Wed 2010-06-09 18:45 EDT

London business figures embroiled in Kaupthing fraud investigation: Serious Fraud Office team thought to be to be scrutinising Deutsche Bank's role in alleged suspect trades| Business | The Guardian

Simon Bowers| The Guardian

A Serious Fraud Office investigation into Kaupthing, the failed Icelandic bank, is understood to be pursuing a number of allegations of market manipulation involving investment vehicles controlled by some of the bank's largest clients, including several high profile UK business leaders. It is alleged that in the weeks and months before Iceland's financial system went into meltdown, certain trades improperly used at least €500m (£413m) of Kaupthing funds in an effort to manipulate credit derivatives. Bank bosses hoped this would restore crumbling confidence in Kaupthing's solvency in the months before the bank collapsed in October 2008...The effect was for investment vehicles -- financed by Kaupthing loans, and at least nominally controlled by some of the bank's largest clients -- to take on risk associated with the bank going bust. Kaupthing loans were being use to write insurance against Kaupthing bonds defaulting...Iceland's Truth Commission obtained details of emails sent by Deutsche Bank staff to Kaupthing which, according to its report, demonstrated that the German bank had been offering advice on how to influence the CDS price on Kaupthing bonds from early 2008...

alleged suspect trades; business; Guardian; Kaupthing fraud investigation; London business figures embroiled; scrutinising Deutsche Bank's role; Serious Fraud Office team thought.

zero hedge Wed 2010-05-19 11:37 EDT

Guest Post: Goldman's CDOs Had Nothing to Do With the Real Estate Bubble

David Fiderer

If Goldman Sachs wanted to reduce its exposure to subprime mortgage investments, why didn't it simply sell the assets it owned? Two reasons: First, those large sales would have sent a signal that something was terribly, terribly wrong, and thereby pushed prices down further. That's how supply and demand normally works. Second, Goldman professed to be market maker, which uses its trading book to instill confidence. It ostensibly bought, sold and inventoried mortgage securities to provide stability and liquidity to the marketplace. Of course, we now know that such market confidence was entirely misplaced. To sidestep these issues, Goldman and other major banks found a solution that subverted the laws of supply and demand, and escaped the price discovery of a transparent marketplace. They fabricated synthetic CDOs, such as Abacus 2007 AC-1. These toxic assets, invented out of thin air, made the meltdown worse than it otherwise would have been...

Goldman's CDOs; Guest Post; real estate bubble; Zero Hedge.

Sun 2010-05-16 15:59 EDT

billy blog >> Blog Archive >> Doublethink

Yesterday I read an article by Noam Chomsky -- Rustbelt rage -- which documents the decline of the American dream and extends the malaise to Chinese workers. The hypothesis is that the workers in each country signed up for what they thought was a social contract where if they worked hard they would enjoy secure retirements. Then the meltdown undermines their jobs and they are forced to live on pitiful pensions. And while they watch the top-end-of-town enjoying the benefits of billions of bailout money from government the beneficiaries of these bailouts are leading the charge to take the pensions of the workers and turn them into ``financial products'' (privatised social security). This raises the concept of doublethink (a term coined by George Orwell) -- which ``means the power of holding two contradictory beliefs in one's mind simultaneously, and accepting both of them''...I see a lot of that in the mainstream economics debate...whatever suits their political agenda on any particular day. There is no consistency in their attacks -- they shift and slither and creep as facts get in the way.

Billy Blog; blogs Archive; Doublethink.

naked capitalism Thu 2010-05-13 18:21 EDT

An Analysis of the Thursday Meltdown

...Contrast the reports at the Times and the Wall Street Journal, that the officialdom is pouring through the records and is still puzzled after a full three days on the case, versus this analysis produced by a lone sell-side analyst (who sadly must remain anonymous) roughly 24 hours after the implosion...``...it was not a sudden, random surge of volume from a fat finger that overwhelmed the market. It was a steady onslaught of selling that pressured the market lower in order to catch up with the carnage taking place in the credit markets and the currency markets...this episode exposed structural flaws in how a trade is implemented (think orphaned algo orders) and it exposed the danger of leaving market making up to a network of entities with no mandate to ensure the smooth and orderly functioning of the market (think of the electronic market makers and high freqs who can pull bids instantaneously as opposed to a specialist on the floor who has a clearly defined mandate to provide liquidity).''

