Mish's Global Economic Trend Analysis Wed 2010-04-21 12:11 EDT

Geithner and the NY Fed Accused of Willfully Ignoring Fraud and Covering Up Lehman's Bad Assets by Senior Regulator During the S&L Crisis

Michael Shedlock

Inquiring minds are digging into a 27 page statement made by William Black before the Financial Services committee. Black is an Associate Professor of Economics and Law, at the University of Missouri...[According to Black,] Lehman's underlying problem that doomed it was that it was insolvent because it made so many bad loans and investments. It hid its insolvency through the traditional means -- it refused to recognize its losses honestly...The FRBNY knew that Lehman was engaged in fraud designed to overstate its liquidity and, therefore, was unwilling to loan as much money to Lehman. The FRBNY did not, however, inform the SEC, the public, or the OTS (which regulated an S&L that Lehman owned) of the fraud...The relevant issue was never: can Lehman be saved? The relevant issue, one that the SEC and the Fed appear never to have even asked, was: how can we stop Lehman from serving as a vector spreading the epidemic of liar's loans? They should have asked themselves that question -- and acted -- no later than 2001.

Cover; Geithner; L Crisis; Lehman's Bad Assets; Mish's Global Economic Trend Analysis; NY Fed Accused; s; senior regulators; Willfully Ignoring Fraud.

zero hedge Mon 2010-04-05 15:14 EDT

Former Goldman Commodities Research Analyst Confirms LMBA OTC Gold Market Is "Paper Gold" Ponzi

When we put up a link to last week's CFTC hearing webcast little did we know that it would end up being the veritable (physical) gold mine (no pun intended) of information about what really transpires in the commodities market. First, we obtained direct evidence from Andrew Maguire (who may or may not have been the target of an attempt at "bodily harm" as reported yesterday) of extensive manipulation in the silver market. Today, Adrian Douglas, director of GATA, adds to the mountain of evidence that the commodities market, and the CFTC, stand behind what is potentially the biggest market manipulation scheme in the history of capital markets (we are assuming for the time being that all allegations of the Fed manipulating the broader equity and credit markets are completely baseless). Using the testimony of a clueless Jeffrey Christian, formerly a staffer at the Commodities Research Group in the Goldman Sachs Investment Research Department and now head and founder of the CPM Group, Douglas confirms that the "LBMA trades over 100 times the amount of gold it actually has to back the trades."

Goldman Commodities Research Analyst Confirms LMBA OTC Gold Market; paper gold; Ponzi; Zero Hedge.

naked capitalism Fri 2010-03-19 16:10 EDT

Lehman: Regulators Chose to Deny, Extend and Pretend

The Lehman Examiner's report gives an unintentionally damning portrayal, both of the the structure of financial regulation in the US and how regulators failed to use the powers they had effectively...the authorities recognized Lehman had a large negative net worth. Yet rather than move decisively towards an unwind, they proceeded inertially. They urged Lehman CEO Dick Fuld to find a rescuer (who would invest in that garbage barge, particularly when Andrew Ross Sorkin's account makes clear that Fuld's moves were so obviously desperate and clumsy as to be certain to fail) and also promoted the notion of an LTCM-style ``share the pain'' resolution. Yet with the rest of the industry weak, and the magnitude of hole in Lehman's balance sheet a mystery, these courses of action had low odds of success from the outset (indeed, the ``Lehman weekend'' in which the authorities almost bulldozed through a deal, seemed designed to avoid sober analysis of how bad things were at the failing investment bank)...As much as the SEC did not cover itself with glory in this exercise, its lapses are somewhat comprehensible. By contrast, the Fed's are much harder to explain or excuse. And guess who is about to be given more oversight authority?

denied; extends; Lehman; naked capitalism; Pretends; Regulators Chose.

THE PRAGMATIC CAPITALIST Tue 2010-03-09 18:04 EST

GURU OUTLOOK: PAOLO PELLEGRINI

TPC

This week's Guru Outlook brings you Paolo Pellegrini. Although he is not the most well known of investment gurus Pellegrini has built quite a name for himself in recent years...He says we are essentially papering over the problems with more debt. We are simply adding more debt to a debt-laden world while China adds more exports to a saturated market. He says the problems in Europe are a harbinger of these continuing issues. Thus far the massive stimulus has been successful in jumpstarting the global economy, but is nothing more than a temporary respite from the longer-term structural problems that remain...

GURU OUTLOOK; Paolo Pellegrini; pragmatic capitalists.

