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    Posted: 18/April/2010 at 8:17pm

just started 'The Big Short' by michael lewis and then the goldman news broke on friday. this needs to be sorted out and hard to imagine (all sane) folks don't want to see a lotta justice. this cannot happen again.

pulling together late-breaking views:
'Leading your enforcement and supervision teams you need a bunch of smooth, smart, plausible, grandiosely self-confident senior bankers who will not hesitate to tell Vikram Pandit to go fuck himself, his mother, and the cow she rode in on if he ever tries to fuck with the United States government, the US taxpayer, or the pizza delivery boy again.
You know: psychopaths.'
 
or...
'Personally, I’d give Elliot Spitzer a billion dollars to fund the staff he wants along with the jurisdiction he needs, a box of condoms and permanent immunity for any future callgirl scandals, and then unleash the mean bastard on Wall Street.'
 
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Post Options Post Options   Thanks (0) Thanks(0)   Quote watcher Quote  Post ReplyReply Direct Link To This Post Posted: 18/April/2010 at 9:35pm
Originally posted by citizen citizen wrote:

just started 'The Big Short' by michael lewis and then the goldman news broke on friday. this needs to be sorted out and hard to imagine (all sane) folks don't want to see a lotta justice. this cannot happen again.


Why do you torture yourself? Happen Again?!? Not much chance of that.
For that to occur THIS time would have to have ended.

What would constitute justice to you?


"It is a wreave belief that we already are in Hell."- Tuluk in Frank Herbert's "Whipping Star"
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Post Options Post Options   Thanks (0) Thanks(0)   Quote citizen Quote  Post ReplyReply Direct Link To This Post Posted: 19/April/2010 at 9:15am
heh.
i should have put this up in the 'what are you reading' thread.
btw, highly readable book, especially the way lewis formats it - reads like a novel w/huge character development.
i'm reading really slowly and am on the second 'weird duck.' think this guy (burry) discovered, literally, that credit default swaps could be applied to mortgage bonds - while he was finishing his neurology residency at stanford. spare time, you know.
 
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Post Options Post Options   Thanks (0) Thanks(0)   Quote citizen Quote  Post ReplyReply Direct Link To This Post Posted: 19/April/2010 at 9:20am
'What would constitute justice to you?'
 
give the money back, send them back to kindergarten until rehabilitated.
be glad to entertain heads. on. pikes. but not really my style.
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Once now, SLOWLY. . .

One Goldman Sachs VP (Mr. Tourare) has been named in the complaint. How far his impropriety went, in the company which has thousands of employees, we dont know yet. Might turn out to be a bunch of nonsense, really.

You cannot blame capitalists for wanting to make money anyway they can. When you get rid of the regulations from the Depression, regulations which separated investment banking from mortgages and other normally Savings and Loan duties, when the SEC and the FDIC look the other way in the name of economic growth, this is bound to happen, and by THIS I mean all this financial stuff, not just isolated cases of corruption or Ponzi schemes.

The ROOT CAUSES behind all of this are and always have been the real estate brokers convincing people to sign purchase agreements for homes which are overvalued, appraisers working in cahoots with the brokers to appraise the properties at the right value, loan brokers who do not require documentation of income or assets or 20% down, and banks who bought the debt without thinking about how good the underlying collateral happened to be. Without the lying, cheating real estate people on the local level, making deals to make commissions and then sending the trouble to Fannie Mae, this wouldnt have happened.

So, YES, the investment banks saw money to be made and went for it, like good capitalists, and they were PERMITTED and ENCOURAGED by the government in order to create economic activity. But the assets were overvalued and fraudulent and the whole chain of corruption started right there in your local real estate or mortgage loan office. Blame them for fraud. Blame Goldman, and Morgan Stanley Chase, and the others, for stupidity. Blame the Democrats and Republicans on the Senate Finance Committee and Senate Banking Committee for taking over $28 million in campaign contributions from the financial industry to look the other way (and this is only since 2008!). And blame Bush for dropping this in Obama's lap.

Edited by videoguy - 20/April/2010 at 11:40pm
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Post Options Post Options   Thanks (0) Thanks(0)   Quote citizen Quote  Post ReplyReply Direct Link To This Post Posted: 21/April/2010 at 8:48am
i can tell you from my own 'lying, cheating' personal experience that i 'convince' buyers to overpay for a home thru brute force. yep, smack them around and threaten them.
i would never allow them to see market sales statistics or compare homes on the market.
sometimes i 'convince' them buy two homes.
 
same for the lenders.
i remember a particularly satisfying incident w/Chase - they were being very stubborn re: a loan for my jobless client. hah!
i walked right in to their manhatten office w/my gun (think it was a shotgun this time), blew out a few windows, shattered his mahogeny desk, blew the kiddie photos right off the credenza. needless to say, chase approved the loan.
my motto? "You cannot blame capitalists for wanting to make money anyway they can."
 
vg, sure you don't want to re-think your post?
 