Analysis; naked capitalism; Thursday Meltdown.

zero hedge Sun 2010-05-09 09:45 EDT

The Day The Market Almost Died (Courtesy Of High Frequency Trading)

A year ago, before anyone aside from a hundred or so people had ever heard the words High Frequency Trading, Flash orders, Predatory algorithms, Sigma X, Sonar, Market topology, Liquidity providers, Supplementary Liquidity Providers, and many variations on these, Zero Hedge embarked upon a path to warn and hopefully prevent a full-blown market meltdown. On April 10, 2009, in a piece titled "The Incredibly Shrinking Market Liquidity, Or The Black Swan Of Black Swans" we cautioned "what happens in a world where the very core of the capital markets system is gradually deleveraging to a point where maintaining a liquid and orderly market becomes impossible: large swings on low volume, massive bid-offer spreads, huge trading costs, inability to clear and numerous failed trades. When the quant deleveraging finally catches up with the market, the consequences will likely be unprecedented, with dramatic dislocations leading the market both higher and lower on record volatility." Today, after over a year of seemingly ceaseless heckling and jeering by numerous self-proclaimed experts and industry lobbyists, we are vindicated...absent the last minute intervention of still unknown powers, the market, for all intents and purposes, broke. Liquidity disappeared. What happened today was no fat finger, it was no panic selling by one major account: it was simply the impact of everyone in the HFT community going from port to starboard on the boat, at precisely the same time...It is time for the SEC to do its job and not only ban flash trading as it said it would almost a year ago, but get rid of all the predatory aspects of high frequency trading, which are pretty much all of them...HFT killed over 12 months of hard fought propaganda by the likes of CNBC which has valiantly tried to restore faith in our broken capital markets. They have now failed in that task too. After today investors will have little if any faith left in the US stocks, assuming they had any to begin with. We need to purge the equity market structure of all liquidity-taking parasitic players. We must start today with High Frequency Trading...

courtesy; day; dies; high frequency trade; Market; Zero Hedge.

zero hedge Sun 2010-05-09 09:38 EDT

MUST HEAR: Panic And Loathing From The S&P 500 Pits

"Guys this is probably the craziest I have seen it down here ever." Here it is, memorialized for the generations and away from the now openly ridiculous disinformation propaganda of the mainstream media, just what a full market meltdown panic sounds like: straight from the epicenter, the S&P 500 pits...

Hearings; loath; P 500 Pits; panic; s; Zero Hedge.

zero hedge Wed 2010-04-07 18:31 EDT

Quantitative Easing And Its Effect On Inflation And The Economy

Sancho Ponzi

The Fed's response to the financial meltdown was twofold: Interest rates were effectively set at zero, and the monetary base was increased 140%. While it is not known exactly what formula the Fed used to arrive at the 140% increase of the monetary base, the expansion from roughly 800 billion to 2.2 trillion roughly correlates with the asset backed securities since purchased by the Fed...Rather than an attempt to spur bank lending, Bernanke, like Paulson before him, employed QE strictly to offload toxic assets from bank balance sheets in an attempt to make banks and other financial institutions whole, with the effect of preserving historically inflated asset valuations for residential real estate. As a result, massive increases in federal spending have been required to offset the erosion of private sector GDP...

economy; effect; Inflation; Quantitative Easing; Zero Hedge.

