Continuing Wall Street Control of DOJ

"The Justice Department on Thursday announced the arrests of nearly 500 people in what it billed as a nationwide 'takedown' of mortgage scams, many of them directed at homeowners in financial distress. ... Federal officials said they have identified losses of $2.3 billion stemming from hundreds of mortgage-fraud cases. High-profile convictions of Wall Street investment bankers have eluded authorities. On Thursday, Attorney General Eric Holder tried to showcase smaller cases. 'If you want to gauge the efficacy of this task force, you can't focus on simply what has happened with regards to the large institutions on Wall Street,' he said', my emphasis, Thomas Catan at the WSJ, 18 June 2010, link:

http://online.wsj.com/article/SB10001424052748704289504575312691317663972.html.

"It involves 1,215 criminal defendants in cases that uncovered more than $2.3 billion in losses. ... Hundreds of FBI agenst are working on the task forces with other law enforcement agencies to combat a type of crime that poses 'a risk to our economic stability' as a nation, FBI Director Rovert Mueller said at the news conference", Pete Yost at the Houston Chronicle, 18 June 2010, link:

http://www.chron.com/disp/story.mpl/business/7059319.html.

"Since taking office at the height of the financial crisis, President Barack Obama has promised to hold Wall Street accountabel for the meltdown. Attorney General Eric Holder reinforced that message in November when he vowed to prosecute Wall Street executives and others responsible for the crisis. ... His [DOJ] took steps to fulfill that promise this week when it arrested the ex-chairman of one of the nation's biggest mortgage firms--the largest crisis-related criminal case--and announced 1,215 people have been charged with mortgage fraud since March 1. But that success masks difficulties in the highest-profile probes: those of Wall Street banks. ... And law enforcement sources say no such charges are imminent. ... Justice officials say Holder did not over-promise and that the task force is targeting all financial fraud, not just on Wall Street. ... The shortage of Wall Street prosecutuions is not for lack of effort. ... But investigators are encountering obstacles in what they call their top-priority cases, which souces saud include probes of JP Morgan Chase, Citigroup, Deutsche Bank, UBS, Goldman Sachs, Morgan Stanley and the former Lehman Brothers", Jerry Markon at the Houston Chronicle, 18 June 2010, link: http://www.chron.com/disp/story.mpl/business/7059317.html.

More DOJ guerilla theater. Why not Eric? When I see Lloyd Antoinette Blankfein sentenced to 30 years for securities fraud, I might consider the DOJ is fighting securities fraud. Maybe. Let's apply my "Blankfein Test" and see if I would have bothered with the 1,215 arrests in question. $2.3 billion / 1,215 = $1.9 million a person. I would have selected some of them and ignored the rest. As they total $2.3 billion, I consider pursuing them in the aggregate, a waste of DOJ resources.

Quoted without comment.

Will Alan Greenspan and the other Fed Heads get indicted? What going on? The DOJ pursues these peanuts to turn firms like Vampire Squid into victims! Did any of these 1,215 peanuts get TARP money? Nonsense. I think the DOJ is running around in circles trying to figure out which peanuts working for these "top-priority" firms are safe targets.

Fed Newspeak

"The Federal Reserve Bank of New York [FRBNY] has come under pressure from Fed officials in Washington to improve the performance of its supervisors overseeing the nation's biggest banks, new documents show. ... 'Our review found some examples where supervisory products were not fully completed, and supervisory processes were not fully performed,' the review said, adding it also found 'that supervisory ratings were not always updated on an ongoing basis to reflect the evolving risk profile and financial condition of the organization.' ... As the Fed has emphasized, we need to learn lessons from the crisis. We recognized that improvements can and should be made. ... Despite the criticisms, Washington officials were also sympathetic to the [FRBNY], lauding it for the 'exceptional work' in responding to the financial crisis 'in an extraordiarily challenging and stressful environment.' ... The government's efforts to stem the crisis 'were, in the end, fundamentally inadequate,' Mr. Geithner said. ... Like Mr. Geithner, Mr. Paulson cited 'huge gaping holes in the regulator system' that made it difficult for regulators to address the financial crisis", Jon Hilsenrath & Fawn Johnson at the WSJ, 7 May 2010, link:

http://online.wsj.com/article/SB10001424052748704370704575228010828622910.html.

Wasn't Timmy Boy at the FRBNY a few years ago? Why believe he knows any more now than he did then? What would have been an adequate response? Giving the FRBNY the right to control monetary policy and print dollars?

The WSJ's Got It!

"The [SEC's] complaint against Goldman Sachs is playing in the media as the Rosetta Stone that finally exposes the Wall Street perfidy and double-dealing behind the financial crisis. Our reaction is different: Is that all there is? ... Far from being the smoking gun of the financial crisis, this case looks more like a water pistol. ... Regarding the second point, the offering documents for the 2007 CDO made no claim that we can find that Mr. Paulson's firm was betting alongside ACA. ... More fundamentally, the investment at issue did not hold mortgages, or even mortgage-backed securities. ... Perhaps the SEC's enforcement division doesn't understand the difference between a cash CDO--which contains slices of mortgage-backed securities--and a synthetic CDO containing bets against these securities. ... Did Goldman have an obligation to tell everyone that Mr. Paulson was the one shorting subprime? ... Mr. Paulson bet against German bank IKB and America's ACA, neither of which fell off a turnip truck at the corner of Wall and Broad Streets. ... By the way, Goldman was also one of the losers here. Although the firm received a $15 million fee for putting the deal together, Goldman says it ended up losing $90 million on the transaction itself, because it ultimately decided to bet alongside ACA and IKB. ... Which leads us to the real impact of this case, which is political. The SEC charges conveniently arrive on the brink of the Senate debate over financial reform, and its supporters are already using the case to grease the bill's passage", my emphasis, WSJ Editorial, 19 April 2010, link:

http://online.wsj.com/article/SB10001424052702303491304575188352960427106.html.