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Post Options Post Options   Thanks (0) Thanks(0)   Quote KPO'M Quote  Post ReplyReply Direct Link To This Post Posted: 21/April/2010 at 9:27am
I'm highly suspicious of the timing.  Just when the anything-but-reform bill goes before the Senate, the SEC presses charges against Goldman.  In the end, it doesn't matter whether Goldman actually committed fraud.  The key here is that there is that perception to help the bill along, even though nothing in the Dodd bill addresses what may have happened with Goldman.
 
Regarding the actual structure, it appears that a smart hedge fund manager actually saw what was coming and asked Goldman to structure a deal that would allow them to profit if the housing market tanked.  Because a lot of people were still betting the mortgage market would improve, they found some willing customers.  The key issue here in the actual fraud case is whether Goldman misled people about Paulson's investments.   There are two sides to any financial transaction.  Any time I purchase a stock, the seller assumes he can get a better return somewhere else, and I assume I can get a better return with the stock.  We can't both be right.  It's the same principle here.  If Paulson had lost $1 billion instead, I doubt very seriously there would have been any fraud lawsuits.
 
The same thing is at work with all these municipalities suing investment banks because they locked in what they thought were low rates of interest on their debt back from 2005-2007.  Since interest rates fell in 2008, the cities got burned, but that was their own decision.  Would they have volunteered to pay additional interest had rates gone up in 2008?
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Post Options Post Options   Thanks (0) Thanks(0)   Quote KPO'M Quote  Post ReplyReply Direct Link To This Post Posted: 21/April/2010 at 9:35am
It seems to me the only viable regulatory solution is to eliminate the "too big to fail" concept as well as the implicit government guarantee of the financial industry. 
 
Ideally, there isn't any deposit insurance, but since that is politically unfeasible, the best solution may be to "ring-fence" deposit-taking banking entities so that government-guaranteed deposits are used to fund only lower risk lending activities.  Maybe restoring the old Glass-Steagall act, which kept banks separate from investment banks is in order, but that isn't what is on the table.
 
Instead, Dodd's bill reinforces the concept of too-big-to-fail, going as far as creating a "down payment" on a bailout fund that designates certain "systemically important" institutions.  They can holler all they want that the bailout fund won't help shareholders, but the bottom line is that it will be easier for these "too big to fail" companies to borrow money than it would be for banks and financial companies not on that list because bondholders will know that the government will be there to foot the bill.  That's exactly what happened with Fannie and Freddie.  Sure, shareholders were wiped out, but bondholders weren't.  That's why they were always able to borrow at near-government rates.
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Post Options Post Options   Thanks (0) Thanks(0)   Quote KPO'M Quote  Post ReplyReply Direct Link To This Post Posted: 21/April/2010 at 9:41am
Here's an inconvenient truth about the Goldman case.
 
 
Apparently one of the top investors knew that Paulson was betting against the deal.  If that was the case with everyone else who was told about Paulson's involvement, then it would appear that there was no fraud.  Hedge funds speculate.  That's what they do.  Sometimes they are right, sometimes they are wrong.  In this case Paulson was right.  Hedge funds had nothing to do with the 2008 financial crisis.  They weren't the ones underwriting risky products with government-guaranteed deposits. 
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Originally posted by KPO'M KPO'M wrote:

I'm highly suspicious of the timing. Just when the anything-but-reform bill goes before the Senate, the SEC presses charges against Goldman. In the end, it doesn't matter whether Goldman actually committed fraud. The key here is that there is that perception to help the bill along, even though nothing in the Dodd bill addresses what may have happened with Goldman.

Regarding the actual structure, it appears that a smart hedge fund manager actually saw what was coming and asked Goldman to structure a deal that would allow them to profit if the housing market tanked. Because a lot of people were still betting the mortgage market would improve, they found some willing customers. The key issue here in the actual fraud case is whether Goldman misled people about Paulson's investments.   There are two sides to any financial transaction. Any time I purchase a stock, the seller assumes he can get a better return somewhere else, and I assume I can get a better return with the stock. We can't both be right. It's the same principle here. If Paulson had lost $1 billion instead, I doubt very seriously there would have been any fraud lawsuits.