New Deal 2.0 Sat 2010-02-27 22:55 EST

GSE Losses As Shadow Bailout

Roosevelt Institute Fellow Mike Konczal

...As the private sector started to dump housing and housing bonds quickly in 2007 and 2008, government officials made sure that the GSEs would be capable of absorbing these bad loans...This constitutes one part of many ``shadow bailouts'' according to Roosevelt Institute senior fellows Rob Johnson and Tom Ferguson; this argument, and the graph above, is from their Too Big to Bail: The `Paulson Put,' Presidential Politics, and the Global Financial Meltdown Part II paper. (In Part I, they argue that the Federal Home Loan Bank System was also used in a similar manner.) Astute readers will notice that the action of government officials using public funding sources to provide makeshift backstops for losses of the banking sector to clear the balance sheets of toxic assets to ``unlock the frozen credit market'', without having to go to Congress for funding, was also a central feature of Geithner's PPIP plan, with FDIC stepping up to the plate once the GSEs went bust...

0; GSE losses; new dealing 2; Shadow Bailout.

Culture of Life News Mon 2010-01-04 16:52 EST

The Horrors Of The Carbon Trade Derivatives Beast

Elaine Supkis

There are many ways of fixing things. Using the right tools is important. The international bankers have chosen a very nasty tool for fixing both global warming and dealing with the Hubbert Oil Peak: wild derivative futures markets modeled on the goofy OTC --CDS market! The thing that just destroyed international banking. We mustn't forget that the reason we had a banking meltdown was due to the sudden climb in energy prices beginning with the invasion of Iraq.

Carbon Trade Derivatives Beast; Culture; horror; Life News.

zero hedge Sun 2009-11-29 12:33 EST

Fed's Bull Dudley Explains Bank Runs, Discusses Collateral Risks, Suggests Way To Prevent Systemic Collapse

An impressively comprehensive presentation by Bill Dudley before the Center for Economic Policy Studies Symposium earlier, discusses, and ties in, all the key concepts Zero Hedge has been discussing over the past several months, among these the tri-party repo system, bank runs (what and why), collateral, moral hazard, maturity mismatch, unsecured markets, Primary Dealer Credit Facility, Commercial Paper Funding Facility, and liquidity. In fact, at some points in the speech we get the feeling Mr. Dudley is indirectly refuting some of Zero Hedge's recent allegations vis-a-vis the Fed's actions and regulatory oversight. The presentation is largely devoid of bias except for some of the proposals on how to avoid future systemic meltdowns, which of course are moral hazard prevention lite and philosophy heavy.

Discusses Collateral Risks; Fed's Bull Dudley Explains Bank Runs; Prevent Systemic Collapse; suggested way; Zero Hedge.

Thu 2009-11-19 10:26 EST

How Goldman secretly bet on the U.S. housing crash | McClatchy

Greg Gordon

In 2006 and 2007, Goldman Sachs Group peddled more than $40 billion in securities backed by at least 200,000 risky home mortgages, but never told the buyers it was secretly betting that a sharp drop in U.S. housing prices would send the value of those securities plummeting. Goldman's sales and its clandestine wagers, completed at the brink of the housing market meltdown, enabled the nation's premier investment bank to pass most of its potential losses to others before a flood of mortgage defaults staggered the U.S. and global economies. Only later did investors discover that what Goldman had promoted as triple-A rated investments were closer to junk...

Goldman Secretly Bet; McClatchy; U.S. housing crash.

naked capitalism Tue 2009-10-27 12:18 EDT

Guest Post: Capitalism, Socialism or Fascism?

