Posts filed under “Really, really bad calls”
The MSM article of the day is a NYT takedown of JP Morgan’s raping and pillaging of various cities and pension funds. The accusation: Shared profits, client’s losses. When hedge funds do this, the private placement memorandum covers the terms. It is less clear that a brokerage firm can do this legally.
This follows Matt Taibbi’s March 2010 takedown of similar JPM misdeeds, Looting Main Street.
Here is the deal: Funds lend some of their stocks and bonds to Wall Street, in return for cash that banks like JPMorgan then invest. If the trades do well, the bank takes a cut of the profits. If the trades do poorly, the funds absorb all of the losses.
The strategy is called securities lending, a practice that is thriving even though some investments linked to it were virtually wiped out during the financial panic of 2008. These trades were supposed to be safe enough to make a little extra money at little risk.
JPMorgan customers, including public or corporate pension funds of I.B.M., New York State and the American Federation of Television and Radio Artists, ended up owing JPMorgan more than $500 million to cover the losses. But JPMorgan protected itself on some of these investments and kept millions of dollars in profit, before the trades went awry.
How JPMorgan won while its customers lost provides a glimpse into the ways Wall Street banks can, and often do, gain advantages over their customers. Today’s giant banks not only create and sell investment products, but also bet on those products, and sometimes against them, putting the banks’ interests at odds with those of their customers. The banks and their lobbyists also help fashion financial rules and regulations. And banks’ traders know what their customers are buying and selling, giving them a valuable edge.
Some of JPMorgan’s customers say they are disappointed with the bank. “They took 40 percent of our profits, and even that was O.K.,” said Jerry D. Davis, the chairman of the municipal employee pension fund in New Orleans, which lost about $340,000, enough to wipe out years of profits that it had earned through securities lending. “But then we started losing money, and they didn’t lose along with us.”
How did an industry that began by servicing their clients end up as an industry that only robs them? When I was coming up, financial services were a noble way to help people save for retirement; it appears to have morphed into something entirely different . . .
See related video here.
Banks Shared Clients’ Profits, but Not Losses
NYT, October 17, 2010
Last week, I was surprised by an unusually disingenuous article by Greg Mankiw in the Sunday NYT column – “I Can Afford Higher Taxes. But They’ll Make Me Work Less.” As I read it, I was struck how disconnected it was from the real world. I have been meaning to get to it, but the…Read More
You may have missed this hard hitting McClatchy article over the weekend. It essentially accuses then Treasury Secretary (and former Goldman Sachs CEO) Hank Paulson of “willful inaction in late 2006 and 2007 during a period when lending criteria were disintegrating in favor of so-called “liars’ loans,” for which applicants weren’t required to document their…Read More
SeeThroughNY is a site run by right wing think tank Manhattan institute. It scrapes publicly available data to show the salaries and pensions of just about everyone in NYS who is on the public payroll, from the Governor to cops & firemen to your local teachers: SeeThroughNY: A place for taxpayers to download, share, analyze…Read More
There seems to be a misunderstanding as to why the rampant and systemic foreclosure fraud is so dangerous to American system of property rights and contract law. Some of this is being done by people who are naked corporatists (i.e., the WSJ Editorial Board) excusing horrific conduct by the banks. Others are excusing endemic property…Read More
From today’s NYT:
The dominant story line of this year’s midterm elections is increasingly becoming the torrents of money, much of it anonymous, gushing into House and Senate races across the country.
Your Supreme Court, hard at work taking Democracy apart in America:
See video here: Money Talks Louder Than Ever in Midterms
> How’s that for an awesome article title? Its from a Vanity Fair article excerpting Bethany McLean and Joe Nocera’s new book, All the Devils Are Here: The Hidden History of the Financial Crisis. The book is being touted as “The inside story of the collapse of Merrill Lynch — How a “Fantastic Lie” and…Read More
My inbox is deluged with rants and demands from people who are insisting that This. Rally. Must. End. NOW! A composite of their emails would read something like this: “How can you sit there so blithely while the Fed debases the world’s reserve currency? Why haven’t you commented on POMO?!? The entire game is rigged,…Read More
Consider the following statement: “Nevertheless, balance sheet policy can still lower longer-term borrowing costs for many households and businesses, and it adds to household wealth by keeping asset prices higher than they otherwise would be.” So said Brian Sack, the head of the New York Fed’s markets group. Marketbeat responded with a post titled: Dear…Read More
Fantastic set of aerial photos from Google Images (by way of Boston.com’s Big Picture), showing Florida’s developmental disaster.
The images of half finished (and barely started) developments are strangely beautiful, with a geometric symmetry that belies the state of human misery these developments represent: Lost deposits, bankruptcy, misallocated capital.
That an entire nation can be so innumerate as to believe in a mathematical fallacy is weirdly fascinating . . .
Florida Housing Bust
More images after the jump . . .