The same thing is at work with all these municipalities suing investment banks because they locked in what they thought were low rates of interest on their debt back from 2005-2007. Since interest rates fell in 2008, the cities got burned, but that was their own decision. Would they have volunteered to pay additional interest had rates gone up in 2008?


This, coupled with VG's analysis above, overlooks the underlying motive and cause of the catastro-clusterfuck that happened.

It's not THAT a smart hedge fund manager saw it coming, it's that that same hedge fund manager actually created the conditions that ASSURED it's arrival. It's that the insane profits wrung from the scam were/are extracted outside of the underpinning values. It's that the scam was replicated across the investment spectrum and gave a license to steal. It was fraud and collusion on a massive scale, and spread like wildfire, but it absolutely HAD A SOURCE.

KP, your stock analogy is just flat wrong. You CAN not only both be right, it is the foundation of our stock market that you both WILL be right. If the seller has realized his target gain, or has reached the limit of his acceptable loss, or was attracted to a shinier stock because he watched Mad Money, or is betting that NOW is the optimum time for him to sell, he initiates the liquidation. You arrive and based on your research and portfolio, or reading tea leaves, find that his offering makes sense for your investment strategy.

What is at issue in this meltdown is that identifiable persons actively sold inferior Rolix watches as ROLEX brand, AT RETAIL PRICE, to fund managers based on the warranty that the pieces of s**t were the real McCoy. This was so wildly successful that it was replicated until the knock-offs took over the investment landscape. Those who knew, or should have known, failed to blow the whistle because they were making money. As long as the product simply changed hands with profit extracted at each exchange and didn't have to actually "tell time", everything was peachy. Once the knock-offs were exposed, and the extent of the saturation was suspected, everything went into panic mode. Nobody wanted to be left holding a Rolix and those holding actual an Rolex weren't completely sure of its authenticity or its fair market value. The ripple effects and aftershocks were devastating.

What is at issue is the profit extracted with EVERY transaction. Because it's in the $$$Trillions$$$, passing through so many hands,
it's deemed hopeless to detangle or recoup. Finders keepers; losers weepers?

"It is a wreave belief that we already are in Hell."- Tuluk in Frank Herbert's "Whipping Star"
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Post Options Post Options   Thanks (0) Thanks(0)   Quote KPO'M Quote  Post ReplyReply Direct Link To This Post Posted: 21/April/2010 at 11:04am
1 hedge fund manager who saw that the mortgage market was headed toward a crash didn't cause the crash.  The banks who lent to anyone, the GSEs who bought the banks' loans, the borrowers who bought more house than they could afford, and the rating agencies who said all this was AAA caused the crisis.  This hedge fund saw that there was a bubble and decided to take advantage of it by shorting.  Lots of hedge funds incorrectly forecast bubbles and lost money in the past.  We only hear about this one because they were right.  Remember, you can only short sell something that someone else is willing to buy.
 
It was a hedge fund that saw that Enron's stock was overvalued and started asking questions back in 1999 and 2000.  It was a fellow speculator who uncovered Madoff's fraud. 
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Post Options Post Options   Thanks (0) Thanks(0)   Quote watcher Quote  Post ReplyReply Direct Link To This Post Posted: 21/April/2010 at 11:28am
Originally posted by KPO'M KPO'M wrote:

1 hedge fund manager who saw that the mortgage market was headed toward a crash didn't cause the crash.  The banks who lent to anyone, the GSEs who bought the banks' loans, the borrowers who bought more house than they could afford, and the rating agencies who said all this was AAA caused the crisis.  This hedge fund saw that there was a bubble and decided to take advantage of it by shorting.  Lots of hedge funds incorrectly forecast bubbles and lost money in the past.  We only hear about this one because they were right.  Remember, you can only short sell something that someone else is willing to buy.
 

It was a hedge fund that saw that Enron's stock was overvalued and started asking questions back in 1999 and 2000.  It was a fellow speculator who uncovered Madoff's fraud. 


Don't over-complicate matters. The Captian and Crew of the Airplane Game put in their money KNOWING they couldn't lose. Once the game got rolling, they also KNEW that the bottom would fall out so they arranged to bet against it. Because it was done under trusted investment brand names and because profit was extracted from every orifice, every step of the way, the line of suckers wise investors grew exponentially. Whose funds were at risk?