George Washington of Washington's Blog

What is the current American economy: capitalism, socialism or fascism? ...Nouriel Roubini writes ``We're essentially continuing a system where profits are privatized and...losses socialized.'' Nassim Nicholas Taleb says ``the government is socializing all these losses by transforming them into liabilities for your children and grandchildren and great-grandchildren.'' Nobel prize winning economist Joseph Stiglitz calls it ``socialism for the rich'' ...leading journalist Robert Scheer writes: ``What is proposed is not the nationalization of private corporations but rather a corporate takeover of government. The marriage of highly concentrated corporate power with an authoritarian state that services the politico-economic elite at the expense of the people is more accurately referred to as ``financial fascism'''' ...Italian historian Gaetano Salvemini argued in 1936 that fascism makes taxpayers responsible to private enterprise, because ``the State pays for the blunders of private enterprise... Profit is private and individual. Loss is public and social'' ...one of the best definitions of fascism -- the one used by Mussolini -- is the ``merger of state and corporate power`` ...Nobel prize-winning economist George Akerlof co-wrote a paper in 1993 describing the causes of the S&L crisis and other financial meltdowns...[Looting is the] common thread [when] countries took on excessive foreign debt, governments had to bail out insolvent financial institutions, real estate prices increased dramatically and then fell, or new financial markets experienced a boom and bust...Our theoretical analysis shows that an economic underground can come to life if firms have an incentive to go broke for profit at society's expense (to loot) instead of to go for broke (to gamble on success). Bankruptcy for profit will occur if poor accounting, lax regulation, or low penalties for abuse give owners an incentive to pay themselves more than their firms are worth and then default on their debt obligations ...Whether we use the terminology regarding socialism-for-the-giants (''socialized losses''), of fascism (''public and social losses''), or of looting (''left the government holding the bag for their eventual and predictable losses''), it amounts to the exact same thing. [kleptocracy] Great comments, including Joseph: Three core ideas characterize the myth of our society: 1. Free market; 2. Capitalism; 3. Democracy. The conceptual error that people make is to think that they are compatible, or indeed represent aspect of the same thing. In fact they are all deeply antagonistic towards each other. It is the miracle of post-war society that we managed to hold them in balance for so long. That balance has now been destroyed. A simple example of the contradiction, and the one that the over-socialised right finds most confusing, is the contradiction between capitalism and the market. Capitalism is a system of ownership; the market is a system of distribution. The perfect world for the capitalist is one in which they are price setters in terms of the commodities they produce and labour they employ -- ie a state of monopoly. Each individual capitalist seeks the destruction of the market. What has occurred over the past year is not corruption; it is the triumph of capitalism. The market and democracy have been defeated. Not socialism, not fascism,...

capitalism; Fascism; Guest Post; naked capitalism; social.

Fri 2009-10-23 09:42 EDT

America's soul is lost, collapse inevitable - MarketWatch

Paul B. Farrell

Jack Bogle published "The Battle for the Soul of Capitalism" four years ago. The battle's over. The sequel should be titled: "Capitalism Died a Lost Soul." Worse, we've lost "America's Soul." And, worldwide, the consequences will be catastrophic. That's why a man like Hong Kong contrarian economist Marc Faber warns in his Doom, Boom & Gloom Report: "The future will be a total disaster, with a collapse of our capitalistic system as we know it today." No, not just another meltdown, another bear-market recession like the one recently triggered by Wall Street's too-greedy-to-fail banks. Faber is warning that the entire system of capitalism will collapse. Get it? The engine driving the great "American Economic Empire" for 233 years will collapse, a total disaster, a destiny we created.

America s Soul; Collapse Inevitable; lost; MarketWatch.

The Guardian World News Mon 2009-10-12 10:02 EDT

Ex-Wall Street financiers face criminal action

Former Bear Stearns hedge fund manager Matthew Tannin's private jottings show concerns about 'blow up risk' to investors...Tannin and his boss, Ralph Cioffi, ran two funds holding $1.4bn of clients' funds that collapsed in July 2007, an event widely viewed as the first clear signal of America's sub-prime mortgage crisis and the global credit crunch. The meltdown of these funds sparked a chain of events that contributed to the demise of Bear Stearns, an 85-year-old Wall Street institution, in early 2008. They have been charged by US prosecutors with defrauding customers by hiding the true condition of investments as prospects steadily darkened.

Ex-Wall Street financiers face criminal action; Guardian World News.

Blog entry Sat 2009-09-19 13:28 EDT

The Angelides Commission: Tell America What Happened

Robert L. Borosage

Today the new Financial Crisis Inquiry Commission, modeled after the New Deal-era Pecora Commission, begins its investigation into possible misconduct by the financial sector causing last year's market meltdown...We are pleased that the Financial Crisis Commission is coming together, under the leadership of chair Phil Angelides...the Commission should aspire to be the modern day version of the Senate Banking Hearings in the 1930s that came to be named after the chief counsel, Ferdinand Pecora...The Angelides Commission -- if it fearlessly lays out the facts, exposes the excesses, the deformed incentives, the frauds and crimes, that are at the root of the current crisis has the potential of playing a similar role to that of Pecora.

