April 25, 2010

Bits Bucket For April 25, 2010

Post off-topic ideas, links and Craigslist finds here. The DC meetup link at the forum is here.




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375 Comments »

Comment by 2banana
2010-04-25 06:25:20

I think Germany did the same over the weekend (I will check). Monday is going to be interesting!


(UK) Goldman Sachs pulls ‘fraud’ banker’s licence
UK TIMES | 4/21/10 | Christine Seib, Katherine Griffiths and Helen Power

As the UK’s Financial Services Authority announced it had opened an investigation into G/S, Goldman removed the FSA registration of Fabrice Tourre, accused, along with Goldman, of misleading investors re complex investments based on sub-prime mortgages. Tourre was in NY when the alleged fraud took place but moved to the London office in 2008. Goldman maintains that Mr Tourre did nothing wrong.

Comment by Professor Bear
2010-04-25 06:50:48

Since when is misleading a client against the law? If the client happens to be a greater fool, that’s their own problem for being stoopid. Is there really a law against selling toxic assets to greater fools?

Comment by 2banana
2010-04-25 07:12:23

It is also a violation for your company to create a financial product to sell to the public and then start shorting that same product at the same time. The ethical issues and moral hazards alone would land most of us in jail…

Comment by Professor Bear
2010-04-25 07:47:24

Shorting is OK, provided Gollum is doing it, as they are doing God’s work. By contrast, individual investors or hedge funds who short the market are evil.

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Comment by pressboardbox
2010-04-25 08:02:49

Godman knows what is best for you. Why do you keep fighting them? Just relax. Don’t restist.

 
Comment by joeyinCalif
2010-04-25 08:06:39

You forget that GS was hedging it’s own bets.

 
Comment by Professor Bear
2010-04-25 08:14:15

“You forget that GS was hedging it’s own bets.”

Do you mean by funneling money to everyone high enough in government to regulate them?

 
Comment by joeyinCalif
2010-04-25 08:20:58

you know what i mean.. try and stay on topic. The topic is shorting. They used CDS to short their own investments in MBS.

 
Comment by waiting_in_la
2010-04-25 08:34:50

Michael Lewis says that Fabrice Tourre is nothing more than ‘ritual sacrifice’.
http://www.bloomberg.com/apps/news?pid=20601039&sid=aWUolZvh4qmE

 
Comment by Professor Bear
2010-04-25 08:40:04

“Michael Lewis says that Fabrice Tourre is nothing more than ‘ritual sacrifice’.”

No sh!t, Sherlock. Pirates occasionally have to make one of their crewmates walk the plank in order to keep the piracy operation up and running…

 
Comment by pressboardbox
2010-04-25 10:10:07

Can’t wait to hear the figure on “Fabulous-Fabrice’s” bonus last year (or this one). That 31yo punk probably makes enough to make all of the readers here puke in one collective projectile-vomit session that could fill a foreclosure swimming pool. Why hasn’t the media been all over this juicy, riot-inducing detail?

 
Comment by Green Shoots
2010-04-25 10:28:42

“you know what i mean.. try and stay on topic. The topic is shorting.

Au contraire; the topic is high level corruption and captured regulators. You are the one who is trying to change it.

 
Comment by joeyinCalif
2010-04-25 11:01:52

..the topic is high level corruption and captured regulators..

Witch hunts are so much fun..

 
Comment by Green Shoots
2010-04-25 12:10:59

I agree. Inquisitions are even more fun! Both witch hunts and inquisitions also create great investing opportunities.

 
Comment by joeyinCalif
2010-04-25 14:57:34

witch hunts….also create great investing opportunities…

Sock Puppet..

Are you shorting Goldman Sachs?

 
Comment by Professor Bear
2010-04-25 21:50:37

Wall St. reformers angered by secret Goldman Sachs emails crowing about housing collapse

BY Helen Kennedy
DAILY NEWS STAFF WRITER

Sunday, April 25th 2010, 8:37 PM

Sen. Chris Dodd, author of the financial reform bill, and Larry Summers, director of the White House National Economic Council, are both pushing for progress over Wall St.
Sen. Chris Dodd, author of the financial reform bill, and Larry Summers, director of the White House National Economic Council, are both pushing for progress over Wall St.

Democrats pushing Wall Street reform seized yesterday on e-mails showing Goldman Sachs executives privately crowing over the housing collapse that ruined so many ordinary Americans.

“These e-mails signify that there are all kinds of conflicts of interest on Wall Street,” said Sen. Sherrod Brown (D-Ohio), on ABC’s “This Week.”

“That’s why we need really strong reform.”

Larry Summers, director of the White House National Economic Council, told CBS’s “Face the Nation” that the e-mails underscore “what is at the center of the President’s vision here - the importance of transparency.”

He said investors need to know “who is in a position to benefit from what - who’s got a stake in success, who’s got a stake in failure.”

The financial reform bill is moving ahead. Democrats hope to convince at least one Republican to break ranks and vote to begin debate today.

“We’re getting there, we’re close,” said the bill’s author, Sen. Chris Dodd (D-Conn.)

“Here we are 17 months after someone broke into our house, in effect, and robbed us and we haven’t even changed the locks on the door. We need to get it done,” he said.

Republicans were slowly getting on board the politically popular push to leash the bankers.

“We’ve got to end once and for all the casino atmosphere of Wall Street,” said Sen. Richard Shelby, (R-Ala.)

Republicans trying to put the brakes on new regulation were rocked back onto the defensive last week when the SEC launched a broad fraud probe of Goldman Sachs, renewing public anger against the fat cats who put the economy in the toilet.

Goldman, the respected blue-chip name that came through the economic crisis richer than ever, allegedly saw the collapse coming and made massive bets against a real estate fund they were hawking to investors as safe - but which was really designed to fail.

In one e-mail, chief financial officer David Viniar brags the firm netted $50 million in a single day, writing that it “tells you what might be happening to people who don’t have the big short.”

The firm has denied any wrongdoing.

http://www.nydailynews.com/news/politics/2010/04/25/2010-04-25_notes_on_a_sachs_scandal_goldman_emails_tout_tanking_of_housing_market.html#ixzz0mB8COw1m“>Read more:
====================================================
Related News

* Articles
* SEC porn scandal: Political payback for fraud suit against Goldman Sachs?
* E-mails reveal Goldman Sachs execs gloated as housing market crashed
* Chuck Schumer fund-raiser John Paulson is key figure in Goldman Sachs fraud case
* Politicians, Wall St. elite collide in New York for President Obama’s speech on financial reform
* Pols to grill Goldman Sachs execs in a Senate hearing next week

 
Comment by Green Shoots
2010-04-25 22:14:06

There has never been a better time to buy Goldman Sachs’ stock, people! Once this fraud thingee blows over, whoever stepped up to the plate to buy the fraud dip will be $rich$ $rich$ $rich$!!!!!
—————————————————————–
Monday April 26, 2010
SEC Fraud Suit Against Goldman Is a ‘Buy’ Sign: John Dorfman

Commentary by John Dorfman

April 26 (Bloomberg) — Now that the Securities and Exchange Commission has unofficially declared Goldman Sachs Group Inc. to be the big bad wolf of the 2007-2009 financial crisis, what should investors do?

I believe they should buy Goldman Sachs stock.

I like some other financial companies too, but let’s start with the wolf. With a market value of about $86 billion, New York-based Goldman is the largest U.S. bank, and the one currently occupying the regulatory hot seat.

I don’t know whether Goldman will prevail if the SEC’s case alleging fraud goes to trial. If I were a lawyer, I could argue either side.

As an SEC attorney, I would claim that Goldman created and sold to the public a security designed to fail. This was a synthetic collateralized debt obligation whose component investments were allegedly chosen by hedge-fund manager John Paulson because he wanted to bet against them.

As Goldman’s defense counsel, I would say that Paulson’s opinion of those underlying investments doesn’t matter. What does matter is whether the risks were properly disclosed, and they were.

I will watch the trial with great interest, assuming no out-of-court settlement is reached first. But as an investor, I maintain that it doesn’t matter who wins.

Remember Exxon’s Rebound

A guilty verdict might nick Goldman’s reputation. But the firm could withstand the hit, I believe. When the Exxon Valdez had a colossal oil spill in 1989, it harmed the reputation of Exxon (now Exxon Mobil Corp.) That didn’t stop Exxon shares from posting a total return of about 1,000 percent in the 21 years following the accident.

If it loses, Goldman might have to pay a substantial fine. But many firms, from Microsoft Corp. to the big tobacco companies, have taken legal blows and come back to perform well.

Consider Goldman’s record. Its revenue has climbed steadily: $4.5 billion in 1995, $16.6 billion in 2000, $25.2 billion in 2005 and $45.2 billion last year.

Profits have also moved up smartly: $1.3 billion in 1995, $3.1 billion in 2000, $5.6 billion in 2005 and $13.4 billion in 2009.

What earnings multiple would you expect to pay for this sort of growth? I think that in normal times many investors would be willing to pay 30 times earnings for it, or more.

Yet today, nervous investors value Goldman shares at only six times earnings and 1.5 times revenue. This seems like a bargain to me.

At about $159, Goldman shares have declined more than a third from their 2007 high of about $247. Investors who don’t own the stock can thank the recession and bear market of 2007 to 2009, plus the SEC’s fraud complaint, for this buying opportunity.

 
Comment by CA renter
2010-04-26 00:43:30

Consider Goldman’s record. Its revenue has climbed steadily: $4.5 billion in 1995, $16.6 billion in 2000, $25.2 billion in 2005 and $45.2 billion last year.

Profits have also moved up smartly: $1.3 billion in 1995, $3.1 billion in 2000, $5.6 billion in 2005 and $13.4 billion in 2009.
—————-

Wow! I had no idea their revenues and profits were up so much since 2005!!!!!!

And this, during the “Greatest Recession Since the Great Depression”!!!!!!

 
 
 
Comment by SUGuy
2010-04-25 07:22:18

“You can shear a sheep many times, but you can skin him only once.”

Amarillo Slim

There is money in honesty. Sometimes it pays to be honest to a fault.

Comment by Professor Bear
2010-04-25 07:48:34

I am thinking the shearer is about to get sheared, or at least the Congress is going to put on a good show for the American voter to give that impression.

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Comment by Lip
2010-04-25 09:01:01

” put on a good show ”

Bingo, the right hand will be slappin them around while the left hand shovels them more and more bailout money.

We should throw them all out, especially the Maverick in AZ.

 
Comment by GrizzlyBear
2010-04-25 10:54:14

I wonder if the greater population will ever come to their senses and realize that it is merely a show, and the government has no intention of punishing these pigmen.

 
Comment by Professor Bear
2010-04-25 11:05:23

“I wonder if the greater population will ever come to their senses and realize that it is merely a show, and the government has no intention of punishing these pigmen.”

It’s coming down the pike. I expect the masses to be demanding the head of any politician who tried to protect Gollum, just in time for the Fall 2010 election season.

Got popcorn? ;-)

 
 
Comment by Bill in Los Angeles
2010-04-25 08:40:32

The only cases where it is rational to be dishonest are to protect your life, liberty, and property. Whether your dishonesty is aimed at the ones who threaten those rights and do not tell you its for your own good, or aimed at those violators who usually form groups and claim such violations are for the public good and your own good.

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Comment by oxide
2010-04-25 10:29:08

Define “property.” Does a $4 million yearly bonus count as “property?” What if, in the name of protecting your frivolous property, you manipulate the system to take somebody else’s basic property? Or take his job so he can’t work to his own property?

 
Comment by Bill in Los Angeles
2010-04-25 10:48:54

oxide, reread my post. If you acquire property the honest way, and a band of thugs try to take your property, I say it is rational to be dishonest in order to defend yourself from such theft. I DON’T CARE WHA T TYPE OF PROPERTY AS LONG AS IT WAS ACQUIRED IN MUTUALLY VOLUNTARY EXCHANGE.

 
Comment by Professor Bear
2010-04-25 11:06:35

“I DON’T CARE WHAT TYPE OF PROPERTY AS LONG AS IT WAS ACQUIRED IN MUTUALLY VOLUNTARY EXCHANGE.”

Does it matter whether the seller fraudulently misrepresented the value of the property?

 
Comment by Bill in Los Angeles
2010-04-25 12:57:24

u know me enough that I reject intentional fraud.

 
Comment by Bill in Los Angeles
2010-04-25 13:03:46

Also, for any fraud, intentional, or not, the victim must be reimbursed in a settlement agreed upon by the victim.

 
Comment by Professor Bear
2010-04-25 15:17:16

“u know me enough that I reject intentional fraud.”

Bill —

Thanks for the clarification, and I didn’t mean to suggest otherwise.

 
 
Comment by Green Shoots
2010-04-25 08:53:55

“Sometimes it pays to be honest to a fault.”

But apparently it pays much better to be dishonest, then to cover up the dishonesty with a veneer of religious sanctitude. Machiavelli pointed this out centuries ago.

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Comment by scdave
2010-04-25 09:05:31

dishonesty with a veneer of religious sanctitude ??

Yeah…After the thievery the playbook segway is into Philanthropy and Religion…

 
Comment by Green Shoots
2010-04-25 09:54:29

Agreed. BTW:

segway segue

 
 
 
Comment by palmetto
2010-04-25 07:28:16

“Since when is misleading a client against the law?”

Aren’t there laws against fraud?

And quite aside from the “law”, why is it we’ve come to expect that a trading partner, advisor, etc. can violate trust and shrug, c’est la vie? Suppose a surgeon botches an operation, shrug, c’est la vie? Why do business with anyone at all? I have a right to expect that the water I drink, food I eat, car I drive, investments I make, are safe. (I said investments, not gambles).

With or without the “law”, Goldman will go by the boards, maybe later rather than sooner, but it will happen. Companies that offer sh*tty products and services eventually crumble.

Comment by Professor Bear
2010-04-25 07:52:06

“Aren’t there laws against fraud?”

Laws are for the little people. Apparently, the Federal Reserve and the Wall Street Megabanks operate above the rule of law.

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Comment by ecofeco
2010-04-25 10:55:25

The Leona Helmsley Effect.

 
Comment by Professor Bear
2010-04-25 11:08:07

“The Leona Helmsley Effect.”

She certainly epitomized the principle, but so far as I am aware, it was first described in print by Machiavelli (The Prince, circa 1500).

 
Comment by pismoclam
2010-04-25 14:02:32

The biggest fraud and Ponzi scheme is Social Security !

 
Comment by Timmy Boy
2010-04-25 23:41:54

Next biggest?

Gov’t Bonds….

 
 
Comment by joeyinCalif
2010-04-25 08:01:50

..I have a right to expect that the water I drink, food I eat, car I drive, investments I make, are safe. (I said investments, not gambles).

I think that goes a little too far. Nothing is 100% safe. You have a right to expect the things you buy or use are “as represented”.

A car is safe only so long as it’s driven properly, and even then it might kill you.
Fluoride or chlorine in the water or some common food additive may end up killing all of us someday.. who knows.

Some investments have less risk than others but none are guaranteed by God.
And since no risk, no gain, a 100% safe investment wouldn’t even qualify as an investment.

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Comment by Professor Bear
2010-04-25 08:22:05

‘You have a right to expect the things you buy or use are “as represented”. ‘

You also have a right to fight back against corporate entities who scr3w you over. Many thanks to the American founding fathers for the rights they granted to American citizens.

 
Comment by joeyinCalif
2010-04-25 08:48:11

Many thanks to the American founding fathers for the rights they granted to American citizens.