China Financial Markets Thu 2010-03-04 08:47 EST

Stuck in neutral -- what Japan's rebalancing can teach us

Michael Pettis

...A few days ago I read a good article (``Stuck on Neutral'') about Japan [from] the Economist...about Japan's post-1989 rebalancing, ...discusses why, in spite of every attempt, Japan has not been able supposedly to rebalance the economy and achieve any real growth during the two lost decades after 1990. Private consumption never took off to drive economic growth...After many years of excess investment driving growth, Japan's rebalancing process, which occurred after corporate, bank and government debt levels prevented the investment party from continuing, locked the country into many years of slow growth because it had to grind through years of debt-fueled overinvestment...it doesn't matter what individual policies we take to boost consumption if these polices don't in the aggregate represent a real transfer of income to the household sector, as they did not in Japan...Japan's experience suggests one of the risks China faces...Chinese household consumption will undoubtedly rise as a share of Chinese GDP over the next decade or two, but the process nonetheless can be disappointing for growth. It depends on lots of other moving parts, most importantly perhaps the change in investment and the speed with which income is transferred to households. And the change in investment might depend on debt capacity constraints and the extent of earlier overinvestment.

China Financial Markets; Japan's rebalancing; neutral; stuck; teach.

Sun 2010-02-28 13:27 EST

Janet Tavakoli: Washington Abandons Greece: Beware of Geeks Bearing Grifts

Janet Tavakoli

The European Union (EU) is shocked--shocked I tell you!--that Greece used financial engineering to qualify for admission. Exactly how did they think that weaker countries managed to meet the requirements?...A few years ago, Greece engaged in derivatives transactions which essentially gave it a disguised loan, a gift from geeks. Greece may or may not have had plans to invest the money to create national wealth instead of say, blowing it all on national bling. Either way, Greece used its national credit card in a futile attempt to keep up with the EU Joneses...Today, rumors are that crony capitalists are using derivatives to profit from Greece's misery. There are allegations that investment banks and hedge funds used their knowledge of Greece's hidden debt to drive up its borrowing cost and drive down the Euro. Then these speculators reversed their positions, when they had advance information of a potential bailout for Greece. Other rumors suggest customized trades on the sovereign credit derivatives index also exploited Greece's problems. Still other rumors point to a campaign to manipulate Greek debt prices and knock down the Euro.

Beware; Geeks Bearing Grifts; Janet Tavakoli; Washington Abandons Greece.

The Money Game Tue 2010-02-16 16:49 EST

Inflation Protected Bonds Murdered As PIMCO And BlackRock's Hyperinflation Fears Flounder

Investors are increasingly giving up on hyperinflation bets. For example, investors are willing to buy standard U.S. treasury bonds that pay just 3.69% yield. That doesn't leave room for much inflation...The niche market of Treasury Inflation Protected Securities (TIPS, bonds that adjust their yield to inflation) is giving up on its inflation concerns as well. As this market is too small for major central bank investment, it's far harder to argue away the lack of inflation it forecasts.

BlackRock's Hyperinflation Fears Flounder; Inflation Protected Bonds Murdered; Money game; PIMCO.

Sun 2010-02-07 10:10 EST

Web of Debt - THE BATTLE OF THE TITANS: JPMORGAN VS. GOLDMAN SACHS

Ellen Brown

The late Libertarian economist Murray Rothbard wrote that U.S. politics since 1900, when William Jennings Bryan narrowly lost the presidency, has been a struggle between two competing banking giants, the Morgans and the Rockefellers. The parties would sometimes change hands, but the puppeteers pulling the strings were always one of these two big-money players...In 2000, the Rockefellers and the Morgans joined forces, when JPMorgan and Chase Manhattan merged to become JPMorgan Chase Co. Today the battling banking titans are JPMorgan Chase and Goldman Sachs, an investment bank that gained notoriety for its speculative practices in the 1920s...Goldman's superpower status comes from something more than just access to the money spigots of the banking system. It actually has the ability to manipulate markets...But Goldman Sachs has been caught in this blatant market manipulation so often that the JPMorgan faction of the banking empire has finally had enough.

battle; debt; Goldman Sachs; JPMorgan; titans; Web.

The Full Feed from HuffingtonPost.com Fri 2010-01-29 16:28 EST

'Freefall' Excerpt: Too Late To Fix The Biggest Banking Blunder In History?

The Huffington Post News Editors

Reprinted from Freefall by Joseph Stiglitz. Copyright (c) 2010 by Joseph E. Stiglitz. Used with permission of the publisher, W.W. Norton & Company, Inc. The entire series of efforts to rescue the banking system were so flawed, partly because those who were somewhat responsible for the mess--as advocates of deregulation, as failed regulators, or as investment bankers--were put in charge of the repair...

Biggest Banking Blunder; com; excerpts; Fix; freefall; full Feeds; History; HuffingtonPost; lately.

Sat 2010-01-09 13:15 EST

A real ``loaves to fishes'' miracle, taking place every day in America <<; Fabius Maximus

...buying a Congressman provides the highest return on investment available today in America. No wonder capital investment and R&D lag our peers, when bribery pays off so well.