That the scam became a juggernaut and effectively REPLACED the industry's standards doesn't alter the SOURCE. That the scam took on a life of its own and kept going eventually fooled even those who KNEW it was a scam into believing that there was still money to be made. Since it was house-money... KEEP IT GOING!

Even at this point, the game continues as the money "created" via the scam is laundered through what remains of the legitimate markets manipulating rises and falls that can likewise be created, fostered, profited from and bet against. Right now is the ultimate faith-based initiative.

It's still unclear how many were killed/injured in the plane-wreck because people are still getting on the plane.

"It is a wreave belief that we already are in Hell."- Tuluk in Frank Herbert's "Whipping Star"
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Post Options Post Options   Thanks (0) Thanks(0)   Quote KPO'M Quote  Post ReplyReply Direct Link To This Post Posted: 21/April/2010 at 2:18pm
Watcher, if they knew the bottom was going to fall out, then why didn't the investment banks setting up the deals?  They would have been far better off not underwriting them rather than taking the losses.  You can take your communist conspiracy theories home and talk about them with your friend Tony at Adams and Thomas.
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Post Options Post Options   Thanks (0) Thanks(0)   Quote KPO'M Quote  Post ReplyReply Direct Link To This Post Posted: 21/April/2010 at 2:28pm
Here is a more complete analysis of the SEC's case (or lack thereof) against Goldman.
 
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Post Options Post Options   Thanks (0) Thanks(0)   Quote videoguy Quote  Post ReplyReply Direct Link To This Post Posted: 21/April/2010 at 8:31pm
Originally posted by KPO'M KPO'M wrote:

You can take your communist conspiracy theories home and talk about them with your friend Tony at Adams and Thomas.


Is that the guy with the red van and "Impeach Bush" all over it?   
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Post Options Post Options   Thanks (0) Thanks(0)   Quote videoguy Quote  Post ReplyReply Direct Link To This Post Posted: 21/April/2010 at 8:38pm
Originally posted by watcher watcher wrote:


It's not THAT a smart hedge fund manager saw it coming, it's that that same hedge fund manager actually created the conditions that ASSURED it's arrival.


Wrong. If Tourare misled investors because he said that the debt was good when it wasnt, and then bet against the fund because they knew the debt was no good, then there might be a case, against Tourare and others like him. But that does not mean that Goldman as a business entity actively engaged in this kind of thing. They have thousands of employees.

BUT, your assertion that this fund, if it was playing both sides, somehow caused the housing bubble and collapse, that is ignorant. Where was the worst fallout from the bubble? In the over built markets of Florida, Nevada, Arizona, California. Overbuilding, coupled with fraud on the local level, caused this. The investment banks traded in bond funds based on thousands of mortgages. IF the underlying mortgages had been based on sound valuations and borrowers with good credit, we wouldnt have this problem.
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Post Options Post Options   Thanks (0) Thanks(0)   Quote watcher Quote  Post ReplyReply Direct Link To This Post Posted: 22/April/2010 at 8:04am
Originally posted by videoguy videoguy wrote:

Originally posted by watcher watcher wrote:


It's not THAT a smart hedge fund manager saw it coming, it's that that same hedge fund manager actually created the conditions that ASSURED it's arrival.


Wrong. If Tourare misled investors because he said that the debt was good when it wasnt, and then bet against the fund because they knew the debt was no good, then there might be a case, against Tourare and others like him. But that does not mean that Goldman as a business entity actively engaged in this kind of thing. They have thousands of employees.

BUT, your assertion that this fund, if it was playing both sides, somehow caused the housing bubble and collapse, that is ignorant. Where was the worst fallout from the bubble? In the over built markets of Florida, Nevada, Arizona, California. Overbuilding, coupled with fraud on the local level, caused this. The investment banks traded in bond funds based on thousands of mortgages. IF the underlying mortgages had been based on sound valuations and borrowers with good credit, we wouldnt have this problem.


Wait, let me guess, steroids aren't a problem in sports and players should be allowed to bet against their own team.

And the FDA should not regulate food or drugs. The industry and its investors should determine how much rat feces is safe for consumption. In essence, that's what transpired in financial markets.

How did this fiasco manage to eclipse the 80s S&L scandal? Following pretty much the same template? What was the purpose of the exercise? Specifically, what did the scam target? How did it succeed?








