Mark McHugh

Archive for April, 2010|Monthly archive page

Goldman Sachs – World’s Biggest Lemonade Stand

In Open Thread on Tuesday, April 27, 2010 at 11:40 pm

“…..what a great job they did. They structured like mad and traveled the world and worked their tails off to make some lemonade from some big old lemons.”

~Email from Goldman’s Daniel Sparks, 01/31/2007

The Wall Street mystique died today.  The “smartest guys on the street” gave us a glimpse of their “best and brightest”.  You know, those guys who made more money on the housing collapse than your extended family has made since Plymouth Rock.  Alpha males. 

But as the day unfolded it became clear that the key ingredients to success at Goldman is not understanding the difference between right and wrong, and being smug.  They seemed genuinely surprised they didn’t get the congressional lap dances we’ve all grown accustomed to seeing, and I think Goldie can make some more “lemonade” by wringing out their Armanis.

Watch Senator Carl Levin channel my old man:  

The 75 year-old Levin (who’s still on my shit list for re-confirming Bernanke) beat the living snot out of these spoiled brats all day long.   It was almost like living in a country with liberty and justice for all.

 

 

 

Helping Matt Taibbi Understand

In Open Thread on Monday, April 26, 2010 at 3:33 pm
From The Breakfast Club:
 
Brian: …I’ll take shop, it’ll be such an easy way to maintain my grade point average.
Bender: Why’d you think it’d be easy?
Brian: Have you seen some of the dopes that take shop?
Bender: I take shop. You must be a fuckin’ idiot!
Brian: I’m a fuckin’ idiot because I can’t make a lamp?
Bender: No, you’re a genius because you can’t make a lamp.
Brian: What do you know about Trigonometry?
Bender: I could care less about Trigonometry.
Brian: Bender, did you know without Trigonometry there’d be no engineering?
Bender: Without lamps, there’d be no light

 

Matt Taibbi is fun to read, but I often find his logic “pitchy.”  His latest article for the guardian (a UK publication) concerns me because he’s ordained himself to explain America to outsiders, but his logic is deeply flawed (and that’s being kind).   From the article:

continue…

Read the rest of this entry »

MUST SEE – BILL BLACK ON LEHMAN!

In Open Thread on Wednesday, April 21, 2010 at 5:15 pm

Know this.  Chris Dodd’s a crook and anything he proposes should go right in the trash.  Before anyone considers anything called “financial reform” don’t you think it would be nice to understand what the fuck just happened?  Bill Black breaks it down in very simply with 8 minutes of searing truth.

Hat tip, James H!

Transcript (corrected) from Firedoglake

You asked earlier for a stern regulator, you have one now in front of you. And we need to be blunt. You haven’t heard much bluntness in hours of testimony.

We stopped a nonprime crisis before it became a crisis in 1991, by supervisory actions.

We did it so effectively that people forgot that it even existed, even though it caused several hundred million dollars in losses — but none to the taxpayer. We did it by preemptive litigation, and by supervision. We broke a raging epidemic of accounting control fraud without new legislation in the period of 1984 through 1986.

Legislation would’ve been helpful, we sought legislation, but we didn’t get it. And we were able to stop that because we didn’t simply continue business as usual.

Lehman’s failure is a story in large part of fraud. And it is fraud that begins at the absolute latest in 2001, and that is with their subprime and their liars’ loan operations.

Lehman was the leading purveyor of liars’ loans in the world, for most of this decade. Studies of liars’ loans show incidence of fraud of 90%. Lehmans sold this to the world, with reps and warranties that there were no such frauds. If you want to know why we have a global crisis, in large part it is before you. But it hasn’t been discussed today, amazingly.

Financial institution leaders are not engaged in risk when they engage in liars’ loans — liars’ loans will cause a failure. They lose money. The only way to make money is to deceive others by selling bad paper, and that will eventually lead to liability and failure as well.

When people cheat you cannot as a regulator continue business as usual. They go into a different category and you must act completely differently as a regulator. What we’ve gotten instead are sad excuses.

The SEC: we’re told they’re only 24 people in their comprehensive program. Who decided how many people there would be in their comprehensive program? Who decided the staffing? The SEC did. To say that we only had 24 people is not to create an excuse — it’s to give an admission of criminal negligence. Except it’s not criminal, because you’re a federal employee.

In the context of the FDIC, Secretary Geithner testified today that this pushed the financial system to the brink of collapse. But Chariman Bernanke testified we sent two people to be on site at Lehman. We sent fifty credit people to the largest savings and loan in America. It had 30 billion in assets. We had a whole lot less staff than the Fed does.