The founding fathers didn’t grant us rights. They do not come from a King or from any government. That was the whole point of this government.

I guess the Declaration of Independence fails to emphasize that enough..

 
Comment by Housing Wizard
2010-04-25 09:04:32

I have a real problem with that guy Paulson ,who is from a
separate Hedge Fund Company, picking the loans for
GS.,and than shorting them .Thats really a conflict of interest in my book . But ,I still have a problem with the securities being misrepresented to begin with when they were junk paper and they were not what they were represented to be . Why do the Wall Street Money Changers get away with mis-marking risk ,
just because they want something to sell . You could say they misrepresented the risk to the Rating Companies who were bought by them (at least that would be my defense if I was a Rating Company .),It just seems like the Rating Companies
relayed the information that was given to them without due
diligence ,like every body trusted these Middle men . You would think if they knew how to pick a body of bad loans ,they would also know the quality of loans and be very aware that they were junk (no cherry pickers don’t make 150k a year ). I think this is why you got the automatic defense of “We didn’t see it coming “,which is a defense for fraud or willful misrepresentation . The GS case proves otherwise and I think they were seeing the meltdown as early as 2005 . They were running out of greater fools or people who could afford even a liar loan at the high prices and the market turned really fraudulent in 2005–2008 when they tried every cheap shot way to try to prop up the Ponzi
Scheme ,along with the NAR …Remember the Advertising Campaign of “It’s a good time to Buy ” ,by the REIC .Those people got hosed who bought ,but there was sure a lot of cash back fraud and incentives like cars and such trying to get people to buy ,which resulted in the worse loans ever .
So,I’m saying way long before the Politicians tried to prop up real estate the people who didn’t see it coming were trying to prop up real estate ,and take the money and run by selling out their Stock (as in CountryWides CEO),or shorting the junk or insuring the junk ,or unloading real estate ,or taking out greater loans on real estate as in Donald Trump Style .

 
Comment by In Colorado
2010-04-25 09:14:27

Nothing is 100% safe.

True, but that doesn’t mean that those things shouldn’t be as safe as possible. I know that when I board a jet airliner that there is a very miniscule chance that it might crash. That said I expect the airline and the FAA to do everything possible within reason to minimize the probability of a crash. Lying and cutting corners does not work towards that.

 
Comment by joeyinCalif
2010-04-25 09:40:00

In Colorado..

That things should be “as safe as possible” has almost no place in the investment world.

People pick risk levels that suit specific purposes, needs, goals and/or preferences.
A person might want to try and earn a maximum amount of money as quickly as possible, in which case some of the highest risk investments are desired.

 
Comment by RioAmericanInBrasil
2010-04-25 09:42:54

The founding fathers didn’t grant us rights. They do not come from a King or from any government. Joey

Grant: definition
1. To consent to the fulfillment of
a. To bestow; confer
4. To concede; acknowledge:

 
Comment by Green Shoots
2010-04-25 09:57:23

“True, but that doesn’t mean that those things shouldn’t be as safe as possible.”

Any airline which engineered its planes to crash, then bought insurance that would pay off handsomely when the crash happened and all the passengers were killed, would be drummed out of business, and the managers in charge of the engineering operation would go to prison.

Lucky for Wall Street banksters that they operate above the rule of law.

 
Comment by joeyinCalif
2010-04-25 09:59:16

Housing Wizard..

The Big Lie in the blame-game is that everybody definitely saw it coming.. or should have.

 
Comment by joeyinCalif
2010-04-25 10:02:54

yeah rio.. so what’s your point? That you are using that dictionary I asked you to get?

 
Comment by joeyinCalif
2010-04-25 10:18:00

..then bought insurance that would pay off handsomely when the crash happened…

Sock Puppet. You got it backwards again.

GS was a passenger on the plane heading for disaster, and can’t be faulted for bailing out.

 
Comment by Green Shoots
2010-04-25 10:31:22

“The Big Lie in the blame-game is that everybody definitely saw it coming.. or should have.”

Why would it be in the interest of Really Smart Guys investment bankers or the Federal Reserve Board to make themselves look like blind, ignorant fools?

 
Comment by ecofeco
2010-04-25 10:58:59

In 1746, the UK parliament passed the Marine Insurance Act, requiring anyone seeking to collect on an insurance contract to have an interest in the continued existence of the insured property. Thus was born the insured-interest doctrine. The indemnity doctrine, which precludes a buyer from insuring property for more than it’s worth, soon followed.

The point of these rules is to limit insurance contracts to trading existing risks and not to create risks by giving buyers of insurance incentive to destroy property. The doctrines have been part of insurance law in both England and the US (which in 1746 were colonies under English common law) ever since.

 
Comment by GrizzlyBear
2010-04-25 11:08:06

“I have a right to expect that the water I drink, food I eat, car I drive, investments I make, are safe. (I said investments, not gambles).”

Everyone has a right to their own thoughts and feelings, and expectations are just personal feelings. But, personal feelings don’t translate into reality. Just the other day, I bought some apple juice which was on sale. This wasn’t some obscure brand, but a popular national brand. I don’t typically ever buy apple juice, in fact it’s probably been many years since I did. It was a spur of the moment decision, and I didn’t pay much attention to my purchase.

After drinking about 2/3 of the bottle, something very alarming caught my eye. “Concentrate from China” printed on the side. Whooa! China? Are you freaking kidding me? I feverishly hit the net to find that China has been flooding the market with all kinds of powdered juice concentrate for years. Only Martinelli’s apple juice uses concentrate which is not from China. Apple cider is not from concentrate, and so does not contain Chinese product. Also, if it says “Canada”, it is likely from China, too, as Canada only requires that 51% of the product be produced in Canada.

Bottom line, there is no way to know that the food you are consuming is safe, and given China’s history of poisoning people, it’s likely not. It’s buyer beware, whether it’s apple juice or mortgage backed securities. Do your own due diligence, people, and don’t buy Chinese anything! Let’s take back our food supply!

 
Comment by Professor Bear
2010-04-25 11:11:13

You got it backwards again.

Wow — Thing 2 is revealing his trollish nature again. Which Megabank pays you to come on here and vex us with strawmen, Joey?

BTW, whatever happened to Thing 1 (aka Eddie)?

 
Comment by Green Shoots
2010-04-25 11:16:05

“The point of these rules is to limit insurance contracts to trading existing risks and not to create risks by giving buyers of insurance incentive to destroy property.”

I assume these rules or doctrines you describe don’t apply to Wall Street banks, which operate above the rule of law? If that is the case, why are you even bringing them up here?

 
Comment by Green Shoots
2010-04-25 11:26:15

“The indemnity doctrine, which precludes a buyer from insuring property for more than it’s worth, soon followed.”

Wouldn’t a highly leveraged bet on the collapse of a pool of MBS that was structured to make it extremely likely to fail constitute a violation of the indemnity doctrine?

 
Comment by Green Shoots
2010-04-25 11:29:06

“GS was a passenger on the plane heading for disaster, and can’t be faulted for bailing out.”

The 9/11 terrorists were passengers on the planes headed for disaster; by Joey’s impeccable logic, they can’t be faulted, either.

 
Comment by joeyinCalif
2010-04-25 11:31:10

..not to create risks by giving buyers of insurance incentive to destroy property…

Yes. The objective of the Marine Insurance Act was to not create risks.

My buying life insurance on you creates the risk that I might try and kill you.

But if I had absolutely no way of killing you, or of expediting your death, no additional risk would be created.
—–

Paulson’s “insuring” a bunch of crappy MBS bonds did not create additional risk. He had no mechanism or tool by which he could CAUSE those bonds to fail.

It was beyond his power to affect those mortgages one way or the other.. The credit default swaps were nothing more than a side-bet on a possible outcome, and did not add risk to the bonds.

 
Comment by joeyinCalif
2010-04-25 12:13:13

Speaking of creating additional risk..

The current charge against Goldman Sachs is they they failed to share important information about someone’s (Paulson) huge bets AGAINST the bonds.
—-

OK.. Lets suppose Goldman told everyone some hedge fund genius has it all figured out, and he’s bet billions against the crap mortgages in the bonds.

Suppose you owned some of those bonds. How would you react? Might you and other people get a little frightened, SELL OUT and thereby directly CAUSE bonds to fail?
—-

In other words, Goldman’s “failure” to tell anyone there were big bets against the bonds actually SUPPORTED the value of the bonds.

 
Comment by Housing Wizard
2010-04-25 13:23:02

But Paulson picked the worse ones ,thats the point . By a certain time in the meltdown it was apparent were the bubble cities were and where defaults were already starting to take place . The fraud was rampant and they knew it . Besides you can just look at loans and see if they are high risk or liar loans and the toxic adjustable no doc loans with low downs were clearly high risk loans .

 
Comment by ecofeco
2010-04-25 14:20:55

Thanks joey for revealing your true self.

The 1764 Marine Insurance Act could not be more clear and GS’s actions, and others, could not be more plain.

Goebbels would be proud of you.

 
Comment by joeyinCalif
2010-04-25 14:26:44

Wiz..
Yes. At some point it became pretty obvious to many people the bubble would burst, the really stupid lending, all the rest.. and which parts of the market should go under first.

A LOT of people tried to short the market just like Paulson but gave it up and lost a LOT of money. Paulson did his best to bet against the most immediately vulnerable ones but even then, he came close to being just another loser.

CDSwaps have a limited lifespan, like car insurance. If the bonds do not fail on time, you have to pay another premium if you want the policy to continue. It costs you additional millions of dollars. Your original millions is lost and gone forever.
Many people decided re-upping was just throwing good money after bad and threw in the towel.

So even picking the worst of the worst was no advantage. You also had to get the timing right. Property prices kept rising and the crap bonds remained strong far longer than most people predicted.

Later in the game Paulson had made some money (on paper anyway), began to feel much more confident about the whole thing collapsing, and set bets against prime mortgages as well.

 
Comment by Professor Bear
2010-04-25 15:21:17

‘Paulson’s “insuring” a bunch of crappy MBS bonds did not create additional risk. He had no mechanism or tool by which he could CAUSE those bonds to fail.’

Gollum was a key player in running the subprime mortgage securitization sump pump. They apparently were in the business of selling toxic mortgage backed securities to investors and sending the funds towards the likes of Fremont, New Century, and other subprime lenders who blew up in 2007. To suggest they did not CAUSE those bonds to fail is to ignore their role in providing home loans to unqualified borrowers.

I would take issue with none of the above if it were not for the bailouts, which externalized the costs of this scheme on nonparties to the transactions.

 
 
 
Comment by rentor
2010-04-25 10:40:48

In a civil case can you go after a doctor who lied to you?

Comment by RioAmericanInBrasil
2010-04-25 14:54:59

The founding fathers didn’t grant us rights. They do not come from a King or from any government. Joey

Grant: definition online dictionary dot com
1. To consent to the fulfillment of
a. To bestow; confer
4. To concede; acknowledge

yeah rio.. so what’s your point? That you are using that dictionary I asked you to get?


Yes! Thank you Joey!

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Comment by Professor Bear
2010-04-25 15:26:46

“yeah rio.. so what’s your point? That you are using that dictionary I asked you to get?”

Beware of trolls: When cornered, they make ad hominem attacks. (My kids do the same thing :-) )

 
Comment by joeyinCalif
2010-04-25 16:09:48

I guess your point is that the founding fathers “conceded” that we have rights, as if they were forced to admit it…but I don’t understand how anyone can read the Declaration of Independence and come away with that impression.

Well lookie what wikidictionary uses as an example of the actual word used in that Declaration.
———-
“hold”
Verb

7. (transitive) To maintain, to consider.

1776, Thomas Jefferson et al., United States Declaration of Independence:

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.
——–
All men..

 
Comment by Professor Bear
2010-04-25 18:46:49

Given that their PR staff has failed miserably in their feeble attempts to protect Gollum’s reputation, are Gollum’s PR staffers going to be summarily dismissed?

My thoughts on Goldman Sachs
Jacob Wolinsky
Apr. 25, 2010

A lot has been written about Goldman Sachs since the SEC allegations arose that Goldman Sachs committed fraud. Many facts regarding the cases are still unknown. Therefore, I do not want to dwell too much on the topic. However, I have a few important thoughts I wanted to add to the debate.

Many people know I have written many articles playing Devil’s advocate for Goldman Sachs. This is not because I think Goldman Sachs are angels, I merely believe they are no different than many other Wall Street firms that are as unethical as they are. When it comes to money people are greedy, whether it be the person on main street or wall street.

Goldman Sachs does awful PR and this has brought a lot of attention to the firm. I think this is one reason why Goldman Sachs has become the punching bag of the American people.

 
 
 
 
Comment by 2banana
2010-04-25 06:54:16

Found it —

German bank severs Goldman ties, France eyes probe
Thursday 22nd April 2010

A German state bank said it had severed business ties with Goldman Sachs Group Inc , citing US regulators’ allegation that the dominant Wall Street bank committed fraud, while France eyed an investigation of its own.

Goldman is accused of defrauding investors by failing to say that prominent hedge fund manager John Paulson bet against a Goldman subprime debt product that he helped design.

In the latest sign that the SEC’s allegations could hurt Goldman’s standing with some customers, the SEC complaint was cited by German public sector bank Landesbank Bayern LB as it cut business ties with Goldman.

Another German bank, IKB Deutsche Industriebank AG, was one of the main investors in the Abacus synthetic collateralised debt obligation deal that is the focus of the SEC complaint.

http://www.europeanceo.com/news/worldnews/breaking-news/article980.html

Comment by Professor Bear
2010-04-25 07:54:50

IKB, credit-crunch chump
The bigger fools
The bank left holding the can

Apr 22nd 2010 | BERLIN | From The Economist print edition
Dunceldorf

“WHO’S on the other side, who’s the idiot?” is the question posed by one of the characters in “The Big Short”, Michael Lewis’s new book on those few investors who bet against the subprime-mortgage market. “Düsseldorf. Stupid Germans,” is the answer they keep getting. “They take rating agencies seriously. They play by the rules.”

For Düsseldorf, read IKB Deutsche Industriebank, a bank that plays the role of hapless victim in the SEC’s complaint against Goldman Sachs and a strong contender for the title of leading chump in the financial crisis. This was a firm that was supposed to lend to Germany’s famed legion of middle-sized companies, or Mittelstand. When about one-third of the bank came onto the market in 2001, KfW, Germany’s state-owned development bank, bought into IKB to “maintain its role as a key provider” of finance to small businesses.

But instead of just sticking to the dull but profitable business of keeping the engine of Germany’s economy turning, IKB turned its hand to dabbling in America’s housing markets. IKB was far from being the only German bank to burn its fingers doing so.</b. WestLB, a fellow-citizen of Düsseldorf, has had to be rescued four times in the past four years after it managed to accumulate a portfolio of €85 billion ($114 billion) of toxic assets that are now worth a fraction of that value. Most German Landesbanken suffered from poor governance. “All these toxic assets seem to have accumulated in those places where oversight was poorest, and the risk-return ratio was ignored,” says Jörg Rocholl of the European School of Management and Technology in Berlin.

Comment by Professor Bear
2010-04-25 08:20:15

“They take rating agencies seriously. They play by the rules.”

Tentative conclusions:

1) Only stoopid people trusted Wall Street banksters or the ratings agencies which rubber stamped their steaming piles of toxic mortgage dog sh!t securities with AAA ratings.

2) People who play by the rules are fools.

3) The Really Smart Guys are the ones who know how to cheat and get away with it.

