Posts filed under “Legal”

Taxpayer Funded GS Profits

Note: By coincidence, this post was written in International Waters a few miles off the coast of Grand Turks and Caicos. If Goldman Sachs wants to sue anyone over this, send your process server to the wreck of the B-29 bomber, off the north coast, approximately 80 feet below sea level . . .

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Karl Denninger notes that a nasty rumor is circulating about Goldman Sachs amongst observers of the Street. Allegedly, GS is about to report their second-best quarter in history, +$12 billion or so…

In this era of finacial disasters, credit crisis, and recession, how is that possible?

Easy. You — and your grandkids — are the ones who paid for it:

“The fact that they (like so many others) are being paid by the taxpayer through AIG’s “conduit” for losses that didn’t (yet) happen at 100 cents on the dollar might be the basic math.

And further (and potentially much worse) there is the repeated statement by Goldman executives that they were “fully hedged” against a potential counterparty default by AIG. One wonders – was that “hedge” to be short the equity on AIG itself, perhaps?

Why is this important?

Because if that’s how Goldman hedged they got paid twice and the taxpayer literally got robbed. Someone in Congress needs to look into this now; there are already rumblings of investigation. Those rumblings need to get a lot louder and turn into subpoenas, not “polite inquiries.”

If in fact Goldman (or anyone else) was “hedged” against a possible credit loss from their CDS with AIG and they were able to collect on that hedge (no matter what it was) those payments through AIG need to be clawed back immediately as nobody is entitled to be paid twice for the same risk and reap what amounts to a windfall profit by quite literally engineering a multi-billion dollar transfer of funds from the Taxpayer to the firm!”

Makes you wonder if having a Treasury Secretary who was a former CEO of Goldman Sachs had anything to do with this.

Indeed, not only was Hank Paulson Goldie’s boy, but he was the same gentleman who so vociferously lobbied the SEC to allow the 5 largest iBanks to drop the net capital rule and leverage up 40 to 1.

So not only did he help set up the disaster, but he then oversaw the greatest transfer of wealth in the planets history — several trillion dollars from taxpayers to the management and shareholders of inept, incompetant, wildly irresponsible companies.

This is theft on the sort of grand scale thta calls for the population to revolt. Perhaps the French peasants were right; Time to bring the guillotine for executing nobles and bankers. . .

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Source:
Goldman (and other banks’) “Hedges”
Karl Denninger
April 12. 2009

http://market-ticker.denninger.net/authors/2-Karl-Denninger

Category: Bailouts, Legal, Markets, Taxes and Policy

Goldman Sachs: No Criticism By Bloggers Allowed

WTF?!? Goldman Sachs is attempting to shut down a dissident blogger who is extremely critical of the investment bank, its board members and its practices. The bank has instructed Wall Street law firm Chadbourne & Parke to pursue blogger Mike Morgan, warning him in a recent cease-and-desist letter that he may face legal action if…Read More

Category: Corporate Management, Legal, Weblogs

Geithner Addresses Mortgage Fraud

Live! From Washington D.C.: Treasury Secretary Timothy Geithner Opens Up News Conference

4:42
Bloomberg News

Category: Credit, Legal, Real Estate, Video

SEC Examining Oversight of Credit Rating Agencies

Looks like an interesting panel — anyone near D.C. on April 15 should consider going . . .

10:10 a.m. — Panel One: Current NRSRO Perspectives: What Went Wrong and What Corrective Steps Is the Industry Taking?

  • Daniel Curry, DBRS
  • Sean Egan, Egan-Jones Ratings
  • Stephen Joynt, Fitch Ratings
  • Raymond McDaniel, Moody’s Investor Service
  • Deven Sharma, Standard & Poor’s

11:30 a.m. — Panel Two: Competition Issues: What are Current Barriers to Entering the Credit Rating Agency Industry?

  • Ethan Berman, RiskMetrics Group
  • James H. Gellert, RapidRatings
  • George Miller, American Securitization Forum
  • Frank Partnoy, University of San Diego
  • Alex Pollock, American Enterprise Institute
  • Damon Silvers, AFL-CIO
  • Lawrence J. White, New York University

12:30 p.m. — Lunch Break

1:15 p.m. — Panel Three: Users’ Perspectives

  • Deborah A. Cunningham, Securities Industry and Financial Markets Association
  • Alan J. Fohrer, Southern California Edison
  • Christopher Gootkind, Wellington Management
  • James Kaitz, Association of Financial Professionals
  • Kurt N. Schacht, CFA Institute
  • Bruce Stern, Association of Financial Guaranty Insurers
  • Paul Schott Stevens, Investment Company Institute

2:45 p.m. — Panel Four: Approaches to Improve Credit Rating Agency Oversight

  • Richard Baker, Managed Funds Association
  • Jörgen Holmquist, European Commission
  • Mayree C. Clark, Aetos Capital
  • Joseph A. Grundfest, Stanford Law School
  • Glenn Reynolds, CreditSights
  • Stephen Thieke, Group of Thirty

The roundtable is expected to end at approximately 4:15 p.m. with concluding remarks by Erik R. Sirri, Director of the SEC’s Division of Trading & Markets.