We forced out the CEO. We replaced the CEO. And we did that not through regulation but because of our leverage as creditors. Now I ask you, who had more leverage as creditors in 2008? The Fed, as compared to the Federal Home Loan Bank of San Francisco, 19 years earlier? Incomprehensible greater leverage in the Fed, and it simply was not used.

Let’s start with the repos. We have known since the Enron in 2001 that this is a common scam, in which every major bank that was approached by Enron agreed to help them deceive creditors and investors by doing these kind of transactions.

And so what happened? There was a proposal in 2004 to stop it. And the regulatory heads — there was an interagency effort — killed it. They came out with something pathetic in 2006, and stalled its implication until 2007, but it’s meaningless.

We have known for a decade that these are frauds. We have known for a decade how to stop them. All of the major regulatory agencies were complicit in that statement, in destroying it. We have a self-fulfilling policy of regulatory failure because of the leadership in this era.

We have the Fed, the Federal Reserve Bank of New York, finding that this is three card monte. Well what would you do, as a regulator, if you knew that one of the largest enterprises in the world, when the nation is on the brink of economic collapse, is engaged in fraud, three card monty? Would you continue business as usual?

That’s what was done. Oh they met a lot — they say “we only had a nuclear stick.” Sounds like a pretty good stick to use, if you’re on the brink of collapse of the system. But that’s not what the Fed has to do. The Fed is a central bank. Central banks for centuries have gotten rid of the heads of financial institutions. The Bank of England does it with a luncheon. The board of directors are invited. They don’t say “no.” They are sat down. The head of the Bank of England says “we have lost confidence in the head of your enterprise. We believe Mr. Jones would be an effective replacement. And by 4 o’clock that day, Mr. Jones is running the place. And he has a mandate to clean up all the problems.

Instead, every day that Lehman remained under its leadership, the exposure of the American people to loss grew by hundreds of millions of dollars on average. Auroroa was pumping out up to 3 billion dollars a month in liars’ loans. Losses on those are running roughly 50% to 85 cents on the dollar. It is critical not to do business as usual, to change.

We’ve also heard from Secretary Geithner and Chairman Bernanke — we couldn’t deal with these lenders because we had no authority over them. The Fed had unique authority since 1994 under HOEPA to regulate all mortgage lenders. It finally used it in 2008.

They could’ve stopped Aurora. They could’ve stopped the subprime unit of Lehman that was really a liar’s loan place as well as time went by.Thank you very much.

Wall of No-Worries?

In Open Thread on Monday, April 5, 2010 at 12:09 am

From Thefreedictionary.com ax·i·om //  (ks-m) 

n.

1. A self-evident or universally recognized truth; a maxim: “It is an economic axiom as old as the hills that goods and services can be paid for only with goods and services” (Albert Jay Nock).
2. An established rule, principle, or law.
3. A self-evident principle or one that is accepted as true without proof as the basis for argument; a postulate.

  

Everybody loves an axiom, I always say.   Bite-sized bits of wisdom which don’t require any actual thought or analysis, because everyone accepts them as undisputed truth.  All too often they turn out to be nothing more than fool’s gold.

 Remember:

  1. House prices never go down.
  2. Wars are good for the economy.
  3. The only reason insiders buy it to make money

I’ve long taken issue with the axiom that goes “stocks recover before the economy.”  Bullshit.  What they really mean is, “We jack up stock prices in anticipation of a recovery so  Joe Sixpack buys at the top.”  It’s also called front-running and theoretically, it’s illegal.  I am curious to see what’s going to happen when Wall St. figures out that Joe Sixpack isn’t going to be the greater fool for once.  But I digress.  

Turd-on-a-stick, anyone? 

The axiom on the cutting block today is Markets climb the wall of worry and descend the slope of hope.   I know this one sounds particularly inane, even for Wall Street, but what if its true?  You’d just have to figure out which side of the hill you’re on, right?  At this time I’d like to present the CNBC poll from March 31:

Pretty hope-timistic if I do say so myself 

 One of the great mysteries of our time is where did all the money that propelled stocks more than 70% in the last 13 months come from.  I have no idea.  It didn’t come from China or mutual funds.  There was quite a bit of leveraged money in stocks at the end of February ($234B), but that doesn’t explain this kind of run-up either.  

If stocks continue higher given the cheery sentiment of CNBC’s audience, we should probably throw this axiom on the burn pile, too.