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Comment by CarrieAnn
2010-04-25 10:45:23

Does anyone get the feeling payback’s going to be a b*tch?

 
Comment by Green Shoots
2010-04-25 11:18:05

“Does anyone get the feeling payback’s going to be a b*tch?”

No. I get the feeling that politicians are going to have a harder-than-usual time covering up for Gollum’s sins.

 
 
Comment by Professor Bear
2010-04-25 08:38:39

SEC confident on IKB part of Goldman Sachs lawsuit

The alleged defrauding of IKB has angered German officials and threatened Goldman’s reputation with the German government. The alleged defrauding of IKB has angered German officials and threatened Goldman’s reputation with the German government. (Wolfgang Von Brauchitsch/bloomberg News)

By Zachary A. Goldfarb
Washington Post Staff Writer
Saturday, April 24, 2010

Inside the Securities and Exchange Commission, top investigators remained confident this week that a largely overlooked part of the agency’s fraud suit against Goldman Sachs would prove pivotal in court, even as potential flaws surfaced with other parts of the case.

SEC officials said the strongest part of its suit involves Goldman’s dealings with the Duesseldorf-based commercial bank IKB. In 2007, the German bank turned to Goldman to invest in an instrument that would allow it to bet that housing prices would rise. The SEC alleges that Goldman misled and defrauded IKB.

But it has not been the Goldman-IKB relationship that has drawn the most attention since the SEC filed its case against Goldman eight days ago. Most public discussion has focused on ACA Financial Guaranty Corp., a New York firm that helped Goldman assemble the investment and then bet that it would gain value.

The SEC claims that ACA, too, was defrauded by Goldman. However, legal experts said new developments this week regarding what ACA might have known about the investment could cast doubt on the SEC’s allegations.

Goldman and its allies released a fusillade of counterclaims this week attempting to defuse the case, insisting that the bank acted honestly, that its investors knew what they were doing and that it lost money on the deal. The SEC has stood by its allegations but has not commented further.

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Comment by X-GSfixr
2010-04-25 08:59:58

“……has angered German officials……..”

And we all know what happened the last time Jewish bankers pi$$ed off the Germans.

 
Comment by joeyinCalif
2010-04-25 12:46:17

..we all know what happened..

Germany was destroyed and Israel was created?

 
Comment by ecofeco
2010-04-25 14:24:22

…and the rest of world was embroiled in WW2 and 50 MILLION people were killed.

 
Comment by Professor Bear
2010-04-25 15:28:59

“…and the rest of world was embroiled in WW2 and 50 MILLION people were killed.”

I doubt that was any big deal to the banksters who profited from WWII.

 
 
Comment by Housing Wizard
2010-04-25 13:11:24

But on top of everything else ,who would of suspected that they were handing out loans with no underwriting at all and hit the mark appraisals (basically fraudulent loans ) I think Wall Street Securities dealers rode on the past good reputation of that secondary market for so many years before they replaced viable loans with this high risk stuff . The buyers should of been a little suspicious of the higher yields
(but the yields weren’t even high enough for that junk as it turns out .) And who do you think got the overage for mis-pricing that risk but the middle men of Wall Street/Bankers.

I remember the Keating case regarding Lincoln Savings and Loan in the 80’s >Keating got thrown in jail because he was marketing junk paper as if it was FDIC insured stuff when it was just junk securities in that white elephant hotel he build in AZ. that went BK. At the time Keating was offering a 12% yield on the junk while regular FDIC Insured CD’s were going for something like 8% , They threw the book at Keating yet we bailed out these crooks this time . I guess the investors thought
the paper was good because it was implied that Lincoln Savings
was FDIC insuring it . A couple of the investor killed themselves
after they found out they were broke . I remember reading the newspapers at the time and wondering myself how they could offer such a high yield and I decided to pass on the investment that was marketed constantly in the newspapers .But anyway ,Keating got nailed for basic misrepresentation of a security that lured investors to buy it . I think what Wall Street middle men did this time was equally as misrepresenting as Keating ,or even worse .

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Comment by cactus
2010-04-25 08:05:11

Thats too bad I read Financial products are the USA ’s best exports, now that we don’t actually make anything in factories anymore

Comment by Professor Bear
2010-04-25 08:23:31

Ha ha — looks like our mix of export products is about to undergo a major sectoral reallocation…

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Comment by X-GSfixr
2010-04-25 09:11:32

Yeah, we’ve been hearing for years about how we didn’t need all those dull, low profit manufacturing businesses, because the world was going to have to come to the US for sophisticated financial products.

And how our regulatory environment would make sure that deals would be above board, and any contracts written would be enforced.

Good thing we’re letting illegals in. We may have to start asking them how to do things in our Nuevo Banana Republico of America.

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Comment by ecofeco
2010-04-25 14:37:30

You have problem with Corporate Communist Capitalism©®™, comrade?

 
 
 
Comment by joeyinCalif
2010-04-25 08:19:23

Try calling a broker and ask for any information about other clients.. See what you get. Zero.

Paulson’s dealings with Goldman are as confidential as is your business with them.

 
Comment by rentor
2010-04-25 09:30:12

We have moved past Abacus and the alleged 90 M loss. We now find Gollum bet against the subprime by shorting them and made even bigger profits. Goldman say’s emails showing this practice were taken out of context. I say the 90 Million is out of context.

Comment by Green Shoots
2010-04-25 09:59:49

I say Gollum profits by lying and buying politicians who pretend to challenge them but secretly approve of their illegal and immoral fraud schemes, because they get a cut of the profits.

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Comment by joeyinCalif
2010-04-25 10:21:55

That these same politicians would be prosecuting GS makes no sense. It’s nonsensical.

 
Comment by rentor
2010-04-25 10:52:37

Don’t lawyers prosecute. Politicans don’t answer phone when they see vultures circling.

 
Comment by Professor Bear
2010-04-25 11:12:29

“That these same politicians would be prosecuting GS makes no sense.”

F Gollum, and F the PR staff who work for them (including Little Joey and Fast Eddie).

 
 
 
 
Comment by Professor Bear
2010-04-25 08:34:57

Lest anyone forget, Gollum had a direct role in the Greek debt crisis which is currently on the boil. TTT is working overtime this weekend to help engineer the bailout.

Bloomberg
Merkel Slams Greek ‘Scandal’ as Goldman Role Examined (Update3)
February 18, 2010, 8:10 AM EST
More From Businessweek

(Adds economist comment, poll in ninth, 10th paragraphs.)

By Tony Czuczka

Feb. 18 (Bloomberg) — German Chancellor Angela Merkel said it would be a “scandal” if banks helped Greece massage its budget, as European officials investigate Goldman Sachs Group Inc.’s role in Greek efforts to conceal the size of its deficit.

“It’s a scandal if it turned out that the same banks that brought us to the brink of the abyss helped fake the statistics,” Merkel said in a speech in northern Germany late yesterday, without naming Goldman Sachs directly. Greece “falsified statistics for years.”

Merkel’s comments came as her government questioned whether Goldman Sachs, Wall Street’s most-profitable securities firm, helped Greece hide its deficit as it struggled to comply with European Union limits. Michael Meister, financial affairs spokesman for Merkel’s Christian Democratic Union, said Feb. 15 that a swap agreement managed by New York-based Goldman Sachs in 2002 “broke the spirit of the Maastricht Treaty,” which paved the way for the euro.

Comment by Green Shoots
2010-04-25 08:45:54

Don’t let the scary headlines fool you, folks — the Greek crisis is fully contained. Think of this as an investing opportunity and not a crisis, and you will have the right idea!
=======================================================
TimesOnline
April 25, 2010
Greek meltdown in danger of spreading
David Smith and Iain Dey

GERMANY, France and the International Monetary Fund (IMF) must act quickly to bail out Greece to prevent a slide in confidence in financial markets, Alistair Darling said yesterday.

“It’s absolutely imperative that the IMF, the euro group and Greece sort this out,” said the chancellor, attending the spring meetings of the IMF and World Bank in Washington.

Eurozone governments and the IMF are preparing a €45 billion (£39 billion) loan package for Greece after market concerns about its ability to meet its financial commitments.

Treasury sources say privately that politicians and officials have sent mixed messages on the support package, which has made a difficult situation worse. Until a few days ago Angela Merkel, the German chancellor, was insisting Greece could get by without assistance. IMF officials have been in Athens since Wednesday working on the rescue.

Darling’s view was echoed by Tim Geithner, the US Treasury secretary, who met George Papaconstantinou, the Greek finance minister, Dominique Strauss-Kahn, the IMF managing director, and several EU officials.

A US Treasury official said: “Secretary Geithner encouraged them to move quickly to put in place a package of strong reforms and substantial concrete financial support.”

A former IMF chief economist warned yesterday that Greece’s problems could spread. Simon Johnson said market reaction to the Greek deal suggested the eurozone’s problems are about to get worse.

Comment by SUGuy
2010-04-25 10:31:38

PB I love your double take. Keep up the good work. Thanks

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Comment by pressboardbox
2010-04-25 14:40:00

If TTT is involved and giving his two cents, you know the deal is shady and on sketchy ground. TTT adding urgency to act makes anything dirty. The guy is just a slime-bag, you can see it in his face.

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Comment by CA renter
2010-04-26 01:31:30

So true, PBB. I don’t trust him at all.

 
 
Comment by Sammy Schadenfreude
2010-04-25 14:43:22

GERMANY, France and the International Monetary Fund (IMF) must act quickly to bail out Greece to prevent a slide in confidence in financial markets, Alistair Darling said yesterday.

The British and Americans seem awfully eager to have the Germans and the French bail out the Greeks. It could have something to do with the fear of contagion that would betray the foundations of sand the UK and US economies and our faked “recovery” are resting on.

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Comment by Sammy Schadenfreude
2010-04-25 14:39:50

The real scandal is how Angela Merkel is ignoring the fact that the vast majority of her countrymen are dead-set against bailing out Greece when their own economy is none too healthy. This cow will be swept from office in the next elections. The average German citizen doesn’t want to throw good money after bad.

 
 
Comment by Reuven
2010-04-25 09:59:00

I can’t understand this hoopla. Not that I’m a big fan of these big investment houses, but what’s wrong with some analysts in a big firm betting one way while others bet another?

Comment by Green Shoots
2010-04-25 10:02:58

Please see my airline analogy above.

For another one, suppose a California developer built a housing development whose homes were was designed to collapse the first time there was a small earthquake, then bought earthquake insurance which would pay off handsomely if the homes in the development collapsed. Are you some how missing the role of “failure by design” in the Goldman Sachs fraud scheme?

Comment by rentor
2010-04-25 10:08:38

Lets put in Chinese drywall to maximize profits.

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Comment by GrizzlyBear
2010-04-25 12:03:26

“For another one, suppose a California developer built a housing development whose homes were was designed to collapse the first time there was a small earthquake,but sold them as engineered earthquake proof to unsuspecting families,then bought earthquake insurance which would pay off handsomely if the homes in the development collapsed.”

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Comment by Professor Bear
2010-04-25 15:48:16

Yes. Sounds patently illegal, but then I myself am no attorney.

 
Comment by CA renter
2010-04-26 01:36:03

IMHO, they are making too much of the “shorting” aspect, and not enough of the securities that existed in the first place (that could be shorted).

It’s not the shorting that’s a problem. It’s the fact that securities are being created that are much weaker than what they’re purported to be. IOW, it doesn’t matter if someone is or isn’t shorting something. What matters is what’s being sold to a client.

I have a sinking feeling that we are intentionally being led down the wrong path. What if they start making regulations about shorting, while leaving alone the fact that very risky securities are being created and marketed as being safer than they really are?

 
 
 
Comment by eudemon
2010-04-25 20:38:54

This “hoopla” is repeatedly discussed by the same people who support “redistribution of wealth.” Such folk are of the same stripe as those at Goldman, and they talk about it endlessly because they so strongly identify with it.

Typically, they rail on and on - sometimes at a clip of 60-80 comments [or posts] over a 24-hour period - about how the other element is criminal and they’re above the fray.

 
 
Comment by Green Shoots
2010-04-25 10:09:23

Let’s not lose sight of this tour de force, by a former Federal Reserve Governor, or the fact that the Fed is 100 percent behind the scheme to undermine the role of the free market in setting prices which accurately reflect fundamental value.

An Economy of Liars
by Gerald P. O’Driscoll Jr.

Gerald O’Driscoll is a senior fellow at the Cato Institute. He has been a vice president at Citigroup and a vice president at the Federal Reserve Bank of Dallas.

Added to cato org on April 20, 2010

This article appeared in The Wall Street Journal on April 20, 2010.

Free markets depend on truth telling. Prices must reflect the valuations of consumers; interest rates must be reliable guides to entrepreneurs allocating capital across time; and a firm’s accounts must reflect the true value of the business. Rather than truth telling, we are becoming an economy of liars. The cause is straightforward: crony capitalism.

Thomas Carlyle, the 19th century Victorian essayist, unflatteringly described classical liberalism as “anarchy plus a constable.” As a romanticist, Carlyle hated the system — but described it accurately.

Classical liberals, whose modern counterparts are libertarians and small-government conservatives, believed that the state’s duties should be limited (1) to provide for the national defense; (2) to protect persons and property against force and fraud; and (3) to provide public goods that markets cannot. That conception of government and its duties was articulated by the Declaration of Independence and embodied in the U.S. Constitution.

If we want to restore our economic freedom and recover the wonderfully productive free market, we must restore truth-telling on markets.

Public choice theory has identified the root causes of regulatory failure as the capture of regulators by the industry being regulated. Regulatory agencies begin to identify with the interests of the regulated rather than the public they are charged to protect. In a paper for the Federal Reserve’s Jackson Hole Conference in 2008, economist Willem Buiter described “cognitive capture,” by which regulators become incapable of thinking in terms other than that of the industry. On April 5 of this year, The Wall Street Journal chronicled the revolving door between industry and regulator in “Staffer One Day, Opponent the Next.”

Congressional committees overseeing industries succumb to the allure of campaign contributions, the solicitations of industry lobbyists, and the siren song of experts whose livelihood is beholden to the industry. The interests of industry and government become intertwined and it is regulation that binds those interests together. Business succeeds by getting along with politicians and regulators. And vice-versa through the revolving door.

We call that system not the free-market, but crony capitalism. It owes more to Benito Mussolini than to Adam Smith.

Nobel laureate Friedrich Hayek described the price system as an information-transmission mechanism. The interplay of producers and consumers establishes prices that reflect relative valuations of goods and services. Subsidies distort prices and lead to misallocation of resources (judged by the preferences of consumers and the opportunity costs of producers). Prices no longer convey true values but distorted ones.

Hayek’s mentor, Ludwig von Mises, predicted in the 1930s that communism would eventually fail because it did not rely on prices to allocate resources. He predicted that the wrong goods would be produced: too many of some, too few of others. He was proven correct.

In the U.S today, we are moving away from reliance on honest pricing. The federal government controls 90% of housing finance. Policies to encourage home ownership remain on the books, and more have been added. Fed policies of low interest rates result in capital being misallocated across time. Low interest rates particularly impact housing because a home is a pre-eminent long-lived asset whose value is enhanced by low interest rates.

Comment by Sammy Schadenfreude
2010-04-25 14:49:12

“Calming investors” also seems to be a government and MSM catch-phrase for not doing anything to rock the boat. Like, say, telling the truth and acting in the public interest.

 
 
Comment by rentor
2010-04-25 10:29:36

I read Obama Administration plan for financial overhaul, I even read about the British & German plans.

