The Great Debate
from Commentaries:
Giving props to Wall Street’s risks
Wall Street would like you to believe that when investment banks take on risk they are largely doing it for the benefit of investors -- maybe even you and me.
Bankers say much of the capital that their firms put at risk each day is to complete trades for big corporations, mutual funds, pension funds, hedge funds and university endowments. And contrary to the conventional wisdom, proprietary trading -- bets made for a bank's own behalf -- is really just a small part of their business.
Lately, Wall Street's captains of capitalism have been aggressive in pushing the "we take big risks for our customers, not for ourselves" line of argument.
That's especially so in the wake of the public furor over the outsized trading gains at the big banks like Goldman Sachs Group, JPMorgan Chase and Barclays and even Citigroup, so soon after the collapse of Lehman Brothers.
from Commentaries:
Wall Street may find itself on the hook
Sometimes legal fishing expeditions pay off.
A year ago, a Connecticut hedge fund sued UBS, contending that it knowingly sold toxic mortgage-backed securities to institutional investors but never disclosed that information.
At the time, the accusation by the fund, Pursuit Partners, seemed intriguing. But because the complaint lacked any sign that it had the beef to back up its potentially explosive claim, the litigation all but fell off the radar screen.
Now, it appears the hedge fund managers were onto something, thanks to a Connecticut state judge's decision to allow Pursuit's lawyers to get limited access to some of UBS' internal emails.
The whole Credit Agency/Score scene needs revamping in the US. Basic financial planning 101 requires that you look at ASSETS as well as liabilities before making judgments on how ‘creditworthy’ a person is. Its one thing for this not to be recognized on an individual level, but at the corporate level… the mind boggles.
from Commentaries:
Time to get tough with AIG
It's time for someone in the Obama administration to read the riot act to Robert Benmosche, American International Group's new $7 million chief executive.
Since getting the job, Benmosche has spent more time at his lavish Croatian villa on the Adriatic coast than at the troubled insurer's corporate offices in New York.
And in the short term, Benmosche's vacation strategy appears to be paying dividends.
This week, AIG's shares surged 44 percent, to nearly $50, after Benmosche said that he intended to move slower than his predecessor in selling off AIG's still viable divisions.
They should have changed the whole management team right away, and appoint a new team to restructure the whole company.
from Commentaries:
Deficit hypocrisy
There's something scary about big numbers. It's one reason we in the media often like to put the biggest number we can find into a headline.
So it was no surprise that most media outlets went gaga over the Obama administration's projection that the nation's debt will grow by $9 trillion over the next decade. And sure enough, critics of the administration's efforts to reform healthcare were quick to seize on that scary number as another reason to advocate doing nothing.
But without wading into the muck of the current debate over healthcare reform, it's worth taking stock of just how much hypocrisy there is when it comes to the subject of government spending and those big bad deficits.
Let's start with the Republicans. They talk a good game about reining in federal spending, but they bear as much responsibility as the Democrats for the nation's $11 trillion in total debt.
Let’s see… $1 trillion in 8 years bought us 9/11 recovery, Iraq, Agahnistan, Katrina recovery and prescription drug benefits and TARP 1. The additional $8 trillion in 7 months bought us what again? Cars?
from Commentaries:
Wall Street’s $4 trillion kitty
The Obama administration's plan for reining in derivatives leaves unchecked one of Wall Street's dirty little secrets: the ability of a derivatives dealer to redeploy cash collateral that gets posted by one of its trading partners.
On Wall Street, this practice of taking collateral and reusing it is called rehypothecation. In essence, it's a form of free money for derivatives dealers to use as they please -- even to repost it as collateral to finance their parent company's own borrowings.
And we're talking big bucks. The International Swaps and Derivatives Association recently reported that derivatives dealers have taken in $4 trillion in collateral from their trading partners. That's an 86 percent increase over the $2.1 trillion in cash collateral those same dealers reported having on their books in early 2008.
Now it's not surprising that investment firms took in more collateral from their trading partners over the last year, when the financial markets were in turmoil. Cash collateral is one way for derivatives dealers to protect themselves against the risk of a trading partner defaulting on one of these sophisticated financial contracts.
Certainly we want liquiidty in our markets. Certainly we want credit available to help finanace growth. BUT, we also want that growth based on sound economics in doing this. The key to sound economic growth is actual real savings that are used then invested in sound growth opprotunities. Look at the savings rate in the USA for the past 20+ years. It’s the worse by far in the the world among industrialized countries.
