loan debacle, is that an insured firm in financial trouble, continues to pay dividends. This is a huge no-no. Ben Bernanke and Hank Paulson knew this and so does most everyone in the regulation of banks. Dividends are no-go (period) when a company is in danger of being undercapitalized.

Prior to Bernanke, effective and efficient Federal Reserve Chiefs and Leaders used the power and force of the Federal Reserve to bring this to bear. And this force was mightily dealt to serve as deterrent to those on the fence or inching close to test this boundary of being over-leveraged, poorly managed, or undercapitalized.

The power and force of the Federal Reserve was intended to be used authoritatively and with absolution. The remission of financial sins, comes with a price. And dividends are first to go; of many things. Indulgent bonus pay (for negative performance or marginal performance) and overly indulgent executive pay, across the board, are also in line to go after dividends are stopped.

Many people understand this. The hand of authority comes down heavily on the failing bank or financial institution. Otherwise there will be a proliferation of failure, at great expense to the tax payer.

It is crucial because the effectiveness of government can fail if as a large mammal it says to a wild bore, you are “too big to fail.” The larger mammal should say, I am here to fail you if you are not well capitalized. You will stop paying dividends effective immediately. After that, they will give the firm a chance to find additional capital. And if they cannot, the firm is pulled kicking and squealing into receivership.

During this process, it is lawful for the board of directors and executives to be fired. Pointblank, if the firm cannot find additional funding and remains undercapitalized, the executives and board is next on the list of things to go.

(f) Provisions applicable to significantly undercapitalized institutions and
undercapitalized institutions that fail to submit and implement capital restoration plans

(2) Specific actions authorized
The appropriate Federal banking agency shall carry out this section by taking 1
or more of the following actions

(F) Improving management
Doing 1 or more of the following:

(i) New election of directors
Ordering a new election for the institution’s board of directors.

(ii) Dismissing directors or senior executive officers
Requiring the institution to dismiss from office any director or
senior executive officer who had held office for more than 180 days
immediately before the institution became undercapitalized. …

That is to express concern that the law is being circumvented and flaunted, for many weightier provisions of the law said as mandates, are being reversed and acted against as if the government/paulson and company, even Goldman Sachs were acting together to circumvent the establish law for such issues.

Emphasis on weightier provisions of the standing law.

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Yes the link is accurate at this time. Click on my name at the bottom of the post and you will see the law in its established form, and with correct syntax.

If for any reason, you cannot click the link or the link in my name is broken, you can simple go to Cornell University’s website. http://www.law.cornell.edu/uscode/12/usc _sec_12_00001831—o000-.html …If this link is not easily accessible, one only need search for “§ 1831o. Prompt corrective action”, without quotes and this will direct the reader to the law in question.

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On point, Goldman and other firms would NOT have this money to float in the market, if the law had been followed as it was intended: Dividend payouts were to be have been shut down. And funding would not have been provided to these many firms for trading purposes, money was originally designed to be used as a guarantee to customers of that bank or firm. To back stop under funded institutions. And money was not to be used liberally for any other purpose.

Goldman and other firms flaunt abuse of the law as it is established and show they are agents who are aggressive and circumventing the law and in encouraging others to NOT pay attention to the standing law.

Where you have a lawless culture of professionals acting feral and with fervent energy, to contradict and undermine the standing law, you have a lawless culture of professionals, serving their own interests, starting with Paulson and affiliates of Paulson, who are like teachers pet: Friends of Paulson type relationships, benefiting from the lawless behavior.

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At weightier provisions of the law:

(i) Restricting activities of critically undercapitalized institutions
To carry out the purpose of this section, the Corporation shall*, by regulation or order—
(1) restrict the activities of any critically undercapitalized insured depository institution; and
(2) at a minimum (emphasis added), prohibit any such institution from doing any of the
following without the Corporation’s prior written approval:
(A) Entering into any material transaction other than in the usual course of
business, including any investment, expansion, acquisition, sale of assets,
or other similar action with respect to which the depository institution is
required to provide notice to the appropriate Federal banking agency.