The one word I have heard from the Republicans on this issue is “NO”

I have heard nuthing from Republican leadership about Arizona.

Comment by Sammy Schadenfreude
2010-04-25 14:51:53

The Republican “leadership” are probably in some posh strip club as we speak, assuring their cigar-chomping corporate plutocrat patrons that they will do everything possible to ensure the flow of slave-wage immigrant labor is not interrupted.

 
 
Comment by Professor Bear
2010-04-25 16:16:36

THE RULE OF LAW AND WALL STREET – PART II
U.S. SENATOR TED KAUFMAN
April 19, 2010

Mr. President, as we continue to learn more facts from various investigations into the 2008 financial meltdown, a certain picture is becoming increasingly clear. Like a jigsaw puzzle slowly taking shape, we can begin to see the outlines of many of the causes of the crisis — and the solutions that they demand.

In my view, it is a picture of Wall Street banks and institutions that have grown too large and complex and that suffer from irreconcilable conflicts between the services they provide for their customers and the transactions they engage in for themselves. It is also a picture of management that either knew about the lack of financial controls and outright fraud at the very core of these institutions — or was grossly incompetent because it did not. And the picture includes regulators who failed miserably as well, due to malfeasance or incompetence or some combination of the two.

Until Congress breaks these gigantic institutions into manageably sized banks and draws hard, clear lines for regulators to ensure that effective controls remain in place, we will have done neither that which is necessary to restore the rule of law on Wall Street nor that which will ensure that another financial crisis does not soon happen again.

 
Comment by Professor Bear
2010-04-25 16:20:31

Bloomberg
Goldman’s Blankfein Faces ‘Pecora’ Moment in Senate (Update2)
April 24, 2010, 12:49 PM EDT

(Adds comment from Goldman Sachs shareholder letter in 23rd paragraph.)

By Christine Harper and Ryan J. Donmoyer

April 24 (Bloomberg) — Wall Street’s smartest will meet the Senate’s toughest at a hearing next week that could provide a seminal moment in the reckoning after the financial crisis.

Lloyd Blankfein, Goldman Sachs Group Inc.’s chairman and chief executive officer, and six current and former employees of his firm will face a grilling from the Permanent Subcommittee on Investigations. Led by Carl Levin, a Michigan Democrat who has served in the U.S. Senate for more than 30 years, the panel has a reputation for thorough research.

The interrogation of Goldman Sachs, the most profitable securities firm in Wall Street history, may echo Ferdinand Pecora’s Depression-era investigation of powerful financiers like J.P. Morgan Jr., said some historians. It comes after regulators sued Goldman Sachs and employee Fabrice Tourre, alleging fraud in the sale of a mortgage-linked investment as the market for such investments turned, accusations the firm denies.

“This is Pecora II,” said Charles Geisst, a finance professor at Manhattan College in Riverdale, New York, who has written about Wall Street’s history. “They have to squirm and they have to answer the questions.”

The Senate investigation into the causes of the Wall Street crash of 1929 became known as the Pecora Commission, after the former New York City assistant district attorney who was appointed its chief counsel. Congress went on to pass the Securities Act of 1933 and the Securities Exchange Act of 1934, portions of which Goldman Sachs and Tourre are accused of violating in the Securities and Exchange Commission’s suit filed on April 16.

More From Businessweek

* Goldman Finds Resume a Pariah With Governments: Albert R. Hunt
* Sanofi Hunts for Consumer Deals Up to $15 Billion (Update2)
* Goldman Clashes With Senate’s Levin Ahead of Blankfein Hearing
* China Pledges to Keep ‘Relatively Easy’ Policies Amid Recovery
* Papaconstantinou Tells Investors Don’t Attack Greece (Update1)

 
Comment by Professor Bear
2010-04-25 20:51:57

If it walks like a fraud and swims like a fraud and quacks like a fraud, it’s probably a fraud.

The Wall Street Journal

* BUSINESS
* APRIL 26, 2010

WaMu, Long Beach Partnered with Goldman

By CARRICK MOLLENKAMP And SERENA NG

Washington Mutual Inc. and its Long Beach Mortgage Co. subprime-lending unit rang up one of the worst failures in U.S. history. Left in the wake were billions of dollars of soured loans and questionable lending practices.

But when times were better, the two companies had a powerful partner on Wall Street: Goldman Sachs Group Inc.

Recently released emails and other documents, including securities filings, show how Goldman, considered one of Wall Street’s most elite banks, built its mortgage business by closely working with lenders such as Washington Mutual and Long Beach, two firms that “polluted the financial system” with souring loans, according to a Senate review of Washington Mutual on April 13.

“Long Beach…was not a responsible lender,” Sen. Carl Levin (D., Mich.), chairman of the Senate Permanent Subcommittee on Investigations, said in his opening remarks April 13. “Its loans and mortgage-backed securities were among the worst performing of the subprime industry.”

Goldman declined to discuss its business with Washington Mutual or the communications in the emails released by the Senate panel.

Goldman was one of several Wall Street firms that helped sell bonds backed by Washington Mutual loans. Over the weekend, the Senate subcommittee released internal Goldman emails, including one showing that the firm made a $5 million trading profit by betting against securities Goldman sold in a Long Beach bond offering that lost money for its investors, raising a potential conflict with its clients. On Tuesday, the panel plans to question Goldman executives in a separate hearing.

The emails and others like them highlight “the importance of transparency, the importance of things being in the open, the importance of it being known who is in a position to benefit from what,” senior White House adviser Lawrence Summers said Sunday on CBS’s “Face the Nation.”

Much has been written about Washington Mutual’s failure. In September 2008, the Seattle lender was forced to sell itself to J.P. Morgan Chase & Co. at the height of the crisis in the largest-ever U.S. bank failure. But there has been less scrutiny of the ties between Washington Mutual and Goldman, which emerged stronger than rivals after the mortgage market’s collapse.

J.P. Morgan said the Washington Mutual loans and securities being investigated were issued before J.P. Morgan’s purchase of Washington Mutual. A lawyer for former Washington Mutual Chief Executive Kerry Killinger couldn’t be reached.

At times, executives at Washington Mutual discussed seeking out Goldman for its reputation for excellence, according to Washington Mutual emails. But Washington Mutual executives also were wary of their partner because of concerns about how the Wall Street firm traded.

“We always need to worry a little about Goldman because we need them more than they need us and the firm is run by traders,” a Washington Mutual executive wrote in an email released by the Senate panel in its probe of the lender.

Long Beach was founded in 1979 as Long Beach Savings & Loan by Roland Arnall, a Los Angeles developer who got his start in business in Los Angeles selling flowers on a Los Angeles street corner. A unit called Long Beach Financial Corp., based in Orange, Calif., was sold to Washington Mutual in 1999.

Aided by mortgage brokers who channeled loans to Long Beach, Washington

Mutual and Long Beach ended up bundling subprime home loans into $77 billion worth of securities, according to the Senate inquiry.
Complete Coverage

Some Long Beach bonds were ultimately used to allow Wall Street firms and hedge funds to bet against the U.S. mortgage market. Long Beach bonds were among those underpinning subprime-mortgage indexes—assembled by Goldman and other Wall Street firms—that allowed those firms and hedge funds to bet against the housing industry, according to data provided by Markit Group Ltd., which helps run the indexes.

The Long Beach loans ended up being among the worst performing in the indexes, according to a Nomura Holdings report. Separately, some Long Beach bonds also underpinned the Abacus 2007-AC1 debt pool now at the center of a Securities and Exchange Commission securities-fraud case against Goldman, which the firm is fighting.

By 2005, Long Beach was in trouble. According to the Senate report released April 13, Long Beach had to buy back $875 million of nonperforming loans from investors. Problems persisted.

Behind one sale of Long Beach securities was Goldman. In 2006, Goldman teamed with a Washington Mutual unit to sell a debt pool called Long Beach Mortgage Loan Trust 2006-A. Both firms agreed to buy some of the securities with the intention of reselling them or making a secondary market for them, according to a prospectus for them. Of the $496 million deal, Goldman was expected to purchase about $322 million of the securities with the intention of reselling them.

Washington Mutual executives appeared troubled by loans at Long Beach.

Beached
* May 10, 2007: Goldman and WaMu underwrite bonds backed by $532.6 million in mortgages.
* May 16, 2007: WaMu unit says $49.3 million in loans are worthless.
* May 17, 2007: ‘Good news,’ Goldman trader writes in an email, ‘we make $5mm’ because the firm shorted the bonds.

 
 
Comment by Ki
2010-04-25 06:27:22

Lindsey “I never met an amnesty bill I didn’t like” Graham says he will not help Dems pass Cap N Tax unless they first pass Cap N Tax before passing amnesty for illegals.

I have two rules when it comes to names.

First, never trust a guy with two first names.

Second, never trust a guy named Lindsey.

Comment by 2banana
2010-04-25 06:29:43

3. Never trust a guy named after a cookie

Comment by turbolax
2010-04-25 06:49:58

This board is full of closet racists hatin’ the brown men. What about the other 50% of illegals that are not from Mexico? How do you fix that? I bet you have no problems if the illegals happen to be Europeans and model minorities.

Comment by Ben Jones
2010-04-25 07:04:45

Yeah, sure. Never mind that Hispanic Americans in Arizona support these laws too. Your position is out of step with current realities. Are you a euro IA? If so, I think the same laws should apply.

BTW, most of this stuff is just enforcing laws that have been on the books for decades. Why all these legal double standards on this issue?

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Comment by Timmy Boy
2010-04-25 07:21:00

I don’t get the argument…

What part of “illegal” alien.. do people not understand??

If they’re here “illegally”.. they should be sent back & forced to enter “legally”.

Case closed.

 
Comment by BlueStar
2010-04-25 09:07:28

This law is evil. Look at how the issue is being framed.
Anybody watching the media on this? Not one time did I hear anybody put out the issue of punishing employers for hiring illegal workers. We are being had folks. This just gives the State more power over dark skinned people. Illegal Irish people(there are tens of thousands in the US right now) are not worrying about this new law.

Questions for the blog:
1) How many people did we deport last 3 years?
2) What has happened to remittance flow of funds to Latin America over the same period?
3) How many employers have been jailed?
4) How many fines and what is the total dollars collected?
5) How many people are in the Immigration Service plus the US Border Patrol, plus Customs - Lots of jobs there to protect.

 
Comment by scdave
2010-04-25 09:10:18

I agree…

 
Comment by X-GSfixr
2010-04-25 09:25:04

Last time I checked, they had some pretty definitive definitions on who an “illegal alien” is. You either are, or you aren’t.

You’ve broken the law getting here, so if you break a few more laws, what’s the big deal?

Hopefully you won’t get to experience that special feeling of having a drunk, uninsured illegal run into your new car.

 
 
Comment by 2banana
2010-04-25 07:05:03

Send home ALL illegal immigrants

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Comment by CA renter
2010-04-26 02:52:53

Amen!

 
Comment by MossySF
2010-04-26 03:28:27

I’d say be careful of making proclamations unless you can *for* *sure* trace an unbroken lineage of legal immigrants. Otherwise, it’s possible — even probable — that you are the beneficiary of one of the many past amnesties or loose laws (for illegal European immigrants — for example, there was a time when Europeans coming over could simply declare themselves as Americans). If your ancestor was shipped back instead, the person you are now either wouldn’t exist or would be living some place else.

 
 
Comment by Ki
2010-04-25 07:27:08

And what if Martians landed in DC today? I suppose it could happen, but I’m not going to worry about it until it does.

There are 20 million illegals here mainly from Mexico. They are a drain on the country economically. They should not be rewarded by being given citizenship.

If 20 million Swedes ever come here, let’s worry about what to do with them then.

Deal?

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Comment by combotechie
2010-04-25 07:37:43

“And what if Martians landed in DC today?”

It would probably be an improvement.

Maybe Washington DC should be moved to Area 51.

 
Comment by Ol'Bubba
2010-04-25 07:43:12

Um…

Just for grins I checked the population of Sweden. According to their 2009 census the population was 9.3 million people.

Y’all can go back to discussing politics and religion now.

 
Comment by X-GSfixr
2010-04-25 10:52:00

“What if Martians landed in D.C. today?”

If they had the technology for interstellar travel, they would probably look at us as being several rungs below them on the evolutionary chain, at best. And they would have all kinds of evidence, if they were to watch our media outlets for about 5 minutes.

At worst, they would think we were several rungs down on the “food chain”.

“….”To Serve Man” is a cookbook!!!!!!”

 
 
Comment by mrktMaven FL
2010-04-25 10:15:18

“This board is full of closet racists hatin’ the brown men.”

That’s not true. I can only speak for my self, of course. I’m against any law that infringes on my personal liberty. Show me your papers and prove your citizenship is the next step.

What’s more, the new law is terrible for Arizona housing and business. Why would anyone law abiding hispanic or foreign looking person want to move there, reside there, or even drive through the state? Nonetheless, this kind of scapegoating is not surprising. It’s the natural evolution of a bursting bubble.

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Comment by X-GSfixr
2010-04-25 10:55:10

I don’t know about you, but around here, it’s pretty easy to pick out the legal Hispanics, vs. the illegals.

 
Comment by Sammy Schadenfreude
2010-04-25 14:55:13

The thought of having to prove my citizenship to some cop who decides I look suspicious is kind of creepy, though.

 
Comment by ecofeco
2010-04-25 15:02:15

Same here. This isn’t deep psychoanalysis.

 
 
Comment by Professor Bear
2010-04-25 15:50:28

“This board is full of closet racists hatin’ the brown men.”

The first step to discrediting someone with whom you disagree is to create a strawman miscaricature of their position which you can easily demonize.

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Comment by Ol'Bubba
2010-04-25 07:44:36

Third, never trust someone who owns a big house in Connecticut.

Comment by jeff saturday
2010-04-25 08:00:27

My mom owns and I mean owns a big house in Greenwich Connecticut, and I trust her.

Comment by Ol'Bubba
2010-04-25 12:51:58

Yeah, but she’s your mom.

Even people with big houses in Connecticut look after their own offspring.

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Comment by 45north
2010-04-25 11:24:57

from Stepford Wives: where could we hide a village of robots? Then it came to us: Connecticut!

 
 
Comment by bink
2010-04-25 09:17:58

First, never trust a guy with two first names.

I have two first names and I agree with this post.

Comment by Professor Bear
2010-04-25 10:58:36
 
 
 
Comment by NoVa RE Supernova
2010-04-25 06:39:25

http://www.larouchepub.com/lar/2010/interviews/3717lpac_no_monetary.html

LaRouche: We’re in a period of great lies. There is talk about a so-called “recovery” in progress in the U.S. economy. It’s a complete lie. There’s no truth whatsoever. You might call it the kind of lie you would expect from AIG, or from similar kinds of entities.

The U.S. economy has actually been in almost a free-fall, since the Summer of 2007: That’s the fact of the matter, which most people out there, who live in houses (or used to live in houses), who used to have jobs, who used to have communities, who used to have functioning schools, functioning medical care, know: This economy, the U.S. economy in particular, has been in a free-fall collapse, at an accelerating rate, since the Summer of 2007. And you can’t blame it all on Barney Frank (but you can blame a lot of it on Barney Frank!). He has, maybe, not the brains, but he has the malice, to go with the situation.