Angelides Commission; blog entry; happened; tell America.

Rick Bookstaber Sun 2009-09-13 16:06 EDT

The Risks of Financial Modeling: VaR and the Economic Meltdown -- Testimony to the House

Rick Bookstaber

I testified before the House for the hearing, "The Risks of Financial Modeling: VaR and the Economic Meltdown". This is my written testimony.

economic meltdown; financial model; Housing; Rick Bookstaber; Risk; testimony; var.

Fri 2009-07-24 00:00 EDT

Economic Meltdown - Articles: The Roots of the Financial Crisis: Who Is to Blame?

-- John Dunbar, David Donald; top 25 subprime lenders; wall street backers; banks that financed subprime industry collecting bailout billions

article; blames; economic meltdown; Financial Crisis; rooted.

Fri 2009-07-24 00:00 EDT

Salon.com | Fix the economy? Curb corporate America

Salon.com | Fix the economy? Curb corporate America -- Part 3: Johnson and John Talbott wrap up their talk on the real causes of the economic meltdown

com; Curb corporate America; economy; Fix; Salon.

Thu 2009-02-26 00:00 EST

naked capitalism: Will Eastern Europe Trigger a Financial Meltdown?

Eastern Europe Trigger; financial meltdown; naked capitalism.

Fri 2008-11-07 00:00 EST

Matt Taibbi and Byron York Butt Heads Over Whether McCain Deserves Blame for the Wall Street Meltdown -- Daily Intel -- New York News Blog -- New York Magazine

Byron York Butt Heads; Daily Intel; Matt Taibbi; New York magazine; New York News Blog; Wall Street Meltdown; Whether McCain Deserves Blame.

Mon 2008-10-27 00:00 EDT

Mish's Global Economic Trend Analysis: Currency Crisis Meltdown in Europe, Japan, Australia

Australia; Currency Crisis Meltdown; Europe; Japan; Mish's Global Economic Trend Analysis.

Wed 2008-10-22 00:00 EDT

naked capitalism: Roubini Warns of Possible Systemic Meltdown, "Severe Global Depression"

naked capitalism; Possible Systemic Meltdown; Roubini warning; severe global depression.

Wed 2008-04-16 00:00 EDT

Foreign Policy: 8 Steps to a Trillion-Dollar Meltdown

by Charles R. Morris; how the U.S. financial crisis happened

8 Steps; foreign policy; Trillion Dollar Meltdown.

Tue 2008-04-01 00:00 EDT

Financial Meltdown: U.S. Treasury Regulatory Reform Proposals: Hapless, Helpless, Hopeless

by Richard C. Cook, Global Research

financial meltdown; hapless; helpless; hopelessly; U.S. Treasury Regulatory Reform Proposals.

Fri 2008-03-28 00:00 EDT

Mish's Global Economic Trend Analysis: Germany Fears Global Meltdown

Germany Fears Global Meltdown; Mish's Global Economic Trend Analysis.

Tue 2007-12-11 00:00 EST

MORTGAGE MELTDOWN / Interest rate 'freeze' - the real story is fraud / Bankers pay lip service to families while scurrying to avert suits, prison

by Sean Olender

avert suits; Bankers pay lip service; family; fraud; freeze; interest-rate; mortgage meltdown; prisoners; real story; scurrying.

Sun 2007-11-25 00:00 EST

RGE - With the Recession Becoming Inevitable the Consensus Shifts Towards the Hard Landing View. And the Rising Risk of a Systemic Financial Meltdown

by Nouriel Roubini

Consensus Shifts; Hard Landing View; Recession Becoming Inevitable; RGE; rising risks; System financial meltdown.

Thu 2007-11-15 00:00 EST

RGE - The Next Shoe to Drop in the Credit Meltdown: Commercial Real Estate and Its Massive Forthcoming Losses

by Nouriel Roubini

commercial real estate; credit Meltdowns; dropped; Massive Forthcoming Losses; RGE; shoe.