Annexation of another company like Bear Sterns, Lehman or Washington Mutual fall into this subset of illegalities and list of things NOT to do. As per STANDING LAW established to protect the American people and their government from fraudulent brokers or actors who have gotten into the presidents Treasury cabinet. Not Goldman carefully avoided violation of this particular tenet of the law, because it is A, the first in the list, and was probably deemed by Paulson as the most significant of violations, and that the tax payer and government and press would be years trying to untangle it. Best to keep Goldman out of this, as a measure to protect Goldman resources in the future, should it ever come to light that the law was flaunted and violated. [IE: If Goldman does not have to defend against suits claiming violation of this tenet, their resources can be used to protect firm assets and keep end-game objectives on course. Meanwhile competing firms will have to devote vast hours and volume of tax payer funds and any profit they might eek out, to defend against claims that the firms with assistance of Bernanke, Bush and Paulson, have circumvented this important provision of the law.]

 

Correction: Note Goldman carefully avoided* violation of this tenet…

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At weightier provisions of the law (in above post and below the term shall** is to denote a mandate): (i) Restricting activities of critically undercapitalized institutions
To carry out the purpose of this section, the Corporation shall**, by regulation or order—
(1) restrict the activities of any critically undercapitalized insured depository institution; and
(2) at a minimum (emphasis added), prohibit any such institution from doing any of the
following without the Corporation’s prior written approval:
(A) Entering into any material transaction other than in the usual course of
business, including any investment, expansion, acquisition, sale of assets,
or other similar action with respect to which the depository institution is
required to provide notice to the appropriate Federal banking agency.

(B) Extending credit for any highly leveraged transaction. [See investing money in stock market or gambling with tax payer money at risk or as a backstop. Money that was originally intended to be used to guarantee deposits, and to pay for administrative expense of bringing a firm into receivership. The Federal Depository Fund, was never, and I repeat, NEVER, intended for the whims of Paulson nor any other former stock broker. {This includes friends of Paulson or favorites, like Neil Cash-carry (sp?) or Turbo-Timmy (verify spelling, cabinet member names may not be spelled accurately if they are fraudulent actors). Where fraud is true, it may be deemed their names are better understood as pranksters who are operating at the pleasure of Goldman sacs backoffice government branch.} This may help explain why foreign sovereign funds and foreign governments are leery of dealing with American financial firms at present].

 

Note the resignation of John Snow, former Treasury of Bush Administration, brought down by a technicality of his stock broker, which lead to his being involved in questionable investment transactions dealing with Fannie Mae or Freddie Mack.

A practice that John Snow was trying to end: Fannie Mae and Freddie Mac used proceeds from debt sales to finance their purchases of home mortgages, which they held for investment or repackaging into bonds backed by the principal and interest payments from the mortgages. Some investors considered the debt to have an implicit government guarantee. This was a wrong belief. Mr. Snow sought to end the dishonesty and wrong belief surrounding such transactions.

As a direct result of his stock broker’s private dealings, Snow met his downfall and could no longer assist the president, while the president was focused overseas (and not necessarily on economic policy).

John Snow’s stock broker was not named. It is likely the broker was an agent of Goldman Sachs, since Goldman has extensive dealin-dealout type relationship with the government. Also may be why the broker’s name was kept quiet. Interesting the broker’s name was not made public, but it could have been a broker acting for a subsidiary of Goldman, or client firm.

Enter Henry Paulson to ‘assist’ the president and enter the office of Treasury. Note Henry Paulson, a stock broker in the original sense. Nothing more than a stock broker turned Treasury. Willing to violate the law, if it serves his firm’s interest. That is the mentality of many a broker: Aggressive violate the law, pay 4 it later.

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Correction: Aggressive violation of the law, pay for it later (if caught).

On October 19, 2006 (months after his resignation), John W. Snow, President George Bush’s second United States Secretary of the Treasury, was named chairman of Cerberus Capital Management, L.P.

Former U.S. Vice President Dan Quayle is also associated with Cerberus.

Founded in 1992, Cerberus is named for the mythological three-headed dog that guarded the gates of Hades.

See market manipulation. See no evil. Note, 666 recent March low S&P500. Market manipulators flaunting the law and having a bit of fun which they will ever deny†.

Fun = tom foolery in the technical sense: Fraud

A false representation of a matter of fact—whether by words or by conduct, by false or misleading allegations, or by concealment of what should have been disclosed—that deceives and is intended to deceive another so that the individual or government or press organizations will act upon it to her or his legal injury, or to the injury of the American commoner.

