More Prosecutions of Investment Banks Coming? [View article]
There will be hesitancy to pursue these cases too vigorously because the capitalization of banks might not withstand too much activity in these areas. The extend and pretend strategy of the Treasury and the Fed could be washed out with devastating results.
Justice is supposed to be blind but I expect that at least one eye will be open in these cases.
What is quite likely is that a few selected cases will be brought at a time and they will be determined on the basis of who is the most able to withstand the financial stress. This maintains a charade of "going after the crooks" while allowing most of them to escape timely prosecution. After some time has passed the public fervor for justice will fade and it may be that many miscreants will go unpunished.
Investigations of Mortgage Security Fraud Widen [View article]
Leftfield - - -
The Martha Stewart case seems even more trivial in hindsight.
I have another post on my Instablog which is not yet up as an article that builds some bridges to Glass-Steagall. The current reform legislation is nothing like Glass-Steagall. The Volcker Rule (the topic of the article) has elements from G-S.
Why SEC Has Strong Case Against Goldman, Part 2 [View article]
sethmcs - - -
When you buy the put has your broker (or on-line trading platform) given you promotional literature stating that an independent expert has selected this put with an implication that improves the probability that it will perform?
If you had received such literature, would you be upset if you later found out (after losing your money) that the put had been selected for marketing by your broker with the knowledge that it was selected for sale based on insider information?
Did anyone represent your put had an AAA rating?
You are right that politics and emotions are involved. But that is just the surface and the issues go much deeper than your reference to a stock put represents. There are fundamental issues about what the responsibilities of broker-dealers should be, how the potential conflicts of interests can be made clear when one party acts as a market maker, a broker and a principal in the same transaction, and whether more distinct financial firm boundaries are needed.
I'm sorry, sethmcs. I must say that your analysis hardly scratches the surface.
Why SEC Has Strong Case Against Goldman, Part 2 [View article]
Suna - - -
Excellent post and discussion. The fact that Paulson was involved is immaterial. The fact that Goldman misrepresented to ACA the role of Paulson occupied with respect to the reference securities is material. The fact that Goldman was aware of misinformation obtained by ACA without correcting it is a material omission.
You wrote:
<<I’m of the opinion that even if one of Paulson’s employees later went out of his way to disabuse ACA of the notion that Paulson & Co. intended to go long, ...>>
If you are referring to Paolo Pellegrini, the only thing I have seen in print about his statement to an ACA representative was that Paulson intended to hedge positions in Abacus. With no further information, hedge clearly implies a move to offset a long position. I don't know of any attempt by Paulson to inform ACA of their short position.
The thinking seems to be that C is only 40% owned by the U.S. government and therefore still poses a risk because it is not under sovereign control. AIG is 89% government owned and is therefore no risk unless the U.S. fails.
In my articles during the past summer I considered both C and AIG failed concerns and therefore under government receivership. The case of C can still be debated; with AIG there is no debate.
The Global Oil Scam: 50 Times Bigger than Madoff [View article]
Augustus - - -
You need to find a neighbor that believes your $50 trades are real.
On Nov 13 12:44 AM Augustus wrote:
> Is this supposed to be serious? These firms trade volumes of oil > back and forth at the same price each time and profit from it. Does > it have anything to do with Flash Trading? > > My wife and I tried an experiment. She handed me a bottle of wine > and I handed her $50. Then we reversed that and she got the wine > and I got the cash. So far we have done this over 200 times and can > see no increase in either the quantity of wine or the quantity of > money. I suppose it is because we must have overlooked some secret > factor. While we were doing this a neighbor dropped by. She could > not believe that we were continuing to pay $50 for a bottle of Gallo > that she had purchased one just like it for $8.99 at the liquor store > last week. I suppose she is more capable of purchasing wine than > VLO is when purchasing a boat load of crude oil to refine into gasoline. > > > I always wonder why these masters of Oil Prices ever let that price > slip from $140 to $40. Maybe flash trading gave them profits on that > too while the value of their inventories were declining. I look foreward > to seeing the conspiracy theory on that.
The Global Oil Scam: 50 Times Bigger than Madoff [View article]
There have been commenters who felt that no two large traders could establish an artificially higher price in a public exchange. It can be done very easily and here is an example:
Let's take two hypothetical traders, A and B. Both have full visibility to all bid and ask prices. Let's say a particular time the last trade was 80 and all bid and ask orders are between 79 and 81. A and B can agree that one will put in a large order to buy stop at 81.50 and the other will put in a sell limit order for the same quantity at the same price. The trade will clear at 81.50. Neither order will execute below 81.50. Immediately after the trade clears, they can (instantaneously) place the same orders, but reversed. Another large trade clears at 81.50 and a new market level is established. Both A and B have exactly returned to their original positions, but the market price has moved 1.50. Other traders will be adjusting bid and ask orders to the new reality.