Basing growth on derivitives and other “fiat currentcy” approaches leads to the very bubbles that have brought down our country to its knees. Let;s speak truth. Deruvitives is simply a method that enriches the rich and steals from the average American. Bottom line, run away GREED.
from Commentaries:
Geithner of Oz
Earlier today I wrote that Sheila Bair is one of the few financial regulators who gets it. And by getting it, I mean not sucking up to the banks and the big money interests on Wall Street. You know, the guys (and most of them are guys), who got us into this financial mess. Tim Geithner, on the other hand, is a regulator who just doesn't get it.
It's not that the Treasury secretary isn't smart--he is. And it's not that he's not up to job--he is. It's that Geithner is too much of a politician and his views have been molded by people who work on Wall Street.
So, that's why we have Geithner telling The Wall Street Journal today that Wall Street isn't reverting back to its old ways--even though everything indicates that's exactly what is going on. In Geithner's world, things are getting better and the banks are becoming better citizens:
I don't think the financial system is reverting to past practice, and we won't let that happen. The big banks are running with much less leverage now, much more conservative liquidity cushions. There has been a significant shrinking of their balance sheets, getting rid of bad assets and cleaning up. And the weakest parts of the system don't exist anymore.
Tim Geithner was head of the NY Fed in the years when the regulators massively failed to regulate, so he has plenty to answer for. In a bit more than one year there will be an election for the House of Representatives and one-third of the Senate. The voters will then speak again, including the furious poor and middle class voters who have been and will continue to pay for this mess.
from Commentaries:
Citi’s dirty pool of assets
Hard as it may be to believe, shares of beleaguered Citigroup are on fire.
The stock of the de facto U.S. government-owned bank is up some 300 percent after it cratered at around $1 back in early March.
The over-caffeinated stock maven Jim Cramer keeps calling Citi a "buy, buy, buy" on his nightly CNBC television show. Even the more sober-minded writers at Barron's are pounding the table a bit, predicting Citi shares could double in price in three years."
Time out! It's far too soon for anyone but stock flippers and fast money hedge funds to buy Citi right now.
The rules have changed at least temporarily and when it’s time, they’ll change them back. But right now there are stocks with unbelievably low P/E’s and likewise high EPS numbers that are just sitting there waiting so what good does it do you to wait on them and miss this? These times are hard for the traditional numbers guys because it’s name recognition, hope and speculation time. AIG?
from Commentaries:
Flash Schumer scores a victory–almost
It appears Senator Chuck Schumer, aka Flash Gordon ,is going to get his way on the dubious practice of "flash trades.'' Maybe.
Schumer says the Securities Exchange Commission has told him it is close to banning flash trades--a process in which some high-frequency trading desks get a few millisecond sneak peak at market trade orders. This practice has fueled allegations that some high-frequency trading desks are getting an unfair advantage and can frontrun the general market.
Actually, the SEC isn't quite ready to that, although the commission appears to be moving towards a ban on most, if not, all flash trades. (See statement below).
A ban on flash trades would be a good thing. But it's still not clear how widespread the practice is.
from Commentaries:
Goldman’s real estate gambit
Is 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.
And much to everyone else's chagrin, Goldman even made money off the housing meltdown when some of its hedges -- specifically a bet that a subprime mortgage index would plunge -- paid off handsomely.
PLEASE, PLEASE don’t say “haircut”. It’s just a stupid thing to say. In fact, I always feel depressed when I hear it. That’s because it reminds me of a particulalry stupid man who says many stupid things – and our liberal media, who hang adoringly on his every stupid word.
Was Goldman’s trading software stolen?
–Matthew Goldstein is a Reuters columnist. The views expressed are his own.–
Did someone try to steal Goldman Sachs’ secret sauce?
While most in the United States were celebrating the Fourth of July holiday, a Russian immigrant living in New Jersey was being held on federal charges of stealing secret computer trading codes from a major New York-based financial institution.
Authorities did not identify the firm, but sources say the institution is none other than Goldman Sachs .
If loss of this software is feared for its potential to manipulate the stock market, how has Goldman Sachs been using it. Read “The Losing Game: Why You Can’t Beat Wall Street by T.E. Scott and Stephen Edds.
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There is no denial that banks take risks for the investors.The important point is that the risks must be manageable even if the investments go bad & should not lead to making the very institution bankrupt like Lehman Brothers seeking taxpayers money to rescue them or vanish.Do the same very banks when in good times pass on surplus money to the state treasury instead of frittering it away illogically high salary,perks & bonuses to their executives? Why the banks don’t find inbuilt provisions to withstand such critical situations without asking for state crutches?