There’s a deeper problem, here, however. Not only is everything being said about the economy under the present administration, and the Bush Administration beforehand, a complete lie—it’s not a mistake, it’s not a misjudgment, it’s a lie! As we see with the case of this Goldman Sachs operation, it’s a complete lie: The world is headed right now, toward a total breakdown crisis, comparable to, but worse than, what happened to Europe, in the 14th Century. That’s the situation: a breakdown crisis of the whole planet. And if this breakdown crisis occurs, it will occur first in the trans-Atlantic area, because the trans-Atlantic area is the most rotten part of the world system right now. The Asian side, the Pacific Coast side of Asia, and [the eastern side] of Africa, is actually in better condition, than the Atlantic side.

Comment by pressboardbox
2010-04-25 06:49:08

Lying is currently acceptable as long as financial gain is the intent of the lie.

This is the law.

Comment by Professor Bear
2010-04-25 07:56:48

“Lying is currently acceptable as long as financial gain is the intent of the lie.”

I think there is a further qualification, which is that you have to be a Wall Street Megabank which operates above the rule of law. If you or I lied for financial gain, we would end up in court and possibly in prison.

Comment by cactus
2010-04-25 08:13:26

I think there is a further qualification, which is that you have to be a Wall Street Megabank which operates above the rule of law. If you or I lied for financial gain, we would end up in court and possibly in prison.”

Is this the moral hazard here that Ben Bernake warned of ?when average Americans no longer trust their betters in the Banking Industry ? What can you know with a salary at most in the low 6 figures ? These Gods of banking make 100x that proving in a free economy better people are paid more thus God’s will is made plain.

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Comment by Left Ohio
2010-04-25 06:41:37

There is a theme in the way the mainstream/corporate media has been framing the new Arizona immigration law, some examples excerpted from Google news:

Illegal immigrant law opponents to rally in Ariz.
The Associated Press - Jonathan J. Cooper - ‎3 hours ago‎
PHOENIX — Opponents who fear that Arizona’s tough new immigration law will lead to police harassment of legal immigrants and US citizens who look Hispanic …

Arizona immigration law stirs emotions
Boston Globe - Peter Schworm, Liz Kowalczyk - ‎6 hours ago‎
Elena Letona (second from right), of the National Alliance of Latin American and Caribbean Communities, was among protesters outside Park Street Station in …

Not in my state: Anti-immigration law doesn’t reflect the beliefs of Arizona’s …
Washington Post - Phil Gordon - ‎Apr 23, 2010‎
As an immigration bill that nationally embarrasses Arizona becomes bad law, our best hope in my hometown is that the rest of America doesn’t ..

Regarding the latter, linked from Drudge is a Rasmussen poll showing 70% of Arizona likely voters support the law.

The corporatist media overlooked the counter-protester in Phoenix was assaulted by the “rally” crowd and had to be rescued by the police who were themselves assaulted in the process.

Why can’t the coastal elites (BOTH D and R) understand that average Americans do not want this country to turn into Mexico. It is well understood how the D’s want new voters, the R chamber of commerce types want the cheap labor, but the average American receives NO net benefit from 20 million illegals. Note the word “net” benefit and cue the cheap vegetables/landscaping/construction trolls.

I voted for Obama in 2008 but will not in 2012 over his criticism of the Arizona law. There are no D or R solutions to this, and devolving into a R vs. D argument does NOTHING to reverse the economic and social damage from 20 million criminal invaders.

Comment by Ben Jones
2010-04-25 06:56:00

This has been interesting to watch. The media is trying to shame Arizonans for taking steps to cut down on the crime and waste at a time when our budget is seriously out of balance and unemployment is rising. It’s especially funny to hear these statements coming out of places far removed from the border, who receive all this ‘cheap’ labor at our expense. I’ve long said, anyone who thinks this labor is cheap should spend an evening at a Phoenix emergency room.

Even to this day, you can read regular reports of smugglers holding 100 people hostage in a ’safe’ house for illegal aliens, with one over-flowing bathroom, or IAs crammed into a dangerously hot container on the highway. I used to be an open borders advocate until I lived within the 50 mile border zone, where it’s basically come and go. I realized this system is incompatible with a welfare state. Then, later while researching the housing bubble, I came to believe that it would fall apart when the bubble wealth and jobs went away.

Comment by palmetto
2010-04-25 08:04:00

“I realized this system is incompatible with a welfare state.”

Whew, that’s one of the biggest truths in this whole mess. It is interesting to live in one of the “sand states” and to note the explosion of IA children, who, being babies just a few years ago, are now 5-10 years of age. This is a huge accident waiting to happen. Breeding a dependent population. With the way the schools are, many drop out. Many of those who stay in school have dim futures in a society where jobs are drying up faster than a puddle in Death Valley. For most, their future is “Welcome to Wal-Mart”, or “Fries with that?”, or if they’re lucky, some form of “medical assisting”. All low paying jobs. They won’t be working in fields, that’s for sure.

Comment by palmetto
2010-04-25 08:10:54

And, given the propensity of this particular group of people to demonstrate and protest at the drop of a hat, even when conditions are basically good compared to what they could be, I predict that when the bennies and prosperity dry up, the national mob riots will make Greece look like a lawn party.

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Comment by scdave
2010-04-25 09:27:40

who receive all this ‘cheap’ labor at our expense. I’ve long said, anyone who thinks this labor is cheap should spend an evening at a Phoenix emergency room. ??

+1 Ben…. The employers get the benefit and PROFIT from the cheap labor and the taxpayers provide all the services…

 
Comment by rentor
2010-04-25 09:43:52

SUmmer jobs at fast food joints have historically been for high school and college students. Those jobs aren ow done by the flood of illegal immigrants. You want to this summer who does those jobs?

I assume can ask anyone at work in a fastfood joint do you have ID?

Comment by rentor
2010-04-25 09:46:47

I assume can ask anyone at work in a fastfood joint do you have ID?

I assume the Police can ask for “ID?” Since, an illegal employee working and being paid is breaking several laws.

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Comment by X-GSfixr
2010-04-25 11:38:53

Not around here.

Back in 1999, I was asked to leave a dine-in area of a fast food restaurant, because there was only one English-speaker on duty, and he was needed at the drive-up window. This was in suburban Kansas City. The first warning flag.

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Comment by pressboardbox
2010-04-25 06:58:23

“I voted for Obama in 2008 but will not in 2012 over his criticism of the Arizona law.”

I am a little discouraged by the implication that you fully support all of the other f’d-up things he has done for Amerika.

Comment by Bill in Los Angeles
2010-04-25 08:56:04

The time when my hero Barry O. told Joe the Plumber that B.O. wanted to spread the wealth around would have been enough to make him lose the electoin in a landslide 22 years ago. But these days 97% of the voters are either socialists or theocrats. Us remaining 3% are better off not voting and doing everything we can to hasten the shrug of Atlas without crusading.

Comment by ecofeco
2010-04-25 18:29:59

I wonder if that’s because the other 3% are lying, thieving, bankstas?

Naw, couldn’t have anything to with it!

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Comment by awaiting wipeout
2010-04-25 07:00:44

IIRC, just in Ca alone, the benefits add up to $15B+ annually for the illegals and newly arrived legals. Challenging the new Az law based on Constitutional precedence is absurd. They broke Federal law entering illegally.

Comment by rentor
2010-04-25 09:48:08

Why doesn’t the Terminator deal with them. All I hear is “I’ll be back” Later.

 
Comment by bobo4u
2010-04-25 12:46:44

“the benefits add up to $15B+ annually for the illegals…”

Yeah, but who picks up the tab for that? It ain’t the businesses that exploit them and profit from their presence. It’s just another way of transferring wealth to those at the top. The US has been turned into a giant WalMart.

Comment by CA renter
2010-04-26 03:00:35

Precisely.

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Comment by peter a
2010-04-25 07:04:42

Here is some more social problems coming from this.

http://www.sbsun.com/ci_14952683?source=rss

Comment by rms
2010-04-25 07:39:04

A contractor friend in California says nobody can out-work a Mexican when it comes to tough physical labor.

Comment by awaiting wipeout
2010-04-25 07:52:53

The *illegal construction crew that built our last McMansion (1998) did a horrible job. None of them were craftsman. We had 18 months of h*ll with the builder.
(*Didn’t speak/understand English)

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Comment by alpha-sloth
2010-04-25 08:02:22

nobody can out-work a Mexican when it comes to tough physical labor.

I think they used to say the same thing about slaves.

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Comment by Professor Bear
2010-04-25 08:30:08

These guys are not slaves. They work at will. The slave analogy is inaccurate.

 
Comment by Lip
2010-04-25 09:12:37

I would have to concur the statement that “nobody can out work a Mexican” but would add that normal gringos don’t want to work that hard. IMO it’s too easy to get the govenment money where many of the Mexicans are willing to do the work.

I think we should make a way for the hard working immigrants by increasing the #’s, but with the caveat that the numbers would fluctuate depending on the unemployment numbers. Therefore, in this period of economic contraction, the immigration numbers would be reduced in an effort to get the gringos back to work.

 
Comment by alpha-sloth
2010-04-25 09:18:57

My point was that one of the defenses of New World slavery was that Europeans couldn’t work in the hot, humid conditions of the Americas. Hence the need for workers that could, ie Africans. (Why they had to be chattel property was sort of glossed over at the time. Something about the Bible.)

I hear a lot of similar comments made about Mexican workers by people that I think don’t realize they’re stating an idea with a rather unsavory history. (They work good in the heat!)

And I agree, third world workers are not like slaves. They’re cheaper.

 
Comment by X-GSfixr
2010-04-25 09:37:01

Right. Slave owners were theoretically responsible for feeding, housing, and supplying medical care to the slaves.

Now all those costs are paid by Joe Q Public. Another way of “privatizing the benefits, and socializing the losses”.

If the illegal contingent consisted of lawyers, doctors, politicians and media talking-heads, we’d have seen Abrams tanks parked track to track on the Mexican border a long time ago.

 
Comment by rentor
2010-04-25 09:53:43

Slaves were private property and it was in the slave owners best interest to maintain them. Illegals are the states problem and employers can work them to maximize short term profit knowing more illegals are on their way.

 
Comment by X-GSfixr
2010-04-25 10:01:11

And this “no one can outwork a Mexican” business should be rephrased.

It’s more like “No one will put up with more crap from their employers than an illegal”.

Face it. In the small business community, there are a lot of “My way or the Highway” types……who prefer illegals, because illegals will cause fewer problems.

 
Comment by alpha-sloth
2010-04-25 10:52:38

In the small business community, there are a lot of “My way or the Highway” types……who prefer illegals, because illegals will cause fewer problems.

Exactly. And if one gets hurt, you drop him off at the emergency room for free treatment, and stop by the Home Depot parking lot to pick up a replacement. Way cheaper than slaves.

 
Comment by Professor Bear
2010-04-25 10:55:11

“No one will put up with more crap from their employers than an illegal.”

It’s their God-given right to put up with crap if they choose to do so. Unlike slaves, nobody is forcing them into their occupation.

BTW, I don’t know about the rest of the posters here, but I put up with plenty of crap on my day job. I view this as part of the price of staying employed; I am not complaining, just pointing out that employment often times comes at a price of ‘disutility of effort.’ If anyone is on a career path which is all gain and no pain, please share — I am interested.

 
Comment by rentor
2010-04-25 11:06:21

What if an illegal would cost your employer 50 % less because no tax collection. Basically, illegals under the table take home pay is same as your after Medicare/SS/Fed. + local taxes pay. Would you run to nearest IRS/INS/FBI office to complain?

It doesn’t matter tax category you are in it’s the same for all of us LEGAL vs ILLEGAL.

OffShoring to a person in India whose degree cost 10,000 dollars is no different.

 
Comment by rentor
2010-04-25 11:16:15

Proffesor
You missed the point he said “More” not “no” crap.

Ultimately, the more desperate you are the more crap you put up with and spoil it for the rest of your peers. Now tell me is that fair?

 
Comment by Green Shoots
2010-04-25 11:21:37

“Now tell me is that fair?”

That depends on your standard of fairness. If you think every poor soul on the planet who is born into poverty deserves to have the same advantages as the children of the wealthiest man on the planet, then it certainly is unfair. Are you a Marxist, per chance?

 
Comment by alpha-sloth
2010-04-25 11:32:47

The idea that labor should know no borders is a Marxist idea.

I’m unclear on your point, PB. Are you saying illegal immigration is ok because they freely choose to work, therefore it’s not like slavery? Seems a convoluted stretch of logic.

 
Comment by LehighValleyGuy
2010-04-25 16:41:16

It’s their God-given right to put up with crap if they choose to do so. Unlike slaves, nobody is forcing them into their occupation.

That argument would invalidate all labor laws, would it not?

 
Comment by ecofeco
2010-04-25 18:41:17

Those of you who believe in social Darwinism really, really, don’t want that. You would be the first casualties.

As for slavery, a person must eat and sleep and care for their health and in this era of mankind, that takes money. And NO ONE can do with them.

And yes my snobby friends, the children of the poor deserve the same opportunities as the children of the rich… UNTIL EITHER prove otherwise.

But instead, it looks as if we’re headed to the same old disaster mankind always finds itself when the rich overstep their bounds of decency… LET THEM EAT CAKE!

As for illegal immigration, it’s exactly that… illegal.

 
Comment by packman
2010-04-25 19:56:58

The idea that labor should know no borders is a Marxist idea.

No it’s not. E.g. Adam Smith held this same principle. Perhaps Marx held this idea, but the Communists certainly did not; as evidenced by the extreme travel restrictions.

The ultimate in free market capitalism is the ability to hire people from wherever desired.

The problem with this in today’s society of course is the welfare state, as discussed.

 
Comment by packman
2010-04-25 20:01:38

And yes my snobby friends, the children of the poor deserve the same opportunities as the children of the rich… UNTIL EITHER prove otherwise.

Yes this is true - they may “deserve” them. However society is not required, ethically, to give them such equal opportunities.

Note that I’m very much differentiating between “opportunities” and “rights”. An opportunity may imply burden on others (e.g. granting an opportunity to go to Harvard to someone who can’t afford it requires a scholarship given from others’ money), a right does not.

 
Comment by ecofeco
2010-04-25 20:16:30

“…and NO ONE can do withOUT them…”

Sorry, the pollen is really bad this week. My eyes are burning 24/7.

 
 
 
Comment by Housing Wizard
2010-04-25 08:30:31

Haven’t we all been saying for years that there would be competition for low wage jobs once TSHIF. People have been complaining about the emergency rooms filled with illegals for years to no avail . Illegals have been a low wage supplement to business and that’s why it was allowed . Many of these illegals have been living here 10 to 20 years .I just don’t understand how you allow something for that many years and just think you can wave a magic wand by a Bill and it will go
away . These people don’t have jobs to go back to anyway and many are entrenched here .

I really can’t blame people for trying to improve their life ,but I blame the Government for not enforcing laws in all realms ,including the
Financial systems that allowed a guy like Madoff to operate for so many years . Financial crimes can be more costly than a thug getting away with the small stuff .

The folly of the last 20 years, while the Powers turned a blind eye to the rule of law,or made favorable laws for Business , has shattered our Country on many levels . The USA for many years was all about the ability to get a job on all economic levels until Big Business decided it wanted a bunch of that cheap labor from our neighbor and abroad . Is outsourcing any different than a illegal walking across our borders and sending the money home ? The same people who would applaud outsourcing turn up their nose at illegals when it was allowed and even encouraged ,as the hospital emergency rooms so clearly show . At least when the illegals are here they spend some money here . I’m not defending illegal activities ,but when people are poor and they have greater opportunity by just crossing a river ,especially when they can get free medical care provided by the State ,they will do it if allowed and they have been allowed to live here .