A and B can repeat this many times with small moves each time. If 100 round trip trades are executed with 1.50 moves each time, the market moves $150. Of course, there will be independent market movement and some of that will be down, so it might take 1000 ten cent manipulations to move the market $50 up if between manipulations the net slippage was $50.
A and B are not making the bulk of their money on the overall move. They are making it on each manipulation. Prior to each rigged round trip, they can accumulate current and futures contracts and/or options and then dump them after the manipulated move.
Is it trading genius that Goldman Sachs had only one losing trading day in the third quarter? I have just described one form of genius.
You don't have to buy everything to own the market. You can simply keep taking money from the other owners.
Market Manipulation by the 'Big Boys'? [View article]
Reggie - - -
Very timely article. I have a few thoughts to add:
1. If program trading is up to 40% of the volume and these "hedge fund/banks" are making big profits in a sideways market, where does that leave the mutual fund investors, the retail traders/investors, the pension funds, etc? How about losing? 2. I have reported elsewhere that volumes are very low on up days coming off dips, indicating weak buying interest. 3. Volume trend lines are down for the past two months, indicating investor apathy. 4. A number of price charts have pulled back to moving average lines recently penetrated with price going up. Failure to stay above these moving averages will be very bearish.
I think the next two weeks are crunch time and, Reggie, your opening statement, "why stock prices have diverged so far, and so fast from the underlying fundamentals" will be answered by 'they are now converging' as prices go down.
In a Real Money article a couple of weeks ago, I gave a better than 50% chance for the S&P 500 to pull back to the 770-800 region in the middle of the summer and a 25% chance of retesting the March 9 lows this fall. With the additinal developments since then, I think the odds have improved for these declines.
Keep up the good work. You look at data that I don't track, so I look forward to everything you put out.
Wouldn't it be something if analysts reported on business models, prospects for one, two and three business performance and stopped concentrating on quarterly earnings?
Concentrating on quarterly earnings, with five year performance be damned attitudes, is what got us into this mess.
How were these prices determined? I assume there is a record of transactions somewhere? If so, what volume of transactions have taken place recently and on what dates?
Wall Street Breakfast: Must-Know News [View article]
Preferred stock is senior to common stock and junior to bonds. If the government takes over Fannie and Freddie, the common will almost certainly go to zero, very likely that preferred stock will do the same. Bond holders will likely remain whole and, in effect, hold treasuries.
What a disaster for capitalism. National debt will instantaneously double. Will the value of the dollar be cut in half? Almost certainly no, but it will fall further immediately.
More Prosecutions of Investment Banks Coming? [View article]
Justice is supposed to be blind but I expect that at least one eye will be open in these cases.
What is quite likely is that a few selected cases will be brought at a time and they will be determined on the basis of who is the most able to withstand the financial stress. This maintains a charade of "going after the crooks" while allowing most of them to escape timely prosecution. After some time has passed the public fervor for justice will fade and it may be that many miscreants will go unpunished.
Investigations of Mortgage Security Fraud Widen [View article]
The Martha Stewart case seems even more trivial in hindsight.
I have another post on my Instablog which is not yet up as an article that builds some bridges to Glass-Steagall. The current reform legislation is nothing like Glass-Steagall. The Volcker Rule (the topic of the article) has elements from G-S.
Why SEC Has Strong Case Against Goldman, Part 2 [View article]
When you buy the put has your broker (or on-line trading platform) given you promotional literature stating that an independent expert has selected this put with an implication that improves the probability that it will perform?
If you had received such literature, would you be upset if you later found out (after losing your money) that the put had been selected for marketing by your broker with the knowledge that it was selected for sale based on insider information?
Did anyone represent your put had an AAA rating?
You are right that politics and emotions are involved. But that is just the surface and the issues go much deeper than your reference to a stock put represents. There are fundamental issues about what the responsibilities of broker-dealers should be, how the potential conflicts of interests can be made clear when one party acts as a market maker, a broker and a principal in the same transaction, and whether more distinct financial firm boundaries are needed.
I'm sorry, sethmcs. I must say that your analysis hardly scratches the surface.
Why SEC Has Strong Case Against Goldman, Part 2 [View article]
Excellent post and discussion. The fact that Paulson was involved is immaterial. The fact that Goldman misrepresented to ACA the role of Paulson occupied with respect to the reference securities is material. The fact that Goldman was aware of misinformation obtained by ACA without correcting it is a material omission.
You wrote:
<<I’m of the opinion that even if one of Paulson’s employees later went out of his way to disabuse ACA of the notion that Paulson & Co. intended to go long, ...>>
If you are referring to Paolo Pellegrini, the only thing I have seen in print about his statement to an ACA representative was that Paulson intended to hedge positions in Abacus. With no further information, hedge clearly implies a move to offset a long position. I don't know of any attempt by Paulson to inform ACA of their short position.
Again, thanks for a great two part presentation.
The FSB's Big, Bad 30 [View article]
The thinking seems to be that C is only 40% owned by the U.S. government and therefore still poses a risk because it is not under sovereign control. AIG is 89% government owned and is therefore no risk unless the U.S. fails.
In my articles during the past summer I considered both C and AIG failed concerns and therefore under government receivership. The case of C can still be debated; with AIG there is no debate.
The Global Oil Scam: 50 Times Bigger than Madoff [View article]
You need to find a neighbor that believes your $50 trades are real.
On Nov 13 12:44 AM Augustus wrote:
> Is this supposed to be serious? These firms trade volumes of oil
> back and forth at the same price each time and profit from it. Does
> it have anything to do with Flash Trading?
>
> My wife and I tried an experiment. She handed me a bottle of wine
> and I handed her $50. Then we reversed that and she got the wine
> and I got the cash. So far we have done this over 200 times and can
> see no increase in either the quantity of wine or the quantity of
> money. I suppose it is because we must have overlooked some secret
> factor. While we were doing this a neighbor dropped by. She could
> not believe that we were continuing to pay $50 for a bottle of Gallo
> that she had purchased one just like it for $8.99 at the liquor store
> last week. I suppose she is more capable of purchasing wine than
> VLO is when purchasing a boat load of crude oil to refine into gasoline.
>
>
> I always wonder why these masters of Oil Prices ever let that price
> slip from $140 to $40. Maybe flash trading gave them profits on that
> too while the value of their inventories were declining. I look foreward
> to seeing the conspiracy theory on that.
The Global Oil Scam: 50 Times Bigger than Madoff [View article]
Let's take two hypothetical traders, A and B. Both have full visibility to all bid and ask prices. Let's say a particular time the last trade was 80 and all bid and ask orders are between 79 and 81. A and B can agree that one will put in a large order to buy stop at 81.50 and the other will put in a sell limit order for the same quantity at the same price. The trade will clear at 81.50. Neither order will execute below 81.50. Immediately after the trade clears, they can (instantaneously) place the same orders, but reversed. Another large trade clears at 81.50 and a new market level is established. Both A and B have exactly returned to their original positions, but the market price has moved 1.50. Other traders will be adjusting bid and ask orders to the new reality.
A and B can repeat this many times with small moves each time. If 100 round trip trades are executed with 1.50 moves each time, the market moves $150. Of course, there will be independent market movement and some of that will be down, so it might take 1000 ten cent manipulations to move the market $50 up if between manipulations the net slippage was $50.
A and B are not making the bulk of their money on the overall move. They are making it on each manipulation. Prior to each rigged round trip, they can accumulate current and futures contracts and/or options and then dump them after the manipulated move.
Is it trading genius that Goldman Sachs had only one losing trading day in the third quarter? I have just described one form of genius.
You don't have to buy everything to own the market. You can simply keep taking money from the other owners.
More Goldman Outrage [View article]
More Goldman Outrage [View article]
More Goldman Outrage [View article]
I made a similar observation in an article at TheStreet.com within the past couple of weeks. (Tech and financials the best shorts in a pullback.)
Market Manipulation by the 'Big Boys'? [View article]
Very timely article. I have a few thoughts to add:
1. If program trading is up to 40% of the volume and these "hedge fund/banks" are making big profits in a sideways market, where does that leave the mutual fund investors, the retail traders/investors, the pension funds, etc? How about losing?
2. I have reported elsewhere that volumes are very low on up days coming off dips, indicating weak buying interest.
3. Volume trend lines are down for the past two months, indicating investor apathy.
4. A number of price charts have pulled back to moving average lines recently penetrated with price going up. Failure to stay above these moving averages will be very bearish.
I think the next two weeks are crunch time and, Reggie, your opening statement, "why stock prices have diverged so far, and so fast from the underlying fundamentals" will be answered by 'they are now converging' as prices go down.
In a Real Money article a couple of weeks ago, I gave a better than 50% chance for the S&P 500 to pull back to the 770-800 region in the middle of the summer and a 25% chance of retesting the March 9 lows this fall. With the additinal developments since then, I think the odds have improved for these declines.
Keep up the good work. You look at data that I don't track, so I look forward to everything you put out.
Bank Forecasts: Don't Believe Them [View article]
Wouldn't it be something if analysts reported on business models, prospects for one, two and three business performance and stopped concentrating on quarterly earnings?
Concentrating on quarterly earnings, with five year performance be damned attitudes, is what got us into this mess.
Financial Company Default Risk [View article]
Wall Street Breakfast: Must-Know News [View article]
What a disaster for capitalism. National debt will instantaneously double. Will the value of the dollar be cut in half? Almost certainly no, but it will fall further immediately.
Wall Street Breakfast: Must-Know News [View article]