Yes, convenient. Coincidence? We don't think so. Why did the SEC choose this case? See my 5 May 2010 post: http://skepticaltexascpa.blogspot.com/2010/04/vampire-squidking-canute-of_25.html. That the case is weak is a Yves Smithian "feature. not bug". Vampire Squid's losing money on this deal means nothing to me, except possibly that was one of the SEC's considerations in selecting this deal for "enforcement"

Khuzami and and CDOs

"[SEC] enforcement chief Robert Khuzami oversaw a group of lawyers at his old firm, Deutsche Bank AG [DB], that was closely involved in developing collateralized debt obligations, the same product in the agency's fraud lawsuit against Goldman Sachs Group In., according to people familiar with the matter. ... As part of that job he worked with lawyers who advised on the CDOs issued by the German bank and how details about them should be disclosed to investors. ... Liek Goldman, [DB] has faced allegations of inadequate control over its creation of CDOs. It isn't clear if Mr. Khuzami personally reviewed any sturctured-finance deal documents in his role at the bank, and outside law firms were also involved in CDO work. ... Because of Mr. Khuzami's old job and his financial interest in the company, he has recused himself from any matters related to [DB], according to an SEC spokesman. ... SEC officials say Mr. Khuzami's resume is a nonissue, adding thjat the agency will go after illegal conduct wherever it occurs. ... Mr. Khuzami has vowed to pursue wrongdoing against Wall Street firms in high-profile areas such as subprime mortgages and CDOs. ... Mr. Khuzami is the first SEC enforcement director in recent history to come directly from an investment bank. ... Some securities lawyers say Mr. Khuzami's high-level position at [DB] could have given him insight into structured-finance products, an area where the SEC has been criticized for a shortage of expertise", Aaron Lucchetti & Kara Scannell at the WSJ, 24 April 2010, link: http://online.wsj.com/article/SB10001424052748704388304575202562283283500.html.

Khuzami's appointment did nothing for me. It still doesn'. See my 20 February 2009 post:

http://skepticaltexascpa.blogspot.com/2009/02/sec-at-large.html.

The Vampire Squid's Serfs

"Mike Mayo is a veteran of six Wall Street [WS] banks. In the wake of the street's disaster, he found refuge at a boutique brokerage and has lately taken to startling his peers with the question 'What part of Goldman Sachs is good for the country?' Regular people will be tempted to answer, 'None of it,' but the question reminds us that, at least in theory, [WS] serves society (not the other way around). And as opposed to Harrah's, Trump Casino and their ilk, [WS] is endorsed and regulated--with marked restraint--so as to let it perform an important task. Because some people have savings and others need capital, some unifying force must bring the two together. ... [WS] privatized this function, aggregating the savings of disparate individuals through the sale of stocks and bonds. ... These instruments, in the main, did not involve selling bonds so that a DuPont could build new factories; they were rearrangements--new permutations, new alignments of risk--on flows of cash that already existed. ... The point of these and many other new financial instruments was to charge a hefty fee and to furiously trade them, and no one was in a bettter position to do that than their [WS] creators. If trading was, for society, a zero-sum game (someone wins, someone loses), it was, for the street, a gold mine. ... For much of [WS], capital-raising is now a sideshow", Roger Lowenstein at the NYT, 21 March 2010, link: http://www.nytimes.com/2010/03/21/magazine/21FOB-WWLN-t.html.

Decades ago WS performed a useful service as a "dating service" for capitalists. Now by and large, it's just a big fee-generating paper shuffle.

The SEC's Vampire Squid Action, In Context

"Goldman Sachs Group Inc. [GSG] Chief Executive Lloyd C. Blankfein said the firestorm over civil-fraud charges leveled by the [SEC] is 'certainly uncomfortable,' but urged employees to remain focused. ... 'Following my message to you on Friday, I wanted to update all of you and let you know that we have been taking all appropriate steps to defend the firm and its reputation. ... Still, it is important to put the SEC's action in context. The core of the SEC's case is the allegation that one employee misled two professional investors by failing to disclose the role of another market participant in a transaction. ... I will repeat what you have heard me say many times in the past: [GSG] has never condoned and would never condone inappropriate activity by any of our people. On the contrary, we would be the first to condemn it and take immediate action. ... As you return to work on Monday morning, I ask that you maintain the level of focus on our clients that is at the heart of [GSG's] success over the past 140 years'," Joe Bel Bruno at the WSJ, 20 April 2010, link: http://online.wsj.com/article/SB10001424052748704671904575194111583096750.html.