I’m just saying that the USA elected body has allowed situations to
go on for years while ignoring the consequences of such decisions
until they are blowing up now . Lets face it ,you can’t have a economy that revolves around Wall Street and 401k’s while Main Street gets clobbered and can’t function .Investments are a luxury ,while having jobs are a need for the people . Having proper prices for the necessities of life is also a need
,rather than the rigged systems and monopolies that favors the Money Changers and BIg Business .

All you have now is the potential of the have and the have not’s to rebel in a very alarming way . Look at what the FB’s did to houses
when they had to leave ,even when they couldn’t pay for them . I’m just saying that there have been so many problems created in the last 20 to 30 years ,while the battle stills goes on for Big
Business and Monopolies to get their way in this new Global Economy that was created with all the problems that go with it .
The policies certainly have not promoted the general welfare on Main Street and many laws and policies are in conflict with each other . Thank you Congress for being the bought off jerks that you are .

Comment by BlueStar
2010-04-25 09:32:55

Nailed it.

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Comment by X-GSfixr
2010-04-25 09:42:10

We the sheeple were told back in 1986 that we would have to swallow an amnesty because current illegals were “entrenched”, but it wouldn’t be a problem in the future, because they were going to pass laws to prevent future illegal immigrant.

25 years later, we are hearing a new round of the same BS.

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Comment by rentor
2010-04-25 10:07:09

Indian outsourcing companies at all time high:
http://stockcharts.com/charts/gallery.html?s=wit
http://stockcharts.com/charts/gallery.html?s=infy

Check middle weelky 3 yr chart

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Comment by packman
2010-04-25 20:04:49

Actually it was a bit higher in 2000.

 
 
Comment by CA renter
2010-04-26 03:06:38

Another great post, Wiz.

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Comment by rentor
2010-04-25 09:51:05

Illegals have replaced blacks & high school/college students.

 
 
Comment by krazy bill
2010-04-25 07:23:12

i was there not 30 feet away from the incident. A man bulled his way into a group of protesters hollering “Out of my way beaners; f***in’ Mexicans get outa my way.” The crowd began throwing water bottles at him a one bottle hit a cop who was saving his racist butt. The man was detained in ‘cuffs for over an hour but released; i do not know if he was cited. The kid that threw the bottle was arrested for assault on a police officer.
Already in Arizona brown American citizens have been detained for hours- in ‘cuffs - because their state issued photo ID drivers license wasn’t enough to convince the cops that they were here legally.
Now i’m gonna tell ya about two friends of mine; Matilda and Bonofacio. Both honest hard working folk that never got a cent of government assistance, the speak English very poorly and with a heavy accent. Typical immigrant story? No, they were born here in Arizona to families that trace their roots in what’s now America to the 1700’s, Why should they have to carry jack-squat to prove they’re Americans?

Comment by Ben Jones
2010-04-25 07:39:12

This is the problem with trying to undo an unjust system decades in the making. Sure, you’re going to have racists jumping into an immigration debate/confrontation. But does that mean we can’t address the issue?

Why does it have to come down to IDs? What happened to verifying citizenship for employment? That’s a nationwide law that the Feds ignored since the 80’s. Or fed requirements that public assistance and education be given to IAs, in spite of state laws, like AZs, to the contrary?

It’s is even more complicated by actions like a border crackdown in California by the Feds that sent smuggling into AZ. This state asked for help with the river of smuggling ever since, and the Feds did nothing but talk about fantasies like big fences on the border.

This can be made workable by enforcing fed laws that are on the books. It’s interesting no one in DC mentions that. IMO, this all gets around the biggest issue; why are people so poor south of the border? Could it be that they export their unrest and unemployment and aren’t forced to give their people justice?

Comment by krazy bill
2010-04-25 07:47:27

Or could it be that capital crosses borders freely but human beings may not?

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Comment by Ben Jones
2010-04-25 08:01:29

So why then is money laundering such a big business? And did you know that the profits in human smuggling are now larger than drug smuggling? Like alcohol prohibition, one of the biggest problems is it puts a bunch of money in the hands of some really bad people.

All of this comes from perpetuating a system that is at it’s root, illegal.

 
Comment by Jon
2010-04-25 08:30:55

“Or could it be that capital crosses borders freely but human beings may not?”

One of the great problems historically in Latin America is that profits are reinvested in U.S. stock markets instead of local wealth creation activities.

And having Catholic sensibilities of large families, you get ever increasing populations who can’t support themselves as their national wealth is shipped to the U.S.

 
Comment by rentor
2010-04-25 09:55:07

Why don’t illegals go to Brazil its booming unlike USA?

 
Comment by RioAmericanInBrasil
2010-04-25 10:08:19

Why don’t illegals go to Brazil its booming unlike USA?

Brazil is very strict about illegal immigration. They have this wild theory that illegals will take away jobs from Brazilians. For some funny reason, they are also very protective of their sovereignty. But if you have a guaranteed $2K per month income or 250K in assets you can live here but I don’t think you can work here.

Every tradesman that built my house was from Brazil except a Portuguese man who had come here legally years ago.

It’s funny though, Brazil does have a few illegals but many of them are from richer countries and they just like Brazil but they end up leaving after awhile.

 
Comment by X-GSfixr
2010-04-25 11:06:22

“….very protective of their sovereignty.”

How quaint. How un-PC. It’s so 20th Century.

Man, they need to get with the program, and become as FUBAR as we are.

 
 
Comment by cactus
2010-04-25 08:20:45

Could it be that they export their unrest and unemployment and aren’t forced to give their people justice?”

yes

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Comment by alpha-sloth
2010-04-25 08:28:48

Could it be that they export their unrest and unemployment and aren’t forced to give their people justice?

That’s what I’ve been arguing to my liberal, open-borders friends and family. We’re serving as the pressure-release valve that allows the corrupt Mexican government to continue its kleptocracy.

America is playing the same role for Mexico that the FIRE economy did here. An artificial economy that keeps the peeps employed and semi-happy, while allowing the big boyz to pillage at their leisure.

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Comment by rentor
2010-04-25 10:24:08

As long as employment laws are updated to take into account change in technology and are subsequently enforced we would solve the problem in short order. Who opposes these changes? Big, Medium and Small buisness.

Internet would make verification simple & fairly cheap.

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Comment by 2banana
2010-04-25 07:52:10

Their family has been here since the 1700’s and no one bothered to learn English along the way…?

Comment by joeyinCalif
2010-04-25 08:57:14

That does seem a little far fetched.
There were, and maybe still are, several families like that in San Francisco’s Chinatown.. settled there since the 1850’s or so.. Some old people spoke no English.. had never stepped out of Chinatown.. never touched the ocean.

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Comment by krazy bill
2010-04-25 16:33:15

The St. Johns/Holbrook AZ area has families here over 5 generations to whom english is a second language. Many out of the way towns from E. Arizona to W. Texas have families here forever that still speak Spanish at home.

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Comment by awaiting wipeout
2010-04-25 07:57:26

“they speak English very poorly and with a heavy accent.”
Americans of Hispanic decent, usually speak well, since they were born here. With all due respect, I don’t get this.

Comment by X-GSfixr
2010-04-25 11:08:31

Sorta like Jeff Foxworthy fans.

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Comment by turbolax
2010-04-25 08:01:03

That’s what I have been thinking. The legal law abiding brown people you described will be the real victims of this law. The illegals will move to other states and day and day out legal brownies will have to prove their innocents. Welcome to AKiKoKa. Even more disappointing thing is so many people on this blog doesn’t have any problems with it. And these are some people who used to bash Tea party members as racists with unproven charges.

Comment by joeyinCalif
2010-04-25 08:35:01

turbolax..
It is you who remain fixated on the color of their skin.. Of course you know it’s about money and law, for which you have no valid argument.. so you must play the race card.

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Comment by Housing Wizard
2010-04-25 14:03:58

The illegal thing is blowing up now because of job loss and
the criminal element gaining a foothold inside our borders and creating additional problems . Boy when the powers allowed
immigration from a corrupt Country (at least more corrupt than our Country ) they didn’t see were this might lead . A hard working
illegal immigrant who obeys the laws is far different from this new element that is coming and committing a lot of crimes .
What about the situation where a persons parents are illegals but your a 16 year old that was born here and now your parents are deported ? They should of thought twice about allowing the situation to begin with .

One of the reasons why accepting products from other Counties
should have a label on it eat at your own risk is because other Countries do have different standards. However, sometimes other countries ban our stuff ,like meat . I have just never been able to see how you can have all this commerce without uniform rules of the game ,including the wage rules .

Anyway it goes without saying that the Spanish race is superior
as far as being able to take the sun ,but I don’t know that anybody likes to work in the hot sun for hours on end ,

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Comment by RioAmericanInBrasil
2010-04-25 09:36:49

the speak English very poorly and with a heavy accent. Typical immigrant story? No, they were born here in Arizona

Thanks for making me feel better about my Portuguese!

 
Comment by krazy bill
2010-04-25 16:13:24

“The agents needed to verify Abdon was in the country legally and it is not uncommon to ask for someone’s birth certificate. ”

http://www.azfamily.com/news/Man-says-he-was-racially-targeted-forced-to-provide-birth-certificate-91769419.html

 
 
Comment by Ki
2010-04-25 07:44:05

“I voted for Obama in 2008 but will not in 2012 over his criticism of the Arizona law. ”

What made you think that Obama would NOT be for amnesty? Everything he has said on the matter has been pro-amnesty. His voting record in the senate was pro-amnesty. This is what happens when you vote for empty slogans and to make history.

And yes obviously McCain would have been no better on the issue. But at least nobody would have been surprised by his support of illegals.

 
 
Comment by NoVa RE Supernova
2010-04-25 06:46:29

http://www.larouchepub.com/pr/2010/100421more_goldman_hrngs.html

More Hearings, Call for Criminal Investigation On How Goldman Sucks

April 21, 2010 (EIRNS)—Reports have it late on Wednesday that Sen. Carl Levin’s Permanent Investigations Subcommittee will have both Goldman Sachs CEO Lloyd Blankfein, and its London derivatives trader and “VP,” Fabrice Tourre, as witnesses in an April 27 hearing. The Subcommittee has just finished with a thorough expose of the vast “securitization” of the 90%-fraudulent mortgage loans by Washington Mutual Bank; Levin is clearly attempting to craft the “new Pecora hearings” which Obama and the Democratic leadership nixed last year. “How Goldman Sucks” could be, to these hearings, what the grilling of J.P. Morgan, Jr. was to Ferdinand Pecora’s explosive 1933 hearings into Wall Street’s “banksters.”
Goldman’s public “defense” against the charges that it committed securities fraud in 2007, and swindled investors to the profit of itself and its inner circle, appeared to change this morning. From dismissing the SEC’s charges, Goldman’s law firm Sullivan and Cromwell appeared to shift, to blaming any wrongdoing on the then-28-year old Tourre. This tactic has been been much used recently by banksters when caught, from Barings in 1995, to Societe Generale in 2008. But Levin’s hearing could force Blankfein and Tourre to confront each other on the spot, making that tactic much more difficult.

Any number of other big financial institutions, in building up the super-leveraged global debt bubble which burst in 2007-08, pulled the same fraud against investors, smaller banks, etc. of which Goldman is accused. Deutschebank’s lead mortgage securities trader was infamous for profiting from derivatives bets against the securities he sold. The giant UBS in Switzerland was sued in 2009 by German state bank HSH Nordbank for the same practice; Citibank, Merrill Lynch, JPMorgan Chase, and others all enjoyed fleecing sucker investors with so-called “synthetic mortgage derivatives” from 2007 on. They clearly knew their bubble was blowing up, and used “Venetian methods” to throw the disastrous costs onto private investors, and then onto government bail-outs.

Comment by X-GSfixr
2010-04-25 09:53:57

The latest,, get in on the ground floor job opportunity: the “Designated Scapegoat”.

The company pays you a percentage of the gross of all the illegal/immoral activity. In return, you step up the plate and take the legal hit, if/when the Feds finally decide to start enforcing the Regs, or the deals blow up in their faces.

Yeah, I’d go to Club Fed for a few years, if I knew there was a big pot of gold sitting in Switzerland, waiting for me to get out.

 
Comment by CA renter
2010-04-26 03:15:32

1. Yes, they are clearly using this kid as a scapegoat.

2. Again, they are focusing on the short-selling instead of focusing on the quality and transparency of the instrument/security being sold to investors. **That** is where the focus should lie.

Comment by Housing Wizard
2010-04-26 08:15:17

Ca Renter …You are seeing the problem with the basic securities and that is how I see the problem .

Comment by CA renter
2010-04-26 23:46:59

Right, Wiz.

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Comment by Professor Bear
2010-04-25 06:54:15

Andy Borowitz
BorowitzReport dot com
Posted: April 24, 2010 11:24 AM
Somali Pirates Say They Are Subsidiary of Goldman Sachs

NORFOLK, VIRGINIA (The Borowitz Report) - Eleven indicted Somali pirates dropped a bombshell in a U.S. court today, revealing that their entire piracy operation is a subsidiary of banking giant Goldman Sachs.

There was an audible gasp in court when the leader of the pirates announced, “We are doing God’s work. We work for Lloyd Blankfein.”

The pirate, who said he earned a bonus of $48 million in dubloons last year, elaborated on the nature of the Somalis’ work for Goldman, explaining that the pirates forcibly attacked ships that Goldman had already shorted.

“We were functioning as investment bankers, only every day was casual Friday,” the pirate said.

Comment by Hwy50ina49Dodge
2010-04-25 08:03:03

:-)

The “back story”: “…GoldenmanSucks needed more oil storage capacity”

GoldenmanSucks = “TrueDeceiver’s™” / “TrueOilStorage™”

GoldenmanSucks Inc. (legal person) = “TrueFinancialCultress™”

Comment by Professor Bear
2010-04-25 08:13:13

Why did fraud charges against Gollum hammer oil prices?

* APRIL 16, 2010, 11:28 A.M. ET

OIL FUTURES: Crude Drops Below $83/Bbl On Goldman Charges

By Brian Baskin
Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)–Crude futures plunged Friday, part of a pan-market sell-off that followed reports that the Securities and Exchange Commission had charged Goldman Sachs & Co. with defrauding investors.

Light, sweet crude for May delivery traded $2.70, or 3.2%, lower at $82.81 a barrel on the New York Mercantile Exchange. Brent crude on the ICE futures exchange traded $2.16, or 2.5%, lower at $85.43 a barrel.

Futures fell by $2 after news outlets reported that the SEC was charging Goldman Sachs with defrauding investors about a collateralized debt obligation, or CDO, tied to mortgage-backed securities. The bank failed to inform investors that a hedge fund had played a role in designing the CDO, and had taken a short position against it.

The charges spooked investors, instantly sparking an equities sell-off that quickly moved into crude and other riskier assets.

“The equity market got hit pretty good, and we have been tracking equity price swings lately,” said Gene McGillian, an analyst with Tradition Energy in Stamford, Conn.

Futures traded as low as $82.52 a barrel, 1 cents above the intraday low for April. A decline below $82.50 a barrel could trigger much bigger losses, as it would represent the breach of a price that is widely seen as having strong support, McGillian said.

The oil market was already headed lower before word of the charges against Goldman Sachs hit the market, as futures struggled to hold near recent highs despite high crude and fuel inventory levels. Oil and fuel stockpiles rose worldwide during the economic downturn, and the climb back down has been slow and uneven.