Fun.

 

†The spirit of Mephistopheles is to always deny.

See Paulson and Bernanke, deny that they strong armed or threatened Ken Lewis into buying Merrill Lynch, when Lewis learned the value of the company had been materially false or had changed substantially since initiating or moving for the purchase.

See market manipulators.

See Cerberus

See Goldman

See brokers in the presidents Treasury cabinet.

 

See a circle of fraudulent actors that do not exist. But we know they are there, because our parents have lost a lot of money and so have we.

Back on point – the Law established to protect the American people and their government being flaunted and violated by Goldman, subsidiaries and ‘client’ firms.

 

U.S. Code, Title 12, Chapter 16, § 1831o. Prompt corrective action.

At weightier provisions of the law (in above post and below the term shall** is to denote a mandate):

(i) Restricting activities of critically undercapitalized institutions
To carry out the purpose of this section, the Corporation shall**, by regulation or order—
(1) restrict the activities of any critically undercapitalized insured depository institution; and
(2) at a minimum (emphasis added), prohibit any such institution from doing any of the
following…:
(A) Entering into any material transaction other than in the usual course of
business…

(B) Extending credit for any highly leveraged transaction.
(C) Amending the institution’s charter or bylaws, except to the extent necessary
to carry out any other requirement of any law, regulation, or order.

See Goldman Sachs and Morgan Stanley, and others seeking to change corporate charters in midstream. This was after congress and senate were threatened that if they did not help the large banks with tax-payer funding, the banks would assure a terrorist result: that the financial sector would implode, the NY sector of our country would be driven off a cliff or that the country would be dropped into a chasm of financial chaos. We were at the time, already pushed to the brink of financial chaos.

http://www.huffingtonpost.com/2008/09/21  /morgan-stanley-goldman-sa_n_128147.htm l

“The request for the change to bank holding companies was granted by a unanimous vote of the Fed’s board of governors during a late Sunday meeting in Washington.”

Note the names of the persons voting are not disclosed. This is @ bad investigative reporting, or purposeful reporting, designed to omit certain details that are important.

One could surmise the vote was taking over the phone by clerks acting for the Treasury. And it being a Sunday evening vote, that the voting parties were rushed and frazzled, compelled by brokers to cast their vote potentially under some duress.

“The change of status means both companies will come under the direct regulation of the Federal Reserve, which regulates the nation’s bank holding companies. The banking subsidiaries of the two institutions will face the stricter regulations that commercial banks are required to meet. Previously, the primary regulator for Goldman and Morgan Stanley was the Securities and Exchange Commission.”

This is a concept of stricter regulation is something of a lie, for if they faced stricter regulation, the clear legal mandate is for them to stop paying dividends. Effective Immediately. This is at applying the weightier provision of the law.

And on top of that mandate, they would not be able to enter into any “experimental liquidity” program as per (A) above.

@ Violating Standing Law and flaunting violating the law.

 

U.S. Code, Title 12, Chapter 16, § 1831o. Prompt corrective action.

At weightier provisions of the law (in above post and below the term shall** is to denote a mandate):

(i) Restricting activities of critically undercapitalized institutions
To carry out the purpose of this section, the Corporation shall**, by regulation or order—
(1) restrict the activities of any critically undercapitalized insured depository institution; and
(2) at a minimum (emphasis added), prohibit any such institution from doing any of the
following without the Corporation’s prior written approval:
(A) Entering into any material transaction other than in the usual course of
business…

(B) Extending credit for any highly leveraged transaction.

See present Treasury’s plan to involved private investors to buy bundles of mortgages, backed by incentives offered by our government; also known as dunce-in-the-corner. Dunce in the corner government seeks to give incentive to private firms by offering to guarantee their investment and leverage their own investment in a type of partnership, involving purchase of mortgage backed securities.

This whole chirade is so that firms like Goldman and JpMorgan, can continue to pay dividends in violation of the weightier provisions of the law. Presently the time has lapsed in which the mandate was to go forth, directing these many firms to stop paying dividends. Cold turkey. The mandate is simple: If you are turkey, you cannot pay dividends. If you are not a turkey but are acting in concert with turkeys, you cannot pay dividends. You cannot be enjoined with turkeys and continue to leverage U.S. Taxpayer funds or fund designed to insure U.S. deposits, and use that like a turkey with a small brain, and continue to pay out dividends. All turkeys of the financial world and this includes large banks whom broker Paulson said are “too big to fail,” cannot pay dividends and draw funds from Federal Depository Insurance Corporation, at the same time. That is cardinal sin #1.

Of course, they violated that law first.

Now with the program to give incentive to private investors to play with uncle Sam’s trouser pockets, Geithner is seeking to violate the established law at (B) above.

Seeking to leverage money that is not intended, nor has it ever been intended, to be used in brokering leveraged investment deals. EVER.

The law was written to protect Americans from fraudulent and dishonest actors. Keeping them out of leveraged investments and from guaranteeing leveraged investment, is one of the methods to protecting America and its government from dishonesty in financial matters.

Leveraged investment, is off the table. But Turbo tax evader Timothy Geithner, under tutelage of Hank Paulson, wants you to close your eyes and go to sleep here.

As such, flaunting the law (again). His compass has be set to find a violation of the law, violate it, flaunt it, and pretend not to be violating it.

Denial.

Soon he will be moving onto his promotion: Resigning under some technicality, and moving on to another firm in the circle of nobody did anything wrong here.

 

U.S. Code, Title 12, Chapter 16, § 1831o. Prompt corrective action.

At weightier provisions of the law (in above post and below the term shall** is to denote a mandate):

(i) Restricting activities of critically undercapitalized institutions
To carry out the purpose of this section, the Corporation shall**, by regulation or order—
(1) restrict the activities of any critically undercapitalized insured depository institution; and
(2) at a minimum (emphasis added), prohibit any such institution from doing any of the
following without the Corporation’s prior written approval:
(A) Entering into any material transaction other than in the usual course of
business…

(B) Extending credit for any highly leveraged transaction.

(C) Amending the institution’s charter or bylaws, except to the extent necessary
to carry out any other requirement of any law, regulation, or order.

(D) Making any material change in accounting methods.

Dont look now, but nobody did anything wrong. Violation of any standing law? If the law does not have merit in a crisis then, it must be a bad law. However, such debate does not change the fact, it is presently, THE STANDING LAW.

Lets see, during the recent stock market rally, or prior to the rally, was a material change in accounting methods suggested and acted upon?

Lets looks at it a different way: Prior to the recent low on the S&P500, did anyone suggest or enact a material change in accounting methods?

Who has benefited from such a material change, if such a violation in law has occurred?

Did this violation of law, where true, did it occur in midstream, when many banks are taking funds out of the FDIC? The same fund intended to protect deposits of common Americans?

If this fund is exhausted, will the American consumer’s deposits be protected? Or will investment firms like Goldman be left holding all the chips?

Perhaps some laws written to protect Americans from predators, are to be easily violated and flaunted.

If I were a terrorist organization, I might also act in the same type of accounting changes, to conceal and confuse. For it is easier to exploit an intended victim if they are confused. How best to confuse, than to first violate their laws and act like you are an honest broker who would never violate their laws.

Yet there it is in black and white: The law.

And who is violating the law.

Who is seeking to violate the law further and who is flaunting the violations, stacking the violations one on top of the other, like it was a college prank they learned how to play in the 80s. Like stacking violations back to back on top of each other, is a recipe for how to steal money from a large fund.

 

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U.S. Code, Title 12, Chapter 16, § 1831o. Prompt corrective action.

At weightier provisions of the law (in above post and below the term shall** is to denote a mandate):

(i) Restricting activities of critically undercapitalized institutions
To carry out the purpose of this section, the Corporation shall**, by regulation or order—
(1) restrict the activities of any critically undercapitalized insured depository institution; and
(2) at a minimum (emphasis added), prohibit any such institution from doing any of the
following without the Corporation’s prior written approval:
(A) Entering into any material transaction other than in the usual course of
business…

(B) Extending credit for any highly leveraged transaction.

(C) Amending the institution’s charter or bylaws …

(D) Making any material change in accounting methods.
(E) Engaging in any covered transaction (as defined in
section 371c (b) of this title).

This is too big an area to explore here. But suffice to say, covered transactions are primary tier transactions, where ownership is transferred to another entity out of U.S. jurisdiction. This includes assets in a firm, that have benefitted directly from funds taken out of a fund intended to protect U.S. tax payer deposits; such money going into an American company, and then funnelled out to foreign firms.

Covered transaction often results in a transaction where a foreign person or entity comes to own assets of a U.S. Business enterprise, or comes to control those assets. of a U.S. business (while it is in a receivership status – getting tax payer money).

Such transactions do not include feeding a black box, funds, which are distributed to various exchanges. Tier one investments do not include funneling money into an automated trading system while simultaneously violating U.S. Code, at several levels.

Covered transaction deal with transferring ownership of a U.S. Business, to a foreign entity or person, which could result in foreign control of any person engaged in interstate commerce in the United States.

As you can see violating this law, as well as other laws, can lead to a method, of confusing many press corps and reporters alike. If you can confuse the press reporting on the activity of the Treasury, you can easily confuse the American tax payer and their congressional representatives.

The more violations, in law, piled on top of each other, the more difficult it is for the common American to hold their representatives accountable. The more tangled the mess of regulation, the easier it is to under-source regulation. When all these things come together in the perfect storm, the more likely fraudulent actors are to come and go (as like the revolving door of Bush’s Treasury department) while maintaining plausible deniability.

As you might conclude, the first error is in allowing top officials (trusted officers of the Federal Reserve and Treasury) to act in violation of the weightier provisions of the U.S. Code. which was first designed to protect American from bad banks and CEOs, and can also be applied later, to protect America from financial terrorists.

The main method is to not negotiate with financial terrorists and to follow the important tenets of the law. Conversely, if you want to plunder a once great country, and its sheepish population, the blue print is to violate laws one right after another, in the order they are presented.

Violate them with indulgence and with impunity.

With impunity, that is, with exemption from punishment or loss. That means the actors, the most trusted actors have no skin in the game. They are using other people’s money and money intended for other purposes.

 

U.S. Code, Title 12, Chapter 16, § 1831o. Prompt corrective action.

At weightier provisions of the law (in above post and below the term shall** is to denote a mandate):

(i) Restricting activities of critically undercapitalized institutions
To carry out the purpose of this section, the Corporation shall**, by regulation or order—
(1) restrict the activities of any critically undercapitalized insured depository institution; and
(2) at a minimum (emphasis added), prohibit any such institution from doing any of the
following without the Corporation’s prior written approval:
(A) Entering into any material transaction other than in the usual course of
business…

(B) Extending credit for any highly leveraged transaction.

(C) Amending the institution’s charter or bylaws, except to the extent necessary
to carry out any other requirement of any law, regulation, or order.

(D) Making any material change in accounting methods.
(E) Engaging in any covered transaction (as defined in
section 371c (b) of this title).
F) Paying excessive compensation or bonuses.

Recall if you will, the nameless beneficiaries of Merrill Lynch who have received substantial bonus and payouts and have since resigned; will resign in the next 2 to 24 months and gain employment with other firms.

Cerberus perhaps? Perhaps one of Goldman’s subsidiaries or ‘client’ firms.

Okay, now think about executive pay that was originally intended to reward profitable corporate performance, during the glory years from 2003-2006.

How many billions of dollars, and the U.S. tax payer wrangled by the arm in the last year, to pay for the debt obligations these same executives signed their corporations into?

It would be one thing if we were consulted as to whether or not we should enter into a debt obligation, for the
benefit of a firm like Goldman Sachs or Merrill Lynch. But we were never consulted. We did not sign our names to the contract.

The low level executives receiving all these caviar-and-champaign-laden bonuses, are the ones who consulted each other, reviewed the risk reports and SIGNED their names and their corporations into the debts.

That we are keeping these executives and board members on, inside those same corporations is heinously-conducive to more of the same. It is idiocy. Utter mad men, cravenly mad men and women at the helm of these vessels.

“Too large to fail?”

This is a fraud in speech, and dishonesty in language from the mouth of Hank Paulson and later incorporated in the speeches of Ben Bernanke, a puppet whose voice squeaks from all the guile he is exposed to.

No firm is “too big to fail,” unless you need that firm to stay in place long enough to pass money through it, and continue a dishonest practice, or a practice that is dependent on pattern-dishonesty and sequential violation of the law.

In accordance with regulatory law, bonuses and large “glory year” type executive pay is mandated to be halted with dividends, the moment the Federal Reserve moves to a firm that is undercapitalized; or suspected of being close to that line of whether or not they are undercapitalized.

It is the law.

As mentioned before, there is no secondary-obligation to pay shareholder dividends, or bonus, after the government realizes a firm is undercapitalitzed. The weightier provision or intent of the law is to stop paying dividends and bonus pay immediately.

This is a first action. In other words, it is better to stop paying dividends/bonuses and find out later the firm can afford to resume that activity. Not the other way around.

So as is written into this law, the prudent thing is to stop the payment of dividends and bonuses, immediately.

A blue print for disaster, as learned from the Savings and Loan debacle, is that an insured firm in financial trouble, continues to pay large bonuses to the people who engineered the problem. This is a huge no-no. Ben Bernanke and Hank Paulson knew this and so does most everyone in the regulation of banks. Dividends are no-go (period) when a company is in danger of being undercapitalized. Bonus pay is a no-go as well.

First casualties of a financial war, dealing with undercapitalized firms: Dividends. Second casualty: Bonus pay. Third casualty. The officers of that company. This includes the board of directors.

The firm itself, cannot argue in favor of bonus pay. It is not optional, and not how prior cases were handled; when it is found a firm is undercapitalized.

There is no place for the firm to produce some measured documentation saying contracts prior to receiving government funds, support , assurance or guarantee, take precedence and the government must take a back seat.

As mentioned above, the government is driving the undercapitalized firm. And they are in the front seat by default.

Prior to Bernanke, effective and efficient Federal Reserve Chiefs and Leaders used the power and force of the Federal Reserve to bring this to bear. And this force was mightily dealt to serve as deterrent to those on the fence of other companies being over-leveraged, poorly managed, or undercapitalized.

The power and force of the Federal Reserve was intended to be used authoritatively and with absolution. The remission of financial sins, comes with a price. And dividends are first to go; boards of directors and large bonus pay are next on the list of many things to be cut. Effective, immediately.

Indulgent bonus pay (for negative performance or marginal performance) and overly indulgent executive pay, across the board, are by mandate, in line to go after dividends are stopped.

Many people understand this: The hand of authority comes down heavy if at all, but especially on the failing bank or financial institution. Otherwise there will be a proliferation of failure, at great expense to the tax payer.

 

U.S. Code, Title 12, Chapter 16, § 1831o. Prompt corrective action.

At weightier provisions of the law (in above post and below the term shall** is to denote a mandate):

(i) Restricting activities of critically undercapitalized institutions
To carry out the purpose of this section, the Corporation shall**, by regulation or order—
(1) restrict the activities of any critically undercapitalized insured depository institution; and
(2) at a minimum (emphasis added), prohibit any such institution from doing any of the
following without the Corporation’s prior written approval:
(A) Entering into any material transaction other than in the usual course of
business…

(B) Extending credit for any highly leveraged transaction.

(C) Amending the institution’s charter or bylaws, except to the extent necessary
to carry out any other requirement of any law, regulation, or order.

(D) Making any material change in accounting methods.
(E) Engaging in any covered transaction (as defined in
section 371c (b) of this title).
F) Paying excessive compensation or bonuses.
(G) Paying interest on new or renewed liabilities at a rate that would increase the
institution’s weighted average cost of funds to a level significantly exceeding
the prevailing rates of interest on insured deposits in the institution’s normal
market areas.

See sweet heart deal given to Warren Buffet and not to the tax payer fund. Goldman taking funds from the U.S. tax payer, via FDIC, then turned around and in violation of law, giving Buffet terms which required them to pay interest on a new liability, at a rate that would increase the Goldman’s weighted average cost.

This is the most minor of all infractions. The one that is easiest to forgive, but a violation of law all the same.

Where you have a blueprint for how to protect the American people, established into law, based on previous experience of dealing with Savings and Loan problems, and where you have experienced regulators involved in crafting that law, you have the benefit of after-sight.

This is what happens and laws are put in place to protect the government and its people from being exploited again.

Where you have officers acting with some measure of mockery for the established law, you have also, college brats with no respect for the efforts of those who came before. Brat type financial advisers indulging in “experiment” type solutions. Their paid advisors, acting in compensation committees, trying to act official about bonus pay being a legal obligation and that the Federal Government must take a back seat to such contracts.

You have a myriad of unproven solutions.

You also have a law that is being violated like someone’s daughter, on the alter of bad credit and derivative ideas.

There you can see a mythical character, such as Cerberus, ravaging without consequence or stealing virtue away from that which was once good or powerful.

Trespassing against the law is one thing. But where you have multiple counts, it becomes blatant and egregious in its intent to offend or injure.

Where this is true, it is called flaunting the law.

Where you have top officials flaunting and violating the law over and over, you have a corporate mindset of elitism, persons who believe they are not accountable to the law, because they believe they are the best qualified to manage wealth, and as such, that the laws that regulate lesser human activity, do not pertain to them. They therefore seek to take wealth from others, to annex it unto themselves. Eventually they start to go lower and lower in their method of dishonesty and stealing. As this mentality becomes more embolden, you see a quality of fortitude dropping off to the side, like a wolf who emerges from the garments of a sheep. Once in striking distance, the cloak is no longer needed, and a lawless pattern behavior manifests with a fierce level of precision. Over-reaching and indulgence, no different than terrorists trying to grab at money that does not belong to them.

In terrorist third world countries, you see tyrants trying to force debt obligations on those who did not sign into the debt. Trying to receive medical and dental benefits from the debt they enjoined and having a party-like life style similar to executives who are paid like rock stars … not inviting the common to their spas or corporate weight rooms. Yet when their debt comes due, expecting the common to go along, like sheep, when they say “we are all in this together.”

As their debt obligations become manifest to all, what you end up with is top officials repeatedly and routinely violating the law, as a habit. They are no longer conscious of the violation, it is more a routine they have come to depend on.

Eventually the law is trampled. Which is what we have in the U.S Code.

You end up with a worthless press corp, who does not ask anyone about the weightier provisions of the law meant to protect Americans from abuse from overly indulgent financial institutions and firms, their subsidiaries.

Until finally the law does not protect. It fails in its original function. The press protects mainly those who advertise the most. The judicial community is absentee, because their best clients are the bankers and corporations who pass their debt onto the common. And you have a president that was made by Goldman Sachs, who can do nothing to protect even his own country from their financial aggression.

Before him, another president ruined by Goldman Sachs, who could do nothing to protect even his own country from their financial grabbing and over-reaching.

It really is quite apparent. The law is being violated and flaunted. The law is being used as the blue-print for how to steal money from a large government.

Money that does not belong to people, who are pattern violators of U.S. Code. Money that does not belong to financial terrorists.

Some of the companies in receiving the money, are so badly managed that their leaders are like puppets of another entity, like a foreign government or brokerage arm of Goldman Sachs.

There is only the law after so much indulgence. The weightier provisions of the law, after confusion multiplies from so many violations.

What America needs is a President who understand justice and how to govern unruly financial entities; financial entities that are accustomed to a lawless compass bearing. A president who understands it is not in our charter to negotiate with financial terrorists. Nor is it written anywhere, that we negotiate with financial terrorists, but any other terrorists is subject to a non-negotiation clause.

 

Correction: Where you have a blueprint for how to protect the American people, established into law, based on previous experience of dealing with Savings and Loan problems, and where you have experienced regulators involved in crafting that law, you have the benefit of hindsight.*

Hindsight was established in 1980s. This is what happens and laws were put in place to protect the government and its people from being exploited again.

With hindsight, comes responsibility and good stewardship. You cannot always get that from a stock broker, because stock brokers are sometimes programmed differently, by way of incentive and off record discussions. Not all stock brokers are this way, but many are. There should be a clear division between brokerage firms and government funds. Right now, that divisions is awash in trading platforms and automated liquidity experiments, derivatives and toxic debts being put off on the American tax payer – without consequence to sub-level executives who signed their companies into that debt.

This can lead to confusion. Where confusion sets in you have to go back to the law.

After so much indulgence, there is only the law. The weightier provisions of the law, take precedence, after so many narrow violations materialize.

 

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