"The biggest bummer to arise from the allegations that the revered and feared Wall Street puppet master [GSG] had played us all for patsies is this: the dial on the Wall Street capital-formation machine, the engine that was supposed to be the driving force of the greatest economic system on earth, was purposely set to junk--worthless, synthetic junk. ... JPMOrgan Chase played procurer for Magnetar, a hedge fund so artful in profiting from the meltdown that Northwestern's Kellogg School of Management praised it last year in a case study. ... In the end, it was in fact all one big scam predicated on rising housing prices. Certainly, greedy consumers played a minor role in feeding the fenzy. But the Street made sure that those of us who are not members of its elite club remained the suckers. ... One the surface, these deals look complicated. They are. ... Only now, in the wake of the SEC suit against Goldman, are investors beginning to suspect they were hoodwinked. ... A synthetic CDO is at its core a trade, meaning it has a long and short position, and grownup investors are free to take sides. ... The reality is that Wall Street's CDO synthesizer set on of the economy's largest sectors off in the direction of creating nothing but waste--pure economic waste. ... These CDOs were the last stop in a vast transfer of wealth from a large group of American mortgage holders to a much small group of already rich traders who profted as the CDOs failed. ... By picking a fight with [GSG]--the 'great white whale' of Wall Street, as Eliot Spitzer put it on Monday--the SEC is signaling that it has now adopted a feistier approach. ... In a sense, [GSG] is relying on the so-called big-boy defense: There are no victims on Wall Street, just fools. ... Beyond any legal issues, the [GSG] case has become the battering ram for financial-reform legislation that congressional Democrats have been looking for", my emphasis, Stephen Gandel at Time, 3 May 2010, link: http://www.time.com/time/business/article/0,8599,1983747,00.html.

The only "inappropriate" act at Vampire Squid (VS) is losing money. What's going on here? Did Lloyd Antoinette Blankfein (LAB) write this memo for VS's employees, or the American public? The SEC's case fails to impress me. Fab Touree, looks like VS's "sacrificial lamb", shades of Joe Jett of 1994's Kidder Peabody. While LAB weeps crockodile tears for VS, I think the case was a setup to push the Dodd bill through. I can see LAB telling Touree, "Look boy, take this one for the team. We'll take care of you. There's $100 million for you in Switzerland. Chill out".

Not the "last stop". That's Zimbabwe Ben's interest-rate suppression policy. The SEC did not pick a fight with VS. It got permission to appear to annoy the VS. Why did tthe SEC bother with this insignificant case instead of the AIG fiasco? VS wants the Dodd bill passed and is using this case to derail legislation that might hurt it.

Houston's Loren Steffy called the SEC's action "A slap on the tentables for the vampire squid", Houston Chronicle, 17 April 2010, link: http://blogs.chron.com/lorensteffy/2010/04/a_slap_on_the_t.html. Well said .

Vampire Squid in the Briar Patch

"Goldman Sachs Group Inc. [GSG]--one of the few Wall Street titans to to thrive during the financial crisis--was charged with deceiving clients by selling them mortgage securities secretly designed by a hedge-fund firm run by John Paulson, who made a killing betting on the housing market's collapse. ... 'The SEC's charges are completely unfounded in law and fact,' said Goldman in a statement, promising to 'contest them and defend the firm and its reputation.' ... Goldman's shares fell 13%, one of the steepest slides since the firm went public in 1999, erasing some $12 billion of market capitalization. ... Regulators say Goldman allowed Mr. Paulson's firm, Paulson & Co., to help design a financial investment known as a CDO, or collateralized debt obligation, built out of a specific set of risky mortgage assets--essentially setting up the CDO for failure. ... 'The product was new and complex, but the deception and conflicts are old and simple,' said Robert Khuzami, the SEC's enforcement chief. ... The SEC said Mr. Tourre was 'principally responsible' for piecing together the bonds and touting them to investors. ... But he was hardly alone, the SEC alleges: The deals, were signed off by senior Goldman executives, though the SEC didn't specify how high up it believes the knowledge extended. ... Goldman has vehemently denied putting its own interests ahead of its clients.'," Gregory Zuckerman, Susanne Craig and Serena NG at the WSJ, 17 April 2010, link: http://online.wsj.com/article/SB10001424052702303491304575187920845670844.html.

I put no stock in this suit, concluding the SEC and Vampire Squid (VS) needed some headlines to make it appear "the cop is back on the beat" and help pass Dodd's toothless "reform" bill. So the SEC brought this suit with VS playing Brer Rabbit not wanting to be thrown in the briar patch.

Frightening! On 30 April 2010, while editing I came across a post by Junior at Junior Deputy Accountant:

http://www.jrdeputyaccountant.com/2010/04/goldman-sachs-gets-thrown-in-briar.html. Go Junior! Your father is proud.