Analysts believe the amount of oil held on tankers, known as floating storage, has fallen sharply. But U.S. oil inventory figures, which are more frequently updated and transparent than other major oil consuming nations, rose for 10-consecutive weeks starting in January. A slight drop seen in government data released Wednesday sent oil shooting to within $1 of an 18-month high.

“We get up to these levels…and the sustainability of maintaining oil prices this high begins to overwhelm the market,” said Stephen Schork, editor of The Schork Report, an energy market newsletter.

Comment by alpha-sloth
2010-04-25 08:48:55

and the sustainability of maintaining oil prices this high begins to overwhelm the market

I’m trying to figure out what this means. Is he saying that high oil prices eventually squelch demand? Or that you can only artificially manipulate prices so high, for so long, until the market …gets ‘overwhelmed’? Does that mean it finally starts pricing accurately?

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Comment by rentor
2010-04-25 09:58:46

Great Ash Cloud caused major disruption in flights causing reduced demand from airliners.

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Comment by cactus
2010-04-25 08:23:04

hahahaha

thats funny !!!!

 
Comment by X-GSfixr
2010-04-25 11:11:07

“North Korea torpedoes South Korean patrol boat with torpedo designed and manufactured by Goldman Sachs”

 
 
Comment by NoVa RE Supernova
2010-04-25 06:56:26

The “LaRouchies” may be a political cult, but they tell it like it is when it comes to the international banking system.

http://www.larouchepub.com/pr/2010/100421lar_campaign_goldman.html

April 21, 2010 (EIRNS)—The national election campaign being conducted by LaRouche Democratic leaders Rachel Brown (4th CD-Mass), Kesha Rogers (22nd CD-Tex), and Summer Shields (8th CD-Calif) launched a coordinated offensive today against the criminal financial practices which the current Goldman Sachs scandal merely typifies, and for immediate implementation of the LaRouche Plan for bankruptcy reorganization, which represents the only workable alternative.
In his statement, entitled “Why Goldman Sucks,” which is being distributed in the financial district of San Francisco today, Shields, who is running for the Democratic Party nomination from House Speaker Nancy Pelosi’s district, says:

The April 16 decision by the SEC, to investigate the fraudulent practices of Goldman Sachs, should not stop at the doorstep of only that institution, but must lead to an emergency bankruptcy reorganization of the international banking system.

In her statement, entitled “Why We Must Have a Global Glass-Steagall,” Rachel Brown, who is challenging Barney Frank for the Democratic Party nomination, asked:

Are you surprised by the recent allegations that Goldman Sachs was involved in a financial swindle? This has been the character of the economy, as statesman Lyndon LaRouche has warned, since 1987. The real question is: Why haven’t we put this dead system through bankruptcy? Goldman Sachs received billions of dollars in bail-outs as they carried on this swindle, as did every other financial institution in the world. No one can hide from this global collapse, no matter how much we throw endless amounts of money at this bankrupt system.
Only a Global Glass-Steagall bankruptcy reorganization will separate the worthless assets, from those tied to the real economy. All derivatives, and related financial trash, will be thrown out. Don’t let the Harvard economists fool you: these gambling bets are not improving the economy. There is no way for the economy to be safer when it’s based on a financial bubble.

Candidate Kesha Rogers, the official Democratic Party nominee against Republican Pete Olson in the November election, put it this way in her statement, entitled “Expose the Fraud of the System!”:

The case of Goldman Sachs opens the door to a sweeping criminal investigation, through a new Pecora Commission, to expose the systemic fraud of the entire bankrupt financial system. This only proves what American statesman and physical economist Lyndon LaRouche has been saying since his historic and highly accurate webcast in July 2007: The entire financial system is bankrupt. There is no saving this bankrupt system. The entire British monetary system of globalization is a fake, and the longer it is bailed out, the worse things will get….

We must expose these Wall Street criminals in public hearings, opening their books before the world, to discover just how deep their fakery and corruption goes, as was done during the Pecora Commission hearings of 1932-1934. There must be a system-wide reorganization of the banking assets according to 1933 Glass-Steagall standards, where worthless derivatives and other speculative gambling debts are trashed and wiped off the books, while all the legitimate assets tied to real, physical debts like pensions, mortgages, and legitimate commercial accounts, are protected from further looting by these financial parasites. We must tie the value of our dollars to physical production again, using the Constitutional powers of Congress to issue public credit for investment in productive jobs in agriculture, industry, infrastructure, and scientific and technological progress, refusing to allow international banks to speculate upon its worth like a commodity. The United States must collaborate with other major world powers, specifically Russia, China, and India, and form an alliance of sovereign nations standing together against the British monetary empire.

Comment by Professor Bear
2010-04-25 07:11:09

‘The “LaRouchies” may be a political cult, but they tell it like it is when it comes to the international banking system.’

I apologize for all the crap I have sent your way over the years on this point. My views have definitely evolved over the years of posting here.

Nowadays, I lean towards the view that every political party, every religious sect, each government and each private corporation is a cult in its own right, with its own brand and fund raising tactics. Saying my party, my religion, my government or my company is better than the others is no more nor less than a product differentiation strategy to increase the flow of money and resources towards my brand. We are a society of competing coalitions; get on board with the right coalition, or get yourself economically marginalized or worse.

Comment by NoVa RE Supernova
2010-04-25 07:42:16

No need for apologies. As I’ve said before, in some ways the “LaRouchies” have been way out front when it comes to speaking truth to power and calling out fraud in the economy. They were definitely the first to warn of the tech and housing bubbles. Their worldview is a lot more conspiratorial than mine, but they have some first-rate intellects in the organization and put out some of the most cogent analysis I’ve ever seen regarding the great questions of the day. Which doesn’t make me blind to their cult-like aspects and overzealousness, or espousal of grandiose conspiracy theories. But they aren’t the bad guys.

Some of these young “LaRouche Democrats” are running against Nancy Pelosi and Barney Frank. The gal in Texas, Lekeisha Rogers, won a stunning upset in the Democratic Primary running on an explicit platform of impeaching President Obama. That should have been national news but straight down the memory hole it went. These guys can help shake up the system and shine light on how corrupt it is. In that, I wish them well.

Comment by Ki
2010-04-25 07:52:26

It’s Keisha, not Lekeisha.
And she’s batsh**t crazy regardless of her name.

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Comment by NoVa RE Supernova
2010-04-25 08:04:18

Whatever.

My idea of “batsh*t crazy” has shifted over the past couple of years. True crazy is installing guys like Timmy G and Larry Summers as your chief economic advisers.

http://www.larouchepub.com/other/2010/3704summers_go_now.html

 
Comment by X-GSfixr
2010-04-25 11:13:53

“….bat$hit crazy”

I’ve seen the Fred Phelps family up close. I’ve seen bat$hit crazy. And Keisha is not bat$hit crazy….” :)

 
Comment by X-GSfixr
2010-04-25 11:15:28

Phelps family = Physical proof that Native Americans effed buffalo.

 
 
Comment by Professor Bear
2010-04-25 08:07:27

‘As I’ve said before, in some ways the “LaRouchies” have been way out front when it comes to speaking truth to power and calling out fraud in the economy.’

This is a good example of what I mean by product differentiation:
‘We saw it first.’

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Comment by NoVa RE Supernova
2010-04-25 08:18:13

http://www.larouchepub.com/other/2002/2924fannie_mae.html

But they did call the housing bubble first. The tech bubble too. Give credit where credit is due. At least as early as 2002 they were warning of the housing bubble and Fannie Mae/Freddie Mac’s role in creating it.

 
Comment by Green Shoots
2010-04-25 10:40:32

“At least as early as 2002 they were warning of the housing bubble and Fannie Mae/Freddie Mac’s role in creating it.”

They were not alone. Academics who study finance were already onto it by 2002; for instance, the reference to LTCM in this presentation on GSE risk is telling.

It seems more likely to me that LaRouchees simply paid good attention to what academic researchers were discussing back then, rather than conducting independent research themselves. But if you have contrary evidence that LaRouche’s researchers came up with their own independent conclusions on this, I am interested.

 
Comment by CA renter
2010-04-26 03:24:23

Even if they were merely paying attention as opposed to doing their own research, you have to give them credit for trying to get the news out far earlier than the MSM.

I enjoy reading what they have to say, as it’s always a bit “different” from what we are spoon-fed by those who always (and falsely) claim that “nobody saw this coming.”

 
 
 
Comment by Hwy50ina49Dodge
2010-04-25 08:18:43

“…Nowadays, I lean towards the view that every political party, every religious sect, each government and each private corporation is a cult in its own right”

“TrueCult™” = Free membership for life!
Only requirement: your “belief system” ;-)

Join today!

Federal Reserve Inc.
Scientology
GoldenmanSucks Inc.
Xe Inc.
Donald sTrump
Monsanto Inc.

Need to get more coffee, this list is gonna be loooonnnnngggggggggggg…

Comment by mikey
2010-04-25 09:24:36

“…Nowadays, I lean towards the view that every political party, every religious sect, each government and each private corporation is a cult in its own right”

Me too !!

Plus I always place a tiny piece of very light yarn on a stick to check the windage at the cult…right next to my rifle barrel.

:)

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Comment by Bill in Los Angeles
2010-04-25 09:13:00

You have discovered what Harry Browne mentioned in “How I Found Freedom in An Unfree World” in the early 1970’s. Unfortunately he violated his own sage advice by running for POTUS as the LP candidate in.1996. Grrrr!

 
 
 
Comment by Professor Bear
2010-04-25 07:04:21

Maybe the government isn’t so bad compared to the private sector after all?

I’d go one step further with this assessment: In the age of crony capitalism, there really is no longer a meaningful dividing distinction between the private and government sector. Perhaps there never was, for that matter: It could well be that the whole construct is the fictitious fabrication of some Chicago School theoretician’s fevered imagination.

P.S. Meg Whitman is in league with Gollum. Don’t vote for her, California.

Goldman Sachs fraud accusations jolt California political races

The SEC’s charges against the investment firm may provide an unwelcome distraction for the campaigns of former business executives Carly Fiorina and Meg Whitman.

By Cathleen Decker, Los Angeles Times

April 25, 2010

The decision by federal regulators to accuse investment powerhouse Goldman Sachs of fraud for actions in the run-up to the market meltdown sent shivers through Wall Street and a jolt of uncertainty into an unlikely venue: California’s political races.

In something of a rarity, both top-of-the-ticket races — the contests for governor and U.S. Senate — feature competitors from the world of business. Former Hewlett-Packard Chief Executive Carly Fiorina is running for the Republican nomination to challenge incumbent Democratic Sen. Barbara Boxer. Former EBay chief Meg Whitman is the GOP frontrunner in the race for governor, where she would likely face Democrat Jerry Brown, the former governor trying to recapture the job he held from 1975 to 1983.

If there was any shadow in the week, however, it was the Securities and Exchange Commission’s action and the simultaneous Democratic push to tighten regulations on Wall Street. Both Fiorina and Whitman have a message with a subtext: that they will bring tough business practices to bear on an unruly and inefficient government. The actions, if they persist in the public eye, threaten to remind voters that no matter how off-putting they find government, business may not always provide the perfect template either.

In Whitman’s case, there may be more potential for distraction. Her career at EBay was closely entwined with Goldman Sachs; she served on its board and has already weathered one controversy over special favors given to her by the investment firm.

In past years, candidates experienced in the business world have foundered in political races for two reasons: They made rookie mistakes in their first big runs for office, and their business records were held up to a populace that recoiled. California voters almost always have decided they had more in common with the workers laid off than the executive who left with a golden parachute.

tellingly, Whitman glossed over her relationship with Goldman Sachs, specifically her departure from its board in 2002 after little more than a year.

Comment by rms
2010-04-25 07:35:26

Probably find Meg’s empty pea pod lying in the shadows.

Comment by SanFranciscoBayAreaGal
2010-04-25 09:50:15

Are you saying she is one of the invaders of the body snatchers? ;)

Comment by X-GSfixr
2010-04-25 10:13:17

“……sent shivers through Wall Street…….”

Strange. You would think that the people/organizations/businesses who are playing by the rules would be happy about the Feds finally going after the crooks.

Shaking like a puppy is the kind of reaction I would expect from people who are also criminals.

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Comment by rms
2010-04-25 20:06:21

“Are you saying she is one of the invaders of the body snatchers?”

+1 :)

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Comment by Hwy50ina49Dodge
2010-04-25 08:31:00

Her career at EBay… ;-)

Meggy: You have a problem? I don’t want to hear your voice nor your POV…just email me and I’ll “maybe perhaps”, get back to you, “maybe perhaps” within a time period I specify for you or your complaint. However, if it turns out you’ve made me a lot of money selling on eBay, I’ll give you a 1-800 number to an eBay “specialist” that “maybe perhaps” might admit that you POV could actually be turned into an another eBay asset that might further help eBay make even more money.Howwever if you think that we at eBay are the problem…take a hike!

 
Comment by Sammy Schadenfreude
2010-04-25 15:04:09

Both Fiorina and Whitman would be unmitigated disasters for California. Fiorina ran HP into the ground and Whitman would immediately set about setting Goldman up to feast on the bones of what remains of California’s economy.

Jerry Brown has his own Goldman stains. Seriously, CA, you need to come up with some better candidates.

 
 
Comment by pressboardbox
2010-04-25 07:04:48

Good Realtor Schadenfrude:

My GF’s mom is a realtor. Not just a reator, but a “power” realtor - you know- the kind with the “ten-zillion-dollars-sold-2006″ plaques which document the entire bubble hung on her office wall. Well, yesterday she announced to her daughter that she is “ready to quit!” , “sick of being a realtor!”, etc. She went on to explain that the problem now is that the buyers are way too demanding and all want deals and won’t work with the sellers. She doesn’t like this “buyers’ market” and wishes things were like they were.

I just laughed inside and thought: Reality is a bitch.

Comment by Professor Bear
2010-04-25 07:12:39

“…but a “power” realtor - you know-…”

- Boob job?

- Escalade?

 
Comment by Bill in Carolina
2010-04-25 07:16:26

Your GF’s mom has an unusual name! :-)

 
Comment by In Colorado
2010-04-25 07:16:31

Funny how so many people fall apart when they actually have to work and earn their paycheck.

Comment by REhobbyist
2010-04-25 12:00:31

I know a lot of unhappy realtors. They have no repeat business because of the FBs they created. And they have to live with the guilt of knowing that they created financial stress for their former clients. And most of them didn’t save any of their ill-gotten gains.

 
 
Comment by combotechie
2010-04-25 07:21:52

“She doesn’t like this ‘buyer’s market’ and wishes things were like they were.”

The NAR needs to be strengthened so things can get back to where they were. To do this the NAR should raise the dues of all its members. NAR dues should be at least doubled, tripled even.

 
Comment by 2banana
2010-04-25 07:44:02

Yeah - she actually has to work to take that 6% now…

 
Comment by Ki
2010-04-25 07:55:55

Don’t quit now. She has a week left before the $8K expires. And this should be a great week for realtors. That’s what I saw on the local news yesterday. The report said this weekend will be one of the busiest weekends ever for local realtors as people rush to take advantage of the credit.

Comment by cactus
2010-04-25 08:29:28

people rush to take advantage of the credit.’

Inflate now or die money velocity must be increased

Hard to tax money buried in a hole

 
Comment by howiewowie
2010-04-25 15:23:07

It’s going to be hard for anyone to get under contract in the next week who isn’t already well along in the process. But yes, it should be a busy week for them.