In the fall of 2006, Congress passed the Credit Rating Agency Reform Act, providing the SEC for the first time with authority to supervise credit rating agencies. Using this authority that became effective in June 2007, the Commission has adopted two major rulemakings, has conducted an extensive 10-month examination of three major credit rating agencies, and has several pending proposals to further the Act’s purpose of promoting accountability, transparency, and competition in the rating industry.

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Category: Bailouts, Credit, Legal, Regulation

The Cult of Finance

I mentioned the “cult of equities” earlier this morning; An article in the Atlantic on the Cult of Finance is making the rounds:  The Quiet Coup. I found it very similar to Bailout Nation. If this sort of stuff floats your boat, then you will love the book — it gets much more granular than…Read More

Category: Credit, Derivatives, Legal, Markets, Politics, Regulation

Paul Krugman is Wrong About Securitization

Since the credit crisis began, I have frequently found myself in agreement with Paul Krugman. Not everything, but for the most part, especially on many major points, we are sympatico: He has been correct about Moral Hazard, about the folly of these many bailouts, about the advantages of nationalizing the banks. And, I suspect he…Read More

Category: Bailouts, Credit, Derivatives, Federal Reserve, Legal, Regulation

Hybrid of Risky Mortgages and a Ponzi Scheme

Dilbert, 2 days in a row: >

Category: Bailouts, Credit, Humor, Legal

Quick Note on the AIG Bonus Sideshow

The AIG bonus hearings on executive compensation the current “bonus bill” is a sideshow that avoids addressing the lack of enforcement of existing law.

To the layman it appears, had the law (below) been enforced, we would get to the root of the problem. Of course Congress has no interest in reducing the lobbying dollars they can collect from firms that rely on those TARP dollars. They would rather pretend to be ineffective populists than effective legislators and responsible public servants.

Doesn’t anyone feel that we could get more accomplished if we enforced the following law?

§ 1352. Limitation on use of appropriated funds to influence certain Federal contracting and financial transactions

continued below

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Category: Bailouts, BP Cafe, Legal

Suspending Mark to Market Remains Unlikely

Dan Greenhaus is at the Equity Strategy Group at Miller Tabak + Co. where he covers markets and portfolio theory. He has contributed several chapters to Investing From the Top Down: A Macro Approach to Capital Markets (by Anthony Crescenzi).

This is his most recent commentary:

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Suspending Mark to Market Remains Unlikely
Decreasing transparency has never, and will never, be the answer
MARCH 18, 2009

I will reserve comment about the proposed changes/amendments/guidance regarding FAS 157 until such adjustments are implemented, but I wanted to make a few quick observations regarding FAS 157 and related topics:

To begin with, FAS 157 does not establish the concept of fair value accounting. Companies have been
reporting assets at fair value for years. What FAS 157 did was establish an outline for how companies
should value assets through the Level 1, 2, 3 system with Level 1 assets being the most accurately valued and Level 3 being the least accurate, the so called “mark to model” assets. Suspending that system would, in my mind, unquestionably increase market uncertainty by increasing management input with respect to the valuing of assets. How in the world anyone thinks reducing transparency, which is absolutely what would occur, is a good idea is beyond my understanding. I do not subscribe to the belief that the perceived lack of transparency now, the effect of distressed markets, excuses further reductions in transparency by removing the guidelines, outlines and disclosure requirements as laid out in FAS 157.

Secondly, I also do not subscribe to the belief that somehow these assets are not being priced to their “true” value. While there is certainly some temporary impairment due to market volatility and perhaps some underpricing relative to hold-to-maturity value as we believe it to be today, the fact remains that an asset trading at a significant discount to its true value would attract buyers in larger numbers than we’re seeing. The truth is that these assets are not seeing the interest they otherwise might be for a variety of reasons, not the least of which is that the “true” value of these assets are in contention right now. Could the value be higher than, say, 30 or 40 or 50 cents on the dollar? Sure. But I don’t know that and with high levels of macroeconomic uncertainty hanging over our heads, I believe that many market participants are staying away for fear of incurring losses on these positions.

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Category: BP Cafe, Legal, Markets

Time for Wall Street Insurance?

Why does the US taxpayer have to guarantee every single transaction done on Wall Street? Since when is that our obligation? If the taxpayer is on the hook to bailout systemic risk, then don’t they have the right to prevent that systemic risk? Or alternatively, reserve for/insure it? I keep hearing that Wall Street must…Read More

Category: Bailouts, Credit, Derivatives, Legal