SEC, Investors Friend, Fiend?-4

"The [SEC] joined 12 Wall Street firms in seeking to scrap a key portion of a landmark 2003 deal that put strict curbs on stock analysts, a move that could heighten the ongoing debate about a broad overhaul of the financial-regulatory system. ... The proposal would have allowed employees in investment-banking and research departments at Wall Street firms to 'communicate with each other ... "outside the presence" of lawyers or compliance-department officials resposible for policing employee conduct--an activity strictly prohibited by the settlement'. ... After the bust, it was revealed that many of those analysts were touting stocks at the behest of their firms' investment-banking operations, which were profiting from initial public offerings. One solution to the conflict of interest was separating the analysts from the investment-banking operations. ... SEC spokesman John Nester said the agency believes there are other restrictions in place, such as keeping bankers physically separate and prohibiting bankers from influencing analyst coverage decisions. In a letter requesting the change, the SEC and the banks had stated 'it is appropriate to eliminate' certain provisions because the conduct is now covered by new rules and regulations. Securities firms covered by the settlement, including Goldman Sachs Group Inc., Morgan Stanley and the Merrill Lynch unit of Bank of America Corp., declined to comment. ... The SEC is at the heart of the battle because of its mistakes during the crisis. ... Also yesterday, the head of enforcement at the Financial Industry Regulatory Authority, Wall Street's self-regulatory boy, resigned. Like the SEC, Finra has been criticized for failing to detect abuses that led to the crisis and didn't uncover the Ponzi scheme run by Bernard Madoff. ... The settlement allows the firms and the SEC to seek a judge's approval to change the agreement under certain circumstances. ... In a letter to the judge, Lewis J. Liman, a lawyer representing the securities firms, said the Chinese wall is no longer needed because of securities regulations enforced by Finra. The securities firms and SEC 'believe that these rules adequately address the concern intended to be addressed' in the original settlement, Mr. Liman wrote", my emphasis, Susanne Craig & Kara Scannell at the WSJ, 18 March 2010, link:

http://online.wsj.com/article/SB10001424052748704743404575128122174622274.html.

Did the SEC join the 12 firms, or did it take orders? Investment-banking and retail brokerage should be severed. The settlement did not do that, so had no effect in my opinion. Enforced by Finra? Hahahahaha would the Mogambo Guru say. Physically separate? Did Nester ever hear of a telephone? Or the internet? You who take the SEC's case against Vampire Squid seriously, please read this.

A Greek Specialist

"The architect of Goldman Sachs Group Inc.'s controversial 2001 trade with the Greek government is a top executive in the bank's London office with a yen for yoga and a command of Greek. Colleagues say 46-year-old Antigone Loudiadis [AL], who has a given name from classical mythology but goes by the nickname 'Addy,' was the woman behind the deal. ... Undertaken privately, it helped mask Greece's true indebtedness until recently, when the country's finances fell under deep scrutiny by public markets, critics say. ... For Goldman, the trade generated fees of as much as $300 million, according to the people familar with the matter--a windfall that left traders in the firm's London office marveling at [AL's] deal-making prowess. ... [AL] became a Goldman partner in 2000. A cerebral Oxford University graduate, she was eventually named co-head of the company's investment-banking group in Europe, making as much as $12 million in annual compensation, according to someone familar with the matter. She lives in an exclusive neighborhood in West London known for its white stucco homes. ... Educated at the Cheltenham Ladies College, an exclusive private girls' school outside London, [AL] came to Goldman from JP Morgan in 1994. ... By 2001, when those rates had become unattractive, [AL] helped Greece structure a different trade that enabled the government to continue using advantageous rates for accounting purposes", my emphasis, Kate Kelly, Cassell Bryan-Low and Dana Cimilluca at the WSJ, 22 February 2010, link:

http://online.wsj.com/article/SB10001424052748703791504575079743591308292.html.

Yen for yoga? Is AL Andropov who liked Scotch? Command of Greek? How many dollars an hour does AL get for Greek? Investors can rein in the Vampire Squid. Stop doing business with it. This is a zero-sum game. Who paid the $300 million? Where were the CPAs and analysts while this sham went on? There should not be structured trades to enable a "government to [use] advantageous rates to accounting purposes". AL and her CPA and attorney enablers should all be in prison for securities fraud.

Pravda Gets It!

"But unlike the perpetrators of the Watergate scandal, who wound up looking at jail time, Geithner evidently has a golden parachute waiting at Goldman Sachs [GS], not coincidentally the largest recipient of the AIG bailout. ... Hank Paulson, Geithner's predecessor, was CEO of [GS] before coming to the Treasury. Geithner, who has come up through the ranks of government, could be walking through the revolving door in the other direction. ... Critics are calling the New York Fed's [FRBNY] decision a back-door bailout for the banks, which received 100 cents on the dollar for contract that would have been worth far less had AIG been put through bankruptcy proceedings in the normal way. ... The [FRBNY] is a quasi-governmental institution that isn't subject to citizen intrusions such as freedom of information requests, unlike the [Fed]. This impenetrability comes in handy since the bank is the preferred vehicle for many of the Fed's bailout progrqams. It's as though the [FRBNY] was a black-ops outfit for nation's central bank. ... Eevn after the GM autoworkers, bondholders and vendors all received a government-enforced haircut on their contracts, [Geithner] still had the audacity to claim the 'sanctity of contracts' in the dealings with these companies like AIG. ... The contention that the Fed had no choice is also belied by a recent holding in the Lehman Brothers bankruptcy, in which New York Bankruptcy Judge James Peck set aside the same type of onvestment contracts that Secretaries Paulson and Geithner repeatedly swore under oath had to be paid in full in the case of AIG", my emphasis, Ellen Brown (EB) at Pravda, 8 February 2010, link: http://english.pravda.ru/business/finance/112085-aig_gate-0.