 
 
Comment by Professor Bear
2010-04-25 08:03:10

It’s not surprising that UHS are confusing the current market, which is highly illiquid thanks to the Fed’s and other govt interventions to artificially prop up market values, with a buyer’s market, which is what normally ensues towards the tail end of a recession when there are lots of homes on the market and prices are sufficiently low to attract buyer interest without the need for the artificial prop of a tax credit to lure them. With such low inventories of affordably-priced homes for sale as we currently see, I can’t imagine that many NAR members have enough work to support themselves.

Comment by CA renter
2010-04-26 03:29:43

IMHO, this is one of the strongest seller’s markets I’ve ever seen. It absolutely rivals the peak of the bubble.

 
 
Comment by Jon
2010-04-25 08:42:05

And her year’s of easy 6% commissions in a bubble qualifies her to do what exactly? Go ahead and quit. Then reality will really set in.

 
 
Comment by jeff saturday
2010-04-25 07:05:23

Artificially low interst rates, $8,000.00 first time home buyers credits, mortgage cram downs for victims who are gonna default anyway, cash for clunkers, wampum for washing machines(personally, I am holding out for cash for couches and loot for lamps cause my wife wants a new family room ) and allowing people to live in their houses for 2 years without paying their mortgage while their houses live in the shadows aint gonna change the fact that people who make $30k can`t afford a $300k house.

Only 10 days to the extension of the 8,10,15 or $20,000.00 first time home buyers credit, better buy now before it`s too late.

Comment by pressboardbox
2010-04-25 09:21:26

I, personally am hoarding my cash until “Bernanke Bux for Beanie-Babies” is announced at which point I am going all-in.

Comment by jeff saturday
2010-04-25 10:28:37

Man, I went outside to trim a tree at my new rental and the push primer on my Echo broke. I need cha-ching for chain saws.

Comment by exeter
2010-04-25 17:29:08

Michelle Bat$hit Crazy Bachmann owns the term.

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Comment by exeter
2010-04-25 17:30:57

Too funny Jeff :thumbs up:

By the way, if it’s got an Echo label on it, it doesn’t break.

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Comment by pressboardbox
2010-04-25 10:54:37

“Helicopter-Hundred$-for-Hungry-Hoardes-of-Homeownerz” is the one to keep an eye out for.

 
 
Comment by Professor Bear
2010-04-25 07:28:34

I am trying to grasp the implications of this new Fannie rule for short sales; am I missing it, or does this mean that:

(1) Debt beats now have a greater hope for soon qualifying to buy another house if they sell their currently-owned underwater monstruosity short.

(2) The incentive to sell short was just ramped up considerably, suggesting there is likely to be a much higher rate of short sales going forward.

(3) A higher rate of short sales suggests that the recent dead cat bounce in U.S. residential real estate prices should soon give way to a renewed move towards improved affordability, thereby helping Fannie Mae get ever closer to finally achieving its affordable housing mission.

(4) Debt beats who sell short will stay priced out until they can raise a down payment of 10 to 20 percent.

(5) Uncle Sam plans to stay very active as mortgage lender of last resort, as it seems unlikely that private lenders would be very eager to make mortgage loans to borrowers who recently stiffed a bank with a short sale.

(6) I didn’t see anything about this in the article, but I am wondering how the tab for this new program gets dumped on U.S. taxpayers, as I am reasonably sure the banksters who control banking policy decisions would not agree to getting stuck with the bill for a stepped up rate of short sales. I am guessing the December 24, 2009 move to uncap the GSE budget limit, which formerly was $400,000,000,000, may have something to do with this?

The Nation’s Housing
Fannie Mae wants to help some troubled borrowers get back into home market

Kenneth R. Harney
Saturday, April 24, 2010

Here’s some good news for people who had to give the deed on their house back to the bank because of financial problems, or who have done a short sale to avoid foreclosure: You may not have to wait the typical four or five years to re-qualify for financing to buy another home.

Instead, it could be as little as two years. In a bulletin to lenders April 14, mortgage giant Fannie Mae said it is relaxing rules that prevented loan applicants who have participated in short sales or deeds in lieu of foreclosure from obtaining a new mortgage for extended periods of time. The new rules are scheduled to take effect July 1.

Homeowners who have done short sales — such as under the Obama administration’s new Home Affordable Foreclosure Alternatives program — will also be able to qualify for a mortgage in as little as two years. Although Fannie Mae officials declined to discuss the reasoning behind the changes, the bulletin to lenders said the company hopes to encourage troubled borrowers to work out solutions that avoid the heavy costs of foreclosure.

Fannie’s new standards come with some noteworthy fine print, however. To qualify for a new loan in the minimum two years, most borrowers will need to come up with down payments of at least 20 percent. If they can scrape together only 10 percent for a down payment, the wait will revert to the four-year minimum. And if their down payments are less than 10 percent, the wait could be even longer.

Comment by pressboardbox
2010-04-25 07:54:21

“To qualify for a new loan in the minimum two years, most borrowers will need to come up with down payments of at least 20 percent.”

I’m pretty sure that in two years there will be some ridiculous “second-chance-tax-credit” offered by the govenment that the buyer can apply as the downpayment just like they are using the $8k right now. The crap will continue until everyone is dead.

Comment by Professor Bear
2010-04-25 08:27:40

I see taxpayer-funded downpayment assistance in my crystal ball.

Comment by CA renter
2010-04-26 03:33:57

Please stop giving them more stupid ideas. ;)

———————

While I don’t like the shorter term between SS and a new purchase, if they actually stick with the 20% minimum DP, this program would be far better than what they’ve been doing (just sitting on all the shadow inventory and not foreclosing).

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Comment by Timmy Boy
2010-04-25 09:06:35

Fannie Mae wants to help some troubled borrowers (crack addicts) get back into home market (shooting crack)

 
Comment by packman
2010-04-25 20:25:11

PB - your takeway points sound about right to me. There’s a good chance this will indeed serve to drive prices down somewhat in the short term.

My take is simply - this sucks. I can see tons of fraud here - people who are underwater on their houses hiding income and/or savings in order to get a short sale, to get out of their mortgage virtually scot-free, and then using that hidden money for their down payment just 2 years later.

And yes taxpayers will get screwed by paying for this. E.g. with respect to this question:

(6) I didn’t see anything about this in the article, but I am wondering how the tab for this new program gets dumped on U.S. taxpayers, as I am reasonably sure the banksters who control banking policy decisions would not agree to getting stuck with the bill for a stepped up rate of short sales. I am guessing the December 24, 2009 move to uncap the GSE budget limit, which formerly was $400,000,000,000, may have something to do with this?

Please refer to this article from a couple of weeks ago. There is indeed a new program in the works to pay the banks more (from taxpayer money of course) to do short sales. Not sure the specifics yet.

 
 
Comment by Professor Bear
2010-04-25 07:32:43

“Efficient teaching” = cram 300 seniors like sardines into a challenging upper-level undergraduate course and hope they all study hard on their own time to learn the material…

UCSD will face more financial hurdles
Teaching mission vulnerable to cuts
By Eleanor Yang Su, UNION-TRIBUNE STAFF WRITER
Sunday, April 25, 2010 at 2:24 a.m.

Jeff Skinner (left) and professor Bill Hodgkiss, both of Scripps Institution of Oceanography, discuss a project. Research often has sources other than the state for funding.

John Gastaldo / Union-Tribune

LA JOLLA — When UCSD leaders describe the effects of losing $85 million in state funding this year, they mention widespread furloughs, hundreds of layoffs and a freeze on faculty hiring.

What’s at stake is the university’s ability to continue providing a quality education and graduating enough students on time.

“The budget crisis has been very serious,” said Gary Matthews, vice chancellor for resource management and planning. “Forty years ago, we were getting close to 40 percent of our budget from the state. We’re now down to almost less than 10 percent.”

When viewed against the backdrop of the school’s total staffing and budget, though, the campus seems to have avoided significant downsizing.

The 310 laid-off employees represent about 1 percent of the work force at the University of California San Diego. Many professors have used an infusion of more than $130 million in federal stimulus money — in the form of research grants — to buy out their furloughs. Overall, most of the state budget cut has been offset by an internal $43 million loan and a 32 percent tuition increase spread over two years.

So how has the state’s budget crisis hurt instruction for the university’s 29,000 undergraduate and graduate students? The impact looks limited, based on preliminary figures.

The number of undergraduate courses offered in the fall dropped by 3.7 percent, or 52 classes, from a year ago. Another benchmark, the student-to-faculty ratio, has remained unchanged at 31-to-1 for the past two years.

Campus leaders said the freeze on faculty hiring and cuts in lecturer ranks aren’t reflected in those figures. They also said the university has had to streamline some operations, such as making do with once-per-week trash collection and consolidation of certain administrative jobs.

Education experts said the real need is to find a long-term financial solution because state funding is expected to keep shrinking.

They believe colleges should slash expenses instead of expanding programs and raising tuition.

“Universities have got to get their faculty to teach more and teach more efficiently,” said David Longanecker, president of the Western Interstate Commission for Higher Education and an authority on university finances.

Comment by ACH
2010-04-25 08:06:13

“Efficient teaching” = Have upper level undergrad courses taught by adjuncts and grad students instead of the Professor (who bought out his contract.) Professor now does “pure research” only and gets grant money.

Roidy

Comment by Professor Bear
2010-04-25 08:26:27

Yup. Reminds me of a guy I used to work with; he had a PhD from a respectable program, but decided to forego a professorial career, as he thought academia had evolved into a fraud scheme, with pure researchers posing as professors.

 
 
Comment by combotechie
2010-04-25 08:23:09

“Another benchmark, the student-to-faculty-ratio, has remained unchanged at 31-to-1 for the past two years.”

Let’s take a close look at this 31-to-1 ratio, shall we? Note that this is not the average class size - that is, the average class size is not 31 students per class as one might gather at first glance. This figure is the number of students per faculity member.

If a student has six classes then the average student-per-faculty member-per-class ratio produces a number that is just above 5. If one were to get rid of 20 percent of the faculty members then the student-to-faculty member-per-class ratio would rise to a figure that is just above 6.

Comment by In Colorado
2010-04-25 09:27:39

“Education experts said the real need is to find a long-term financial solution because state funding is expected to keep shrinking.”

This is happening at public colleges and universities across the country. Here in Colorado CSU (Colorado State) has threatened to privatize if its state funding continues to shrink.

 
 
Comment by goedeck
2010-04-25 14:41:49

Gerald Celente calls this “The College Crash.”

 
Comment by Sammy Schadenfreude
2010-04-25 15:06:56

Here’s an idea: End your affirmative action programs and focus on deserving applicants.

 
 
Comment by Professor Bear
2010-04-25 07:38:36

Goldman = the Devil which funds political campaigns with AIG bailout money:

Posted: 3:45 pm Tuesday, Apr. 20, 2010
Democrats cite Goldman in pushing financial overhaul
By DAVID LIGHTMAN | McClatchy Newspapers

Goldman Sachs is proving to be a convenient, timely weapon for Democrats eager to push a financial regulatory overhaul through a reluctant Senate.

Republicans say Democrats are late-day converts as Goldman skeptics, noting that Majority Leader Harry Reid, D-Nev., raised money in January at a New York fundraiser attended mostly by Goldman executives.

Since the Securities and Exchange Commission charged the firm last week with civil fraud, Democrats have claimed important momentum is gathering behind the legislation.

“People back home may not understand the nuances, but they know something’s not quite square,” said Sen. Tom Harkin, D-Iowa.

Read more: http://www.sanluisobispo.com/2010/04/20/1110703/democrats-cite-goldman-in-pushing.html#ixzz0m7g0cI11

Comment by X-GSfixr
2010-04-25 10:24:56

“….raised money…..attended mostly by Goldman Executives”.

That’s the trouble with politicians. They won’t stay “bought”.

Especially since they are finally figuring out that they may be looking for work in November. And they like their jobs better than they like money. And that there are only so many lobbyist/consultant jobs around.

Comment by Professor Bear
2010-04-25 10:47:09

Can Goldman demand a refund of campaign contributions from any politician who does not follow through on their pledge to protect them from fraud charges?

Comment by X-GSfixr
2010-04-25 11:23:16

They’ve already “bought” everything they wanted, up to this point.

Politicians got bucks.

Wall Street got laws and selective enforcement, enabling them to get more bucks.

They’re “even-steven”, as near as I can tell. But the politicians are beginning to fear the voters more than they fear Wall Street.

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Comment by Timmy Boy
2010-04-25 11:41:51

Shine the light on the cockroaches… & they all scatter.

Only to resume another day.

TB

 
 
 
 
Comment by Ki
2010-04-25 17:24:43

Nothing more hilarious than watching Obama chastise GS after cashing a $994K check from the company in 2008. Yet this fact is strangely silent in the MSM. Odd.

Comment by exeter
2010-04-25 17:35:01

No more funny that BushCo handing Wall Street $700 billion in taxpayer TARP money.

Now that’s hypocrisy. ;)

Comment by Ki
2010-04-26 04:31:44

Liberal playbook:

1. When in doubt blame Bush
2. See 1

Here’s the difference. Obama campaigned as Mr. Get Tough on Wall St yet took GS’s money (along with AIG’s money, ML’s money, etc).

Bush also took their money but never pretended to be anti-Wall St.

But you keep your Donkey Blinders on if you must.

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Comment by rms
2010-04-25 07:40:37

Nice day today, but have to work ’till 1600. :(

Comment by packman
2010-04-25 20:28:48

Wow - things that bad, eh? I’m still hoping to retire at 65 or so.

Hope the Methuselah thing works out for you.

Comment by nickpapageorgio
2010-04-25 23:37:29

Not everyone works 8-5 M-F. There are some upper 5 figure - low 6 figure jobs in Health Care and Technology where you may find yourself working non standard hours.

 
 
 
Comment by Professor Bear
2010-04-25 07:45:59

E-mails document that subprime mortgage lending kingpin did see it coming and profited from its role in engineering a near collapse of the U.S. banking system.

* BUSINESS
* APRIL 25, 2010, 9:28 A.M. ET

Goldman’s Tourre Foresaw Subprime Chaos, Emails Show

By SUSANNE CRAIG And JOHN D. MCKINNON

Newly released emails show that Goldman Sachs Group Inc. trader Fabrice Tourre foresaw the meltdown of the subprime-mortgage market and compared the product he helped create to a “Frankenstein turning against his own inventor.”

The new documents about Goldman Sachs also included some emails released by Senate investigators in which top Goldman executives cheered the gains they were reaping as subprime-mortgage securities collapsed in value in 2007.

Goldman on Saturday morning released its own description of its involvement in the mortgage market, as well as a collection of emails including Mr. Tourre’s. The firm said it didn’t make the big profits some have described and didn’t have any special information that caused it to know the U.S. housing market would collapse. Goldman said the Senate investigators cherry-picked emails to make a point, although the firm released some of the same messages.

The new information came ahead of a hearing Tuesday at which Goldman executives including Chief Executive Lloyd Blankfein will testify before the Senate Permanent Subcommittee on Investigations.

On April 16, the Securities and Exchange Commission charged Goldman and Mr. Tourre with fraud in a civil suit. The SEC alleged that Goldman deceived clients in a deal involving mortgage-linked securities by failing to disclose that a big hedge fund betting on a collapse of the mortgage market helped choose the securities in the deal.

The SEC suit has stoked a broader debate about Goldman, which survived the financial crisis in relatively strong shape and announced this past week that it made $3.46 billion in the most recent quarter. That was Goldman’s second-highest quarterly profit on record.

Goldman’s critics say the firm let clients bet that the mortgage market would remain healthy even as Goldman itself anticipated trouