Lunchtime Links 4-18

April 18, 2010

Flashback: Banks bundled bad debt, bet against it and won (Morgenson/Story, NYT) This story from December presaged most of Friday’s news. It mentions how the Fabulous Fab and Goldman managing director, Jonathan Egol, were instrumental in structuring the Abacus deals. Why isn’t Egol targeted by the SEC? It also mentions the case of Lewis Sachs, whose firm Mariner Investment Group structured CDOs at the peak and managed to make handsome profits. They claim they weren’t short their own deals. Sachs later joined Treasury as a senior adviser to Geithner. He stepped down a month ago citing the end of the financial crisis. Was that really the reason he left?

Top CDO underwriters, 2002-2007 (Kedrosky) Other targets? See next….

Rabobank sues Merrill for same CDO behavior (Bray, WSJ) Chad doesn’t mention that this was a Magnetar deal…

Your Magnetar questions answered (ProPublica) Speaking of which, Einsinger/Bernstein follow up their piece about that other big CDO player…

Goldman knew for months that charges were possible (Goldstein/Eder, Reuters) Yet they didn’t disclose the receipt of the Wells notice to investors? That’s not required, but typically such notices, which indicate that the government will file an enforcement action, are disclosed as they are a material event. With Goldman stock down 13% on the news, yeah, this was pretty material…

Liquidity puts that cost Citigroup $14 billion may be curbed by new accounting rules (Keoun, Bloomberg) Citi offered liquidity puts on CDOs it manufactured, effectively an insurance policy, giving holders the right to sell them back to the bank at par if their value collapsed. But it wasn’t required to hold any capital against these insurance policies. New rules will change that.

Clinton: I was wrong to take Rubins’/Summers’ advice on derivatives (Tapper, ABC) Bill Clinton deserves a big chunk of blame for the financial crisis. The final repeal of Glass Steagall was one big mistake, but the bigger mistake was to allow Rubin/Summers/Levitt/Greenspan to put the kibosh on Brooksley Born’s attempts to regulate derivatives. Funny, Rubin told the Financial Crisis Inquiry Commission this week that he didn’t appreciate the risk of Citi’s liquidity puts — he was Citi’s co-Chairman. Yet in the late ’90s he argued that those who would use derivatives would be sophisticated enough to manage the risks. His bank wasn’t.

Financial weapons ambush Europe (Katz, Bloomberg) Wall Streeters like to argue that folks they trade with (as opposed to clients whose money they manage) are responsible/sohpisticated big boys who should suck it up if they’re on the losing end of a trade. Stories like this put the lie to that argument. It would be good if bankers had the integrity not to sell speculative financial products to folks for whom they are clearly not suitable. Too often, integrity plays second fiddle to generating fees.

Tax rates…

tax rates

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Question: does selling something that is unsuitable to a client not violate the fiduciary responsibility of a securities dealer? Doesn’t this supercede the “they should have done their homework” argument? And if so, why do the supposed free-market defenders cite the later and completely ignore the former? I’m inclined to think that these folks don’t actually believe in free-markets at all and are simply shilling for the banks.

Acknowledging the lack of fiduciary responsibility would implicate bankers themselves, so they conveniently ignore that aspect. Similarly, the “more regulation” camp seem to ignore the blatant legal violations as that would imply that if the law were only followed properly and securities dealers were actually held accountable, then more regulation wouldn’t be necessary.

Nobody seems to see it in their best interest to pursue the most obvious solution: follow the law as it is written.

Posted by MattStiles | Report as abusive