EB is a Los Angeles attorney. Why is this in Pravda? Is the American press afraid of the Vampire Squid (VS)? I disagree with one thing EB wrote. Timmy Boy will not leave Treasury for a VS position, but more likely BlackRock or Pimco. Timmy's joining VS would be too obvious.

Goldman's Schtarkes-5

"A former Goldman Sachs [GS] computer programmer was indicted on charges he stole computer codes used for proprietary high-frequency trading programs. ... Prosecutors from the [SDNY] US Attorney's office alleged that [Sergey] Aleynikov, on his last day at [GS] transferred substantial portions of [GS's] proprietary computer code for its high-frequency trading platform to an outside computer server in Germany. ... The firm maintained strict confidentiality agreements that required Goldman employees to sign away the rights to 'any invention, discoveries, concepts, ideas or information' developed while on the firm's payroll, according to the indictment", Chad Bray and Jacob Bunge at the WSJ, 12 February 2010, link: http://online.wsj.com/article/SB10001424052748703382904575059660427173510.html.

"A former [GS] computer programmer pleaded not guilty to charges that he stole computer codes used in the firm's high-frequency trading program. ... The case is set for trial beginning Nov. 29. ... At the plea hearing Assistant US Attorney Joseph Facciponti said a preliminary search didn't find any of Goldman's code on Teza's computers", Chad Bray at the WSJ, 18 February 2010 link: http://online.wsj.com/article/SB10001424052748703444804575071453563822806.html.

Why is the SDNY US Attorney's office enforcing a Vampire Squid (VS) contract? Why ask, it's the VS after all. Why is the "non-compete" important to the SDNY US Attorney's office? What element of which count in the indictment does it fulfill?

Go Aleynikov!

Junior at Jr. Deputy Accountant has a related 12 February 2010 post: http://www.jrdeputyaccountant.com/2010/02/goldman-rats-go-after-hft-program-thief.html.

Pravda on Vampire Squid

"I am a capitalist pig, and proud of it, thus you would not expect me to support government interference and more strenuous regulation of financial institutions--after all, capitalism (free markets) and tight regulation don't mix well. Well, at the risk of being kicked out of the Capitalist Pig Party, I am in support of tighter regulation of too-big-to-fail (TBTF) institutions--the likes of Citigroup, JPMorgan, Bank of America and (God forbid, after all, they are doing 'God's work' their CEO's words, not mine) Goldman Sachs. Lack of tight regulation in the TBTF space leads to the worst economic system of all: asymmetric socialism. The enormous gains are reaped by employees and shareholders, but losses are socialized and paid by taxpayers. That is simply immoral. Letting companies fail is at the core of capitalism's DNA, and I still stand by that", Vitaliy Katsenelson at Pravda, 30 January 2010, link:

http://english.pravda.ru/opinion/columnists/111922-capitalism-0.

More right-wing opinion from Pravda. Who would have believed this 20 years ago?

Bust 'em UP!

"But this year's bonus season has morphed into days of whine and poses. The Street, tin-eared, in whining about the people who are enraged by multibillion-dollar bonus pools are a time of 10% unemployment and public angst. It's trying to solve its problem by posing as a public-spirited operation (rather than Greedhead Central) by showing off charitable contributions and small-business-loan programs. That maneuver can't possibly work. ... Had the [Fed] and other central bankers not flooded the world with cheap cash, Goldman's and Morgan's counterparties--the ones on the other side of their market bets--would have failed. ... In an ideal world, this year the Street would acknowledge the public largesse by having the sense not to pay bonuses of more than six digits--hey, its worker bees need money in order to survive in the high-cost New York City area--and would like to make a nice voluntary contribution to the government that saved it. ... Washington ... whines about Wall Street and adopts symbolic poses--denunciations of 'obscene' bonuses and 'fat-cat bankers' by President Obama, for example--but doesn't do the substantive thing: breaking up those institutions so that they're not too big to be allowed to fail", Allan Sloan (AS) at Fortune, 8 February 2010.

I agree with AS and have advocated breaking up the TBTFs for years.

Ken Lewis-Scapegoat-2

"The bank bailouts of the last two years have been 'about as popular as a root canal,' as President Obama noted in his State of the Union address. ... So it was probably inevitable that New York Attorney General Andrew Cuomo would file civil fraud charges against Bank of America, its former CEO Ken Lewis, and its former CFO Joe Price, as he did this week. Everyone assumes Mr. Cuomo is running for governor this year, and BofA is conveniently based in Charlotte, not Wall Street. .... The Martin Act is a prosecutorial bludgeon that forces most defendants to settle out of court rather than risk being convicted merely for having been wrong on some facts. ... When Mr. Lewis told Treasury Secretary Hank Paulson and [Fed] Chairman Ben Bernanke that he was considering invoking this clause and scotching the deal, they insisted he buy the faltering trading house and later announced an additional taxpayer investment in BofA to allow the bank to digest Merrill. Mr. Lewis swallowed hard and went ahead with the merger. Mr. Cuomo says this was all a bluff by Mr. Lewis in order to trick the regulators into providing more TARP money. Never mind that Mr. Lewis had a contractual right to pull out of the deal if he felt material facts had changed. ... Mr. Cuomo's logic boils down to this: Mr. Lewis is guilty for not telling his shareholders about rising losses at Merrill, but he's also guilty for trying to protect his shareholders from the rising losses at Merrill. ... On the public evidence so far, Mr. Cuomo should be thanking Mr. Lewis, not suing him", my emphasis, WSJ Editorial, 6 February 2010, link:

http://online.wsj.com/article/SB10001424052748704533204575047421387157564.html.

I'm with the WSJ. Cuomo's case against the BofA and Lewis was announced the same day as the SEC's new BofA settlement. Are Cuomo and the SEC engaging Lewis in a tag-team wrestling match? Cuomo apparently wants to run for NY Governor over Lewis corpse. I hope Lewis and the BofA take this one to the mat. That BofA is not headquartered in NY may be the reason Cuomo is pursuing this case to the Vampire Squid's applause.

The Bloodless Coup Continues-8

"BlackRock, Inc. is adding a former US Treasury official and well-known investment banker to its executive team as it seeks to digest a major acquisition and manage $3.3 trillion of client assets. Kendrick R. Wilson, 63 years old, will join the New York-based money manager Feb. 1 as vice chairman and will have a broad role supporting client relationships and adivisng the management team, BlackRock said on Friday. ... He previously held senior investment-banking roles at Goldman Sachs Group Inc. and Lazard Freres & Co. Mr. Wilson will be 'a valued adviser to BlackRock's management team as we evolve our operating and governance models,' Laurence Fink, BlackRock chairman and chief executive said in a statement", Eleanor Laise at the WSJ, 30 January 2010, link:

http://online.wsj.com/article/SB10001424052748704343104575033551129111816.html.

Quoted without comment.

FRBNY Negotiations?

"Internal documents provided to Congress shed further light on how the Federal Reserve Bank of New York [FRBNY] approached its unsuccessful and now controversial negotiations with large US and European banks for concessions in the bailout of [AIG]. ... James Bergin, the [FRBNY] lawyer, also wrote that 'we've given up on concessions' and banks would be compensated for full value of assets they insured with AIG in exchange for cancelling contracts written on them. ... [FRBNY] officials felt that their power existed to keep institutions safe, not to get a better deal for the government, and requiring firms to take losses would have eroded certainty in a broad array of insurance contracts, further damaging AIG when it was already being propped up by the government", my emphasis, Serena Ng & Michael Crittenden (N&C) at the WSJ, 25 January 2010, link: http://online.wsj.com/article/SB10001424052748703415804575023740553727542.html.

"'There were too many people involved in the deals ... to keep a determined Congress from the information,' a New York Fed in-house lawyer James Bergin wrote to a colleague on March 6, 2009. ... Mr. [Henry] Paulson in prepared testimony said he believes that he, Mr. Geithner and Fed Chairman Beb Bernanke 'acted properly and in the best interests of our country.' He said he was 'confident' that the congressional review would show 'they sought to make appropriate decisions.' ... Staffers within the [FRBNY] have been taken aback by the recent assault on their decisions. 'We did everything we could for the right reasons. We were living in our offices, sleeping on the floow and trying to get through this financial crisis,' said Thomas Baxter, the [FRBNY's] general counsel, in an interview this week. ... Another downgrade would force AIG to pay out billions more to the counterparties and could give banks the right to terminate contracts and keep the collateral--moves that would likely send the insurer spiraling toward bankruptcy. On Nov. 5., the [FRBNY] received a presentation, a 44-page analysis put together by a unit of BlackRock Inc., saying that the banks had significant bargaining power with AIG and had little incentive to cancel the contracts unless they received par, or 100 cents, on the dollar", my emphasis, N&C at the WSJ, 27 January 2010, link: http://online.wsj.com/article/SB10001424052748703906204575027222044656574.html.

Quoted without comment.

BlackRock again? What nonsense. Would Vampire Squid (VS) have preferred all of its AIG dealings to have been exposed in bankruptcy court's public forum? VS had no leverage to do anything. I'm sure everything he did was "appropriate" from the VS's perspective.

Fed Rift?

"New documents submitted to Congressional investigators examining the 2008 rescue of the [AIG] show that officials at the [Fed] were deeply divided over the structure of the bailout and its long-term implications. At the same time, regulators had to contend with major banks that were AIG's trading partners and were unwilling to accept a discount from the government when closing out the contracts the banks had struck with the insurance giant. ... The Fed's decision to pay AIG's trading partners in full on tens of billions of dollars in contracts has been controversial because many analysts say they believe the government could have negotiated a price for a fraction of that amount, reducing taxpayer funds used in the rescue. Similar contracts were being settled at heavy discounts in other deals where the government was not involved. ... 'We asked for concessions, and they said no,' according to the notes. 'I wonder why we even bothered.' Mr. [Thomas] Baxter also said that Mr. [Timothy] Geithner verbally approved the decison to pay full price to the banks. ... According to a 13-page slide show prepared by the asset management firm BlackRock that was submitted to the committee, Merrill Lynch [ML] and French bank, Societe Generale, were 'resistant to deep concessions' on their AIG contracts. Goldman Sachs, another trading partner, was willing to accept only 'a small concession' on its contracts", my emphasis, Louise Story and Gretchen Morgenson at the NYT, 23 January 2010, link:

http://www.nytimes.com/2010/01/23/business/economy/23aig.html.

This is laughable. Imagine Vampire Squid (VS) told the Fed what it would accept. How many divisions has VS? Kill the Fed. Roll out that CNC guillotine and set it to work in front of 85 Broad Street. The correct response Zimbabwe Ben (ZB) was, "Well VS, ML recently settled some CDOs for 22 cents on the dollar. If you want more, put AIG's CDOs up for bid. By the way, I prepared a press release of the substance of your demands. If you do not do as you were told, I will hold a press conference at 9:00 AM tomorrow morning and tell 306 million Americans of your demands. What will you do if they respond and within 48 hours our 535 legislators are hit with 50 million e-mails and faxes saying "No bailout. No hell no way"? ZB isn't evil. Just cowardly. Now ZB, do us a favor, return to Princeton, play pinochle with Krugman and Blinder and leave us peasants alone. You are less capable negotiating with the VS than a 42nd Street three-card monte dealer. "Divided over ... implications"? How incompetent are the Fed's economists? "Unwilling to accept a discount"? When the alternative was AIG's bankruptcy? In July 2008 ML sold some CDOs for 22 cents on the dollar. ZB should have told ML, "The burden is yours. Why are the AIG CDSs worth more? Make me a believer. Show me"!

Junior on Fed "Profit"

Neil Irwin (NI) has a 12 January 2010 Washington Post piece claiming the Fed had a $45 billion 2009 profit. With $2.2 trillion in assets, suppressing interest rates by 6 percent, my estimate, the Fed gave banks about $132 billion in 2009 taken from savers. A calculation like NI's makes sense in Stalin's world of "free capital"! About 40 years ago Kenneth Arrow, Stanford economics professor, introduced the "social rate of discount" concept. After various machinations, he estimated it was 6-7% per year in real terms. Let's use 6.5%, a 1.8% 2009 CPI increase and a $2.2 trilliion Fed balance sheet, the Fed should have earned (.065 + .018 = .083; .083 x $2.2 trillion = $183 billion) $183 billion last year. Ergo, US taxpayers suffered a $138 billion "opportunity loss" ($183 - $45) arising from the Fed's existence. Kill the Fed! Here's Junior's 12 post at Junior Deputy Accountant: http://www.jrdeputyaccountant.com/2010/01/fed-turns-45-billion-profit.html. Does no one at WaPo understand "cost of capital"? These guys can work for Citigroup. Fed accounting is a joke. Here's a link to my 29 December 2009 post on the Fed's laughable 2008 financial statements: http://skepticaltexascpa.blogspot.com/2009/12/zimbabwe-bens-audit.html. I blasted government accounting on 25 September 2009, and will continue to do so:

http://skepticaltexascpa.blogspot.com/2009/09/government-accounting.html.

"Last year the Fed earned $52.1 billion, with most of that income coming from interest payments on bonds that it bought during the year to shore up the economy and credit markets. Anyone with access to printing presses could have racked up similar gains. But the Fed's purchases leave it exposed. Its assets are 43 times its capital, compared with 15 times at Goldman Sachs", Peter Eavis at the WSJ, 13 January 2010, link:

http://online.wsj.com/article/SB10001424052748704586504574654780067214134.html.

"The Fed's 2009 earnings were up 47% from 2008, when the central bank generated a net income of $35.5 billion and transferred $31.7 billion to the Treasury", Meena Thiruvengadam at the WSJ, 13 January 2010, link: http://online.wsj.com/article/SB126333721463026795.html.

Imagine, even the Vampire Squid (VS) is better managed and has more accurate financials than the Fed.

I found a way out for the Fed, an exit strategy. Oh you of little faith, a Fed exit strategy! There's something in it for the VS! It's a win-win. Use the PEG ratio, "price-earnings growth", I think the PEG ratio is an absurd metric, but I'm not a Wall Street Managing Director. Since the Fed earned $52.1 billion in 2009, or 47% more 2008, let's assign it a 1 PEG, therefore the Fed is "worth" $2,449 billion ($52.1 x 47). Not going overboard, have the Fed issue new stock to the public of 20% of its "worth" or $490 billion ($2,449 x .20). Now Merrill Lynch "analysts" can swear 47X earnings for the right to counterfeit currency is cheap. Now enter He who does "God's work", Lloyd Antoinette Blankfein (LAB) who in the public interest will do the Fed's IPO for 50% of VS's normal 6.5% fee, 3.25%, a mere $15.9 billion ($490 x .0325). Oh, VS's sacrifices for Joe Schmoe, giving up $15.9 billion in fees to make the Fed IPO succeed. Who says Zimbabwe Ben has no exit? LAB will give up 75% of VS's fee on the 15% ($73.5 billion) overallotment. Oh LAB to think, leaving another $3.6 billion on the table for Joe Schmoe. What a patriot. And to think, I believed all along you had a shrine to Mammon in your office. Silly me.

.

Any idiot can run the Fed at a "profit" if the idiot's cost of capital is zero.

Leaving Vampire Squid

"Stockbrokers, AKA financial advisors, were always the other guys on Wall Street, watching their colleagues in the trading and investment banking departments rake in huge bonuses while they were wearing out their fingertips with cold calls. ... Brokers find themselves having to explain to clients why they should entrust money to the firms that employ them. ... Possibly the most compelling of the new opportunities for breakaway brokers is a Chicago firm called HighTower. It offers brokers with at least $100 million under management what it describes as an 'open source' alternative to firms like Merrill and Morgan Stanley Smith Barney. ... HighTower's two founders, Elliot Weissbluth and Drew Kornreich, expanded this model so that brokers affiliating with their firm also have the ability to choose from various custody firms, including JPMorgan Chase and Schwab, and clearing firms like Pershing and Fidelity's National Financial. ... Larry Gilbert, 40, was a heavy hitter in Goldman Sachs' private wealth group in Chicago before he joined HighTower in February 2009. 'I left Goldman because I wanted to be a true fiduciary,' says Gilbert. He says Goldman's pay was structured to encourage advisors to sell Goldman products first. 'During the financial crisis these products didn't hold up,' he says. Goldman denies Gilbert's claims", Matthew Schifrin at Forbes, 18 January 2010, link:

http://www.forbes.com/forbes/2010/0118/outfront-wall-street-brokers-hightower-second-acts.html.

What? Some Vampire Squid products did not perform as advertised? How dare you say that? Off with your head, Gilbert. This is why we should separate investment banking from retail brokerage.

The Continuing AIG Coverup

"The Federal Reserve Bank of New York [NYFed] told [AIG] not to disclose key details of their agreements to make big payouts to banks in the insurer's regulatory filings in late 2008, according to a set of email exchanges released Thursday. ... Congress also pressured the insurer to release the names of banks that were paid off in full on $62 billion in bets on soured mortgage securities. The biggest payouts went to French bank Societe Generale and to Wall Street firm Goldman Sachs Group Inc., AIG finally said publicly in mind-March 2009. ... Buit a Treasury spokeswoman said Mr. Geithner wasn't involved in AIG's disclosure decisions, even though discussions about them took place in late November 2008, when he was selected as Treasury Secretary by President Obama [sic]. ... 'Our focus was on ensuring accuracy and protecting the taxpayers' interests during a time of severe economic distress,' Mr. [Thomas] Baxter said. ... Copies of email exchanges from late November 2008 to March 2009 between lawyers representing AIG and the [NYFed] were released by Rep. Darrell Issa (R., Calif.), ranking minority member of the House Committee on Oversight and Government Reform. ... In a Nov. 25 email, Peter Bazsos, an attorney at law firm Davis Polk & Wardwell [DPW] , which reprented the [NYFed], worte, that certain agreements 'do not need to be filed.' One agreement contained the names of banks that received payouts from AIG. A [DPW] spokesman declined to comment. In response, and AG in-house lawyer, Kathleen Shannon, said the company and its law firm Sullivan & Cromwell 'believe that the better practice and better disclosure in this complex area is to file the agreements.' She also wrote that the staff at the SEC 'would not be particularly happy with a decision to withhold the documents at this time'," Serena Ng & Michael Crittenden at the WSJ, 8 January 2010, link:

http://online.wsj.com/article/SB10001424052748704130904574644542588515508.html.

"New revelations that the government stopped the [AIG] from revealing information about its bailout had securities lawyers and policy makers buzzing on Thursday about whether the information had to be disclosed under federal securities law, and if so, what to do about the lack of compliance. Joel Seligman, a historian of the [SEC], said the disclosure rules were supposed to apply to all public companies, with only a few narrow exceptions for things lijke trade secrets and national security. ... The messages showed that in December 2008, AIG was prearing a filing to explain how it had eliminated a portfolio of derivatives , known as credit-default swaps, through an entity created with the Fed called Maiden Lane III. ... The Fed's lawyer, Ethan T. James of [DPW], deleted all references to the $10 billion in swaps that could not be torn up. He wrote in the margin: 'There should be no discussion or suggestion that AIG and the [NYFed] are working to structure anything else at this point'," Mary Williams at the NYT, 8 January 2009, link:

http://www.nytimes.com/2010/01/08/business/economy/08aig.html.

The documents should have been filed as Form 8-K attachments. Well Mary Schapiro, what will you do about this? Ban DPW from performing SEC services? If not, why not? If the Fed is not part of the US government it should not be able to sustain a "sovereign immunity" claim. Therefore, someone should have standing to sue it for triple damages under RICO. This case reminds me of Blake v. Dierdoff, 856 F2d 1365 (9th Cir., 1988), which introduced the "group published information" concept. Since one of Blake's attorneys was, drumroll please, William Lerach (WL), we know why the Feds had to get him. Hey Obama, here's an idea: pardon WL, then tell, not ask, tell, Preet Bharara (PB) to take WL as a special AUSA. Or are you afraid this might antagonize your Wall Street supporters? Even better, fire PB and replace him with WL. Let's plead the "group": AIG, AIG's officers, the NYFed, Vampire Squid (VS), DPW, some DPW partners and we'll see who else we can bring into this witches' brew. We know DPW, don't we? Sure, Linda Thomsen, former SEC enforcement director went from DPW to the SEC then back to DPW, my 28 April 2009 post: http://skepticaltexascpa.blogspot.com/2009/04/wsj-mistitles-article-2.html.

Well PWC, where were you when this happened? Why wasn't your 2 March 2009 opinon qualified as to inadequate disclosure?