America; day; Fabius Maximus; FISHING; Loaves; Miracle; Real; take place.

naked capitalism Fri 2010-01-08 19:29 EST

Limiting the destruction wrought by irrational exuberance in a one-party state

Edward Harrison

I wanted to highlight a piece [Matt Taibbi] wrote yesterday called Fannie, Freddie, and the New Red and Blue. The crux of his argument is this: The partisan rhetoric is on full display in the dust-up over the unlimited liabilities coming from Fannie and Freddie thrust upon taxpayers on Christmas Eve. This rhetoric is not just beside the point, it is specifically designed to obscure the point, namely that both Democrats and Republicans, private industry and the government are culpable in the shambles our economic system has become...We effectively have a one-party system when it comes to investment in the present economic, power, and wealth structure.

destruction Wrought; irrational exuberance; limit; naked capitalism; party state.

zero hedge Sun 2010-01-03 23:46 EST

This Is The Government: Your Legal Right To Redeem Your Money Market Account Has Been Denied

...A key proposal in the overhaul of money market regulation suggests that money market fund managers will have the option to "suspend redemptions to allow for the orderly liquidation of fund assets."...In essence, the entire US capital market is now a hedge fund, where even presumably the safest investment tranche can be locked out from within your control when the ubiquitous "extraordinary circumstances" arise.

denied; government; legal right; Money-market accounts; redeemed; Zero Hedge.

Credit Writedowns Sun 2010-01-03 11:48 EST

Manipulating mortgages

The dust has settled a bit on the Treasury's recent decision to give Fannie Mae and Freddie Mac a green light to nationalize our mortgage problem...I see Fannie Mae and Freddie Mac as a means of manipulating interest rates and distorting the allocation of resources and funneling precious capital investment into a housing sector which suffers a dreadful amount of overcapacity. This is bubble economics pure and simple and it will fail spectacularly.

credit writedowns; Manipulation Mortgage.

Calculated Risk Wed 2009-12-30 11:11 EST

Housing Leads the Economy, Existing Home Sales are Irrelevant

CalculatedRisk

...Residential investment is the best leading indicator for the economy. Residential investment will not recover rapidly because of the large overhang of existing vacant housing units. Existing home sales are largely irrelevant for the economy. ...The key to reducing the overall inventory is new household formation (encouraging renters to become owners accomplishes nothing in reducing the overall housing inventory). And the key to new household formation is jobs. And usually the best leading indicator for jobs is residential investment.

Calculated Risk; economy; Existing-Home Sales; housing Lead; irrelevant.

naked capitalism Mon 2009-12-28 17:16 EST

Guest Post: Princeton Economist and Computer Scientists Show that Derivatives Are Inherently Vulnerable to Fraud

Washington&apos;s Blog

...the main default risk model for credit default swaps -- the ``Gaussian copula function'' -- was inherently flawed. Now, Princeton University economists and computer scientists have demonstrated that financial derivatives are also inherently vulnerable to fraudulent pricing. PhysOrg summarizes Princeton's findings: ...sellers of these investments could purposefully include pieces of bad risk that no buyer could detect even with the most powerful computers... the problem arises from asymmetric information between buyers and sellers, and goes against conventional wisdom in economic theory, which holds that derivatives reduce the negative effects of such unequal information.

Computer Scientists Show; derivative; fraud; Guest Post; inherently vulnerable; naked capitalism; Princeton economists.

zero hedge Thu 2009-12-17 10:37 EST

Is Selling US CDS A Risk-Free Way To Short The Dollar?

There has been much conjecture on whether using CDS is an effective way to hedge against US default risk. Many theoreticians, especially those of the post-March lows variety, have sprung up and are speculating that buying Credit Default Swaps on the US is ultimately a futile and pointless endeavor. The main argument: a US default would likely mean that interconnected dealers won't recognize contracts on a US default event, as they themselves will be out of business. Even if they continued to exist, like cockroaches in a postapocalyptic world, the collateral which backs derivatives is mostly US Treasurys: the same obligations that would end up being massively impaired...the US CDS seller syndicate could easily be one of the key sources of dollar short funding: with sellers pocketing euros and immediately going to market and selling dollars...a dollar-short unwind would probably have repercussions in the US CDS market. Not only would the dollar spike, but paradoxically US credit risk would probably widen dramatically...any unwind at the heart of the prevalent risk trade now: the massive dollar carry, would impact virtually every investment product, quite possibly in self-referential feedback loops. If correct, it merely shows how much more the Fed has at stake in keeping the dollar depressed than merely getting mom and pop to buy Amazon at $130/share. Losing control of the carry trade will be the systemic equivalent of allowing Lehman's book to be marked-to-market: a potentially complete collapse in systemic confidence, which would have such far ranging implications as the $300 trillion interest rate derivative market. And when sudden volatility reaches this product universe which is 6 times bigger than world GDP, the events from last year will seem like a dress rehearsal.

CDS; Dollar; Risk-Free Way; sell; short; Zero Hedge.