|People who get California IOUs||People California pays in cash|
|Grants to aged, blind or disabled persons||University of California|
|People needing temporary assistance for basic family needs||Public Employees’ Retirement System|
|People in drug prevention, treatment, and recovery services||Legislators, legislative employees, and appointees|
|Persons with developmental disablities||Judges|
|People in mental health treatment||Department of Corrections|
|Small Business Vendors||Health Care Services payments to Institutional Providers|
Well done to the FTC for putting some serious resources into attacking business opportunity scams. It doesn’t hedge, it doesn’t say that some are better than others — instead it says in a simple and forthright manner that if someone is advertising a “business opportunity”, even if it’s a celebrity like Adam West, you should run fast in the other direction:
Want to “be your own boss,” “work from home,” or just “make extra money“? Then you may be tempted by an ad for a business opportunity. Before you open your checkbook, check out the offer. Fraudulent business opportunity promoters use the classifieds and the Internet to tout all kinds of offers, from pay phone and vending machine routes to work-at-home businesses like medical billing and envelope stuffing. Too often, these ads make promises – about earnings, locations, merchandise, or marketability – that sound great, but aren’t truthful. The result: consumers are getting ripped off, losing money instead of making it.
The FTC does have a guide for the media, which seems to be very widely ignored: is there any way that it could grow some teeth and actually punish media outlets which willingly broadcast these scams? I hope TV and radio stations, in particular, don’t manage to wriggle their way out of the oversight of the FTC, the FCC, and the new consumer financial product commission: these ads really should be regulated heavily.
I’ve been saying for a while that much mainstream financial journalism is very weak, and that one would in many cases be better off reading blogs instead. But Choire is quite right when he notes:
Taibbi at least is explaining (or trying to explain!) complicated financial operations to the real world—while the finance writers and bloggers are often willfully obscure, tradey, impenetrable and even at times useless to any audience who actually isn’t working at (or recently laid off from) a bank. Why are they so willing to abandon us when they should be explaining things to use more than ever?
One reason is that we bloggers are lazy, and don’t want to explain things like bond spreads and CDSs and CDOs and SIVs every time we write about them: we prefer to remain snappy.
Another reason is that we have big egos (and are lazy) and therefore too often make the assumption that our readers have been following much if not all of what we’ve written on a subject. If I write my sixth blog entry in three days on the Community Reinvestment Act, I might well assume that my readers know what I’m talking about when I refer to it.
But there is a real sense in which financial bloggers do tend to gravitate to writing for other financial bloggers and finance-market professionals, rather than the broad mass of the public. We’re niche media, aren’t we meant to do that?
Actually, we’re not particularly meant to do that, and Choire rightfully points to the Baseline Scenario as a blog which makes a real effort to keep things comprehensible to as many people as possible. (Although the posts there can be very dry.)
And really Choire is right: we would be performing a much greater public service if we generally wrote our blog entries in English rather than in financial shorthand. It’s not like we’re incapable of doing so: I appear on NPR’s Marketplace quite regularly and talk in perfectly comprehensible English about just about anything I cover on my blog.
One good solution is to follow Paul Krugman’s lead: he writes for a general audience, yet allows himself to get wonky once in a while. When he does that he gives good warning, by putting a (wonky) warning in the headline. And there’s certainly nothing unsophisticated about Krugman’s blog — accessibility doesn’t mean you have to be banal or patronizing.
Is there a risk that being broadly accessible reduces the quality of one’s comment threads? Maybe, I doubt it. Mainly it just makes blogging a little bit more difficult — we have to think a bit harder about what we’re saying and how we’re saying it. And that’s really no bad thing at all.
At Reuters, I have access to all manner of bond-pricing information. But you, dear reader, probably don’t. Or didn’t, until now.
Welcome to the Bond Section of the Market Data Center. This section includes general bond market information such as news, benchmark yields, and corporate bond market activity and performance information, descriptive data on U.S. Treasury, Agency, Corporate and Municipal Bonds, Credit Rating Information from major rating agencies, and price information with real-time transaction prices for Corporate Bonds (TRACE), Municipal Bonds (MSRB) and end of day prices for U.S. Treasury Bonds.
Three cheers for Finra for doing this — it’s a great public service. But why are they hosting it at marketwatch.com?
The NYT yesterday finally got around to covering what it called “the curious case of Mr Arbizu” — I appreciate the reference to a series of blog entries I wrote in June and July last year (1, 2, 3, 4).
It’s unclear why the NYT is publishing the story now, when they started talking to Arbizu almost a year ago. But after all that time one would have hoped for something much more explosive, because there’s loads of really juicy stuff in the Arbizu story, including mind-boggling incompetence on the part of UBS and gun-toting thugs in Paraguay.
I’ve spoken to Arbizu at some length, and I think he’s reliable. Everything here comes from him — and he is, by his own admission, a criminal who stole money from his clients. That said, everything he’s said both to me and to the Argentine authorities has panned out so far; he’s always been upfront and honest about what he did wrong, and his story is both internally consistent and consistent with everything I know from reading court filings and talking to JPMorgan.
The story starts with Arbizu working for UBS as a private banker, being pressured to sign up $150 million in new money every year. One of Arbizu’s clients, Alberto Lopez, had about $2 million with the bank, and said he was leaving for greener pastures. At this point a panicked Arbizu did something very, very, very stupid: he promised Lopez interest payments of 21 percent per year, in dollars.
The problem was that Lopez’s money wasn’t earning anything close to 21 percent in interest. And so Arbizu started raiding Lopez’s own principal to make the interest payments: the $2 million was going down fast, as it kept on getting paid out in “interest” payments to Lopez. Eventually, there was so little money left that Arbizu had to find the money somewhere else. He turned to another one of his accounts at UBS — that of the Acevedo Quevedo family, which was based in Paraguay and had about $3 million in it. Arbizu started sending Lopez his “interest” payments, on now-nonexistent principal, from the Acevedo account. A simple, obvious, unambiguous fraud — he was stealing from Acevedo to pay Lopez. And UBS had no idea this was going on.
All the while, of course, Arbizu was helping some of his Latin American clients evade taxes, both by sneaking funds offshore illegally and by using little-known legal loopholes. These skills, it seems, were in high demand, and in October 2006, when he was still very much in UBS’s good books, Arbizu was poached from UBS by JPMorgan.
At this point the story gets seriously crazy: UBS never seems to have informed Arbizu’s clients that he had left the firm, and so both Lopez and the Acevedos continued to deal with him, via his cellphone, in the belief that he was their account representative. What’s more — and this boggles the imagination — Arbizu was somehow able to continue to make those “interest” payments from the Acevedo account to the Lopez account, even after he had left the firm — all the way through April 2008.
And UBS is arguably the foremost private-banking operation in the world.
What Arbizu was doing was, of course, extremely fraudulent and illegal. At one point, he got a message at his new job, at JPMorgan, from the head of compliance at UBS. He thought the game was up, but with that sense of relief that at least it’s all over now, he called back. It was just an enquiry about getting a job reference from Arbizu if the officer ever wanted to change jobs.
Things finally came to a head in April 2008. Arbizu was in Argentina, and got a phone call from the Acevedos, in Paraguay. They were furious, having just been told by UBS that far from having $3 million in their account, they only had $200,000. What, they asked, reasonably enough, was going on?
Arbizu flew to Asuncion — a dodgy enough city to begin with — and then on to Pedro Juan Caballero, a real Wild West town on the Brazilian border. When he got there, he was greeted by beefy men with machine guns.
The Acevedos weren’t happy: they were in the midst of a major land deal, and needed the money immediately. Arbizu decided he didn’t have any choice. He told the Acevedos that he’d get their money back immediately.
The problem is that he couldn’t get the money from Lopez, who had no money in his account either. And of course Arbizu didn’t personally have that kind of scratch. So he raided a third account, this one at JPMorgan, and belonging to a media executive named Natalio Garber. He transfered $1.1 million of Garber’s money straight to the UBS account in Paraguay, and another $1.7 million, in three different transactions, to the people selling the Acevedos their land. The Acevedos were thereby made whole, but only at the cost of Garber losing $2.8 million.
It turns out that JPMorgan’s controls over such things were rather more effective than UBS’s: the bank found out very quickly that something was amiss, and fired Arbizu on the spot. But Arbizu was in Argentina, and JPMorgan wanted him in the United States.
Arbizu’s wife was in the United States, and agreed to meet Arbizu’s boss in a Starbucks in Fairfield, Connecticut. He talked to her for three hours, trying to persuade her that Hernan should return to the United States. The two sides talked on the phone quite a lot, but Arbizu wanted to be near his family and his lawyer in Argentina, and eventually JPMorgan gave up negotiating and said they were going to throw the book at him.