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Watcher, consider that as the number of food regulations has increased, so have obesity rates.  The fact is that the high grain, low fat diets that the government recommends are about the worst possible diet conceivable.  If we just kept on eating beef and eggs, cut out the potatoes and bread, and stuck with lard and butter instead of frankenfats more suitable for candle manufacturing than human consumption, we'd be a lot healther.  But that's a different topic.

What transpired in financial markets is that there were government guarantees of financial assets, both implicit and explicit.  Financial institutions would not have gotten as large or interconnected as they did if they didn't have that guarantee.  Their borrowing costs would have skyrocketed.  The politicians' suggestions are to try to craft "smarter" regulations.  The real solution is to end the government guarantee.  Barring that, make the government guarantee so undesirable that no one wants it. 
 
In a proper functioning capital market, there are bets made either way.  Take the simple forward contract as an example.  A farmer may want to lock in selling prices today for his expected harvest in October.  He's willing to forgo potential increases in selling prices (e.g. if there is a shortage) for protection against falling prices (e.g. if there winds up being a surplus).  How do you propose that he obtain such protection if there is no one willing to make the opposite bet?
 
 
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Post Options Post Options   Thanks (0) Thanks(0)   Quote watcher Quote  Post ReplyReply Direct Link To This Post Posted: 22/April/2010 at 10:19am
Originally posted by KPO'M KPO'M wrote:

Watcher, consider that as the number of food regulations has increased, so have obesity rates.  The fact is that the high grain, low fat diets that the government recommends are about the worst possible diet conceivable.  If we just kept on eating beef and eggs, cut out the potatoes and bread, and stuck with lard and butter instead of frankenfats more suitable for candle manufacturing than human consumption, we'd be a lot healther.  But that's a different topic.

What transpired in financial markets is that there were government guarantees of financial assets, both implicit and explicit.  Financial institutions would not have gotten as large or interconnected as they did if they didn't have that guarantee.  Their borrowing costs would have skyrocketed.  The politicians' suggestions are to try to craft "smarter" regulations.  The real solution is to end the government guarantee.  Barring that, make the government guarantee so undesirable that no one wants it. 

In a proper functioning capital market, there are bets made either way.  Take the simple forward contract as an example.  A farmer may want to lock in selling prices today for his expected harvest in October.  He's willing to forgo potential increases in selling prices (e.g. if there is a shortage) for protection against falling prices (e.g. if there winds up being a surplus).  How do you propose that he obtain such protection if there is no one willing to make the opposite bet?


I would tend to agree, given NORMAL conditions, it's too bad conditions are anything but normal. Far more contributory to the general bloat of populations is the overall decline of activity. In a word, TELEVISION.
More specifically, television's conditioning of a pliant, docile herd.
And yes, that's a different topic, but it does contribute to the naive acceptance by the herd of simplistic "explanations" and defuses actual thought or analysis.

Your plausations always touch the edges, but never make it to the meet.
This is the NEW place where we are presently trying to apply conventional thinking. A place where related activities flux into whole new compounds that circumvent the proper functioning of markets.

Like your frankenfats, our financial engineers have been/are dabbling in the dark arts. So I will ask again. What was the target of the bundled securities scam? Why did it move seamlessly into mainstream financial markets without triggering alarms?

"It is a wreave belief that we already are in Hell."- Tuluk in Frank Herbert's "Whipping Star"
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Post Options Post Options   Thanks (0) Thanks(0)   Quote KPO'M Quote  Post ReplyReply Direct Link To This Post Posted: 22/April/2010 at 1:52pm
I don't really think the specific bundled securities transaction in question was a "scam."  At least, I haven't seen enough evidence to convince me it is. 
 
As for bundled loans, the practice was originally a form of spreading risk around.  Back in the days, the regulators thought that if risks were spread around, things would be safer.  So what they did was encourage banks small and large to sell to Fannie and Freddie.  Since those two companies couldn't hold all the loans themselves, they packaged them up and sold them in bundles on financial markets.  In the end, it achieved its desired purpose of spreading the risk of mortgage loans from the S&Ls to the entire financial system.
 
Now, ironically, these same regulators point to the "systemic risk" created by spreading all this risk around and are trying to put the genie back in the bottle.  Whatever they come up with is bound to be a mess.  Like it or not, the system needed the shock of the financial crisis.  So much risk was spread around that it was hard to tell just how much risk any one party really had.  As it turns out, AIG, Lehman, Fannie and Freddie had most of it, as did Bear Stearns, Citi, Merrill Lynch and a few others who managed to get less disastrous rescues.


Edited by KPO'M - 22/April/2010 at 1:52pm
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