At that point, Arbizu essentially turned himself in to the Argentine authorities. Yes, he said, I broke the law in the US, while I was working on behalf of Argentine clients. Many of those clients were evading taxes. There’s a massive tax-evasion scheme going on in both countries, and if I’m going to come clean about my own misdeeds, I’m also going to come clean about the bigger-picture scandal. He alleged Argentines have $150 billion offshore, but report to the authorities only $30 billion. Private banks like UBS and JP Morgan help them to avoid reporting those assets to the Argentine authorities, and — he said — I know exactly how they do it.
The Argentine authorities raided the JPMorgan offices in Buenos Aires, and the list of account holders got leaked to the Argentine press. (I believe Arbizu when he says it was the Argentine justice department, not himself, who leaked the list.)
Arbizu then started going through all manner of legal proceedings in Argentina. At one point he told an Argentine judge about a very commonplace — but technically legal — way in which Argentines managed to avoid paying taxes on the $30 billion of assets which they do declare every year.
It worked like this: in the 1970s, during the junta, the Argentine government was buying a lot of arms from the Austrian government. And somewhere along the way, the military government passed a rule saying that Argentine citizens didn’t need to pay taxes on Austrian bonds. Amazingly, that was pretty much the only law from the days of the military government which survived the transition to democracy. Every year, in December, Argentines would sell everything they had, and put all their money into Austrian bonds for year-end. They paid no taxes. And then, in January, they went back and bought whatever they were invested in in the first place.
JPMorgan, says Arbizu, was even working on something called “the Austrian structure” — a special bond designed to solve the problems of illiquidity in December when lots of Argentines all wanted to buy Austrian bonds at the same time. It would be issued by the Austrian government at JPMorgan’s request, and would have a yield linked to a balanced portfolio, so that the yield on the bond was the yield on the portfolio and the Austrian government itself would pay no interest at all.
Thanks to Arbizu’s testimony, however, the Austrian loophole was wiped from the Argentine books.
Arbizu has lots of information on other structures, too: trusts, shelter companies, back-to-back loans, Standard Bank Letters of Credit — a whole panoply of instruments designed to help private-banking clients evade taxes and which he’s happy to explain to the authorities in Argentina and the United States.
But there’s still a criminal case against Arbizu, and a request for extradition, making its way slowly through the Argentine legal system. Arbizu is happy to admit that he’s guilty, but he’s trying to essentially do a deal with both the Argentines and the Americans, where he will cooperate on tax-evasion investigations in return for lenient treatment when it comes to the criminal cases.
The UBS clients are content. Lopez thought he had $2 million in the bank but doesn’t; on the other hand, he got paid some $2.4 million in “interest” payments he never should have got, so he’s not complaining too much. He hasn’t lost money. The Acevedos were made whole. So it’s really only Natalio Garber who lost money — he was paid back by JPMorgan, but that means JP Morgan is hungry for restitution and justice.
My guess is they won’t get it: Arbizu is useful enough to the leftist Argentine government that he’s unlikely to be extradited any time soon. But at the same time, Arbizu is going to have a lot of uncertainty over his head for the foreseeable future: no one is going to guarantee that he won’t eventually get extradited, and he’s still not able to leave Argentina.
The real scandal here surrounds UBS, whose controls were unbelievably lax. Here’s the NYT:
Panicked about covering the shortfall, Mr. Arbizu said he ‘pretended’ he was still the family’s banker at UBS, and secretly raided a JPMorgan Chase account held by Natalio Garber, a prominent media executive in Buenos Aires, for the funds.
He did so, he said, by faxing transfer requests with forged client signatures to UBS’s New York offices, and then visiting the offices to ensure … that the transaction had gone through. ‘Everybody there liked me and trusted me …,’ Arbizu recalled. ‘I think that my presence there saying that it was OK made people not follow the controls’.
Do ex-employees regularly turn up in person when transferring money? Is that really a sign to be reassured rather than alarmed? There are some tough questions here for UBS; I hope that someone forces the bank to answer them.
(Spokesmen for UBS and JP Morgan declined to comment to me.)
For the record, I don’t think any article that contains the line “vampire squid sucking the face of humanity” is real journalism.
Which sparked the following debate between me and her on Twitter. It turns out that trying to recreate a stream of tweets in blog-entry form is non-trivial; I’ve tried to make this as easy to follow as I can by moving a few things around a little. But in any case, this is debate in 140 characters or less:
HM: For the record, I don’t think any article that contains the line “vampire squid sucking the face of humanity” is real journalism.
That’s self-righteous editorializing. If Taibbi wanted to make his point, he would have done great to dig up some, like, “facts.”
I mean, if you court controversy, you’ll win — you’ll get controversy. But controversy is not credibility.
The main problem with Taibbi’s article was this: how was GS exceptional in creating bubbles compared to other firms? All Wall Street did it.
Someone could easily blame Bear’s fall on the CDS market, which was created by J.P. Morgan in ’94.
Or blame the mortgage meltdown on Larry Fink at BlackRock, who helped create mortgage securitizations.
And yet, “JPM and BLK caused the meltdown” lacks a certain conspiracy appeal and accuracy. The creation of instruments didn’t cause bubbles.
What causes bubbles are mass hysteria/subscription. And one firm –or two or three — can’t do it alone. That was what was missing in story.
FS: Of course the Taibbi piece was real journalism, even if it was also self-righteous editorializing. And yes it had lots of facts
HM: lots of facts don’t matter if they’re not the relevant ones. What the piece had was “this happened” and “this firm was there.”
i.e., what was the proof of causation? Lots of other firms did what he accused GS of doing: changing underwriting standards
as well as benefitting from cap-and-trade bill, dismissing orphan month of December, and shorting mtg mkt in 2006. Widespread.
So the question then is why is ONE firm “vampire squid”? GS can’t sell if no one’s buying. Hedge funds, ibanks, all did same.
A better article would have represented phenomena in context instead of making it look like GS exceptionalism in every sense.
FS: OK, now you’re taking substantive issue with Taibbi’s piece. Which makes more sense than dismissing it as “not journalism”.
HM: But those substantive issues are what make it not journalism. Journalism is the art of accurate representation.
i.e., the article was neither news nor analysis. It was theory and not contextualized and not well-supported. Not journalism.
to put it more directly: just because someone has access to a printing press does not make it journalism. Journalism is rigor.
FS: So would you say that the WSJ editorial page is also “not journalism”, since it fails so often in “accurate representation”?
HM: There is a reason there is a strict, impenetrable Chinese wall between news and editorial.
and I think that’s a valuable distinction and should be maintained. Columnists/editorial writers also have burden of proof.
FS: You’re not answering the question. Does the WSJ edit page count as journalism or not?
HM: Like pornography, you know it when you see it. Compare Rolling Stone’s piece with a Helyar/Burroughs analysis. Night and day.
FS: Taibbi’s piece, to me, was clearly polemical journalism — and good polemical journalism at that.
HM: Also, would RS piece have appeared in any reputable financial publication? No.
I’m sure Taibbi would say that’s bc financial press all bought and paid for, too close to that world.
But mostly it’s not in reputable financial press bc it couldn’t be supported. Sometimes it’s just not true.
FS: You mean Goldman doesn’t *literally* eat planets?
Taibbi’s piece was not written for people like us who know GS’s business and care about distinctions with eg JPM or BLK
HM: just bc Taibbi’s piece was not written for sophisticates makes it worse, not better. Higher burden to write accurately
FS: I don’t think Taibbi particularly cares whether GS is more or less evil than say Morgan Stanley. That’s not the point.
HM: Pffft. That’s the WHOLE point. His article is entirely how Goldman is more evil than any other financial entity.
Which, you must admit, is a hell of a task. There’s a lot of evil, blame, greed out there. Why give credit to one firm?
FS: Because Hank Paulson looks like Benito Mussolini, of course.
HM: See, I would read a polemic on THAT. Who doesn’t like to read analysis of aesthetic choices of bald men?
FS: There is a long and noble tradition of crusading polemical journalism. And there is more to journalism than the financial press
HM: i don’t buy it. Just because it’s a diatribe doesn’t mean it’s “polemical journalism” What is he against? Existence of Goldman?
I mean, what is he crusading against? One firm? Polemical journalism is abt corrupt policy, not “I don’t like cut of their jib”
also, sorry to say polemical journalism more of a tradition in Europe. Big difference with U.S. journos.
FS: Of course the Aussies do polemical journalism very well too. (See eg John Pilger.) Maybe Rupert should hire Taibbi for the WSJ!
There is a strong case that Wall St in general and Goldman in particular has captured the policymaking apparatus.
So yes it’s reasonable to rail against the plutocracy. Why not?
HM: if there is a strong case for it, it wasn’t in RS piece. Just pointing out that GS alums work in govt is old news for 100 yrs
Railing against the plutocracy means against plutocracy. Not one person/firm as cause of all of fncl system’s troubles
Railing against plutocracy means going back to JPM and BLK and Salomon/Citi roles in financial innovation.
FS: I think you’ve just pitched yourself a Rolling Stone feature!
HM: That would certainly be something.
The joke of it is, GS never innovated instruments. They waited for others to do it, then played the system more effectively.
FS: Right, GS has second-mover advantage, like MSFT
HM: Exactly. Which puts them at the scene of bubbles, but doesn’t prove means or motive. Also other i-banks do same.
I.E., Goldman’s “watch and wait” style goes directly against bubble creation Taibbi claims. They may have exploited bubbles.
FS: the act of exploiting bubbles by its nature exacerbates their inflation and profits from their popping
HM: Yes, but EVERY firm exacerbates bubble inflation and profits from popping. It is mass participation that makes it bubble.
…but exceedingly hard to prove they “created” them, if, indeed, any firm can take credit for “creating” bubbles.
A polemical piece against the incentives for “the Wall St. system” in bubble creation would have been excellent to read.
if we say that participating in bubbles is bad and NOT participating in bubbles is bad, who wins, exactly? Is winning possible?
FS: Who wins? People who live on their own labor rather than on other people’s money.
OK, you feel Taibbi’s polemicism would have been better aimed elsewhere. But let him aim where he likes! You can take aim too!
HM: doesn’t work that way! We’re talking media crit and argument flaws. Not concerned about his “right” to write polemics, or mine.
FS: My point is that “this other polemic would have been better” is a pretty weak criticism. Taibbi’s was cutting and funny.
HM: In fact, there’s an excellent argument that predicting and exploiting bubble pops is great financial judgement.
I mean, when did sheep-like following of bubble trends become the heroic and morally justifiable route?
FS: Your “great financial judgement” is Taibbi’s profiteering. It’s 2 ways of looking at the same $$$
HM: Not same! big difference between “making profit on sound judgement” and “profiteering.”
And that’s what I would have liked to see explored and discussed in that piece.
It is now well documented that asset class correlations tend to one during times of economic and financial market distress. 2008 was nothing if not characterized by economic distress and financial market instability. Indeed as we exited 2008 an economic depression and the end of the global financial system were at the top of the minds of investors and political leaders alike.
In that sort of environment correlations are, and should be, an afterthought. As we exited that time of extreme fear we should see a bounce back in the prices of risky assets. So the high correlations we are seeing are a natural result of the steep fall and equally steep ascent in investor sentiment and market prices.
If Tadas is right — and he might well be — then I think there are two further implications. Firstly, anybody looking at upwardly-sloping markets and seeing “green shoots” is deluding themselves: all we’re seeing here is an artifact of the financial crisis and the market craziness associated with it.
More generally, the high correlations in the market right now do seem to indicate that we’re emphatically not out of the crisis yet. And trying to apply an implicit efficient-markets hypothesis these days — the markets are going up so there must be some good news — is ludicrous: it’s precisely at times like this, when correlations are at all-time highs, that the EMH breaks down entirely.
Most of the time I trust the markets at least a little bit, not because they’re particularly reliable, but just because they’re less unreliable than anything else. High correlations are a signal to start treating market signals with extreme prejudice. Which is one reason why I’m still so bearish.
Julia Moskin reports on Manhattan street vendors:
Of all the gray areas for food vendors — who are regulated by a cluster of agencies including the Department of Consumer Affairs, the Police Department and the New York State sales tax authority — permits are the murkiest. The Health Department set the number of full-time food vending permits at 3,100, in 1979. (In the fall, the City Council will vote on a proposal that would increase the number of permits to 25,000.)
The $200 permits are valid for two years and can be renewed indefinitely by mail. Their black-market value is tremendous: up to $15,000 for two years, according to a report released Tuesday by the city’s Department of Investigation. The new vendors are openly questioning the black holes of the system. “Every day, the city is leaving thousands of dollars on the table” by not taking control of the illegal trade in permits, said Mr. Yang, of the Cravings truck.
Yes, the permits are probably being priced too cheaply — there’s no reason why they shouldn’t move to a system closer to that of taxi medallions. But the other thing being priced far too cheaply here is prime midtown street-level real estate. Note what happens when the city does start auctioning off vendor permits: the food-vending rights to the north-side entrance of the Metropolitan museum sold for $362,201 per year, rising to $384,371 in the final year of the five-year contract.
The kind of fights detailed in Moskin’s article are inevitable when a highly-valuable resource — street parking — is massively underpriced or even free. The city should start making vendor permits location-specific, and then auctioning them off.
Michael Jackson tickets were designed to be a collector’s item. Many will be kept, not tendered for refund.
Madoff victims, get over it. Nocera pulls no punches. Good for him.
Absolutely bonkers 6,000-word investigation of whether LA vegan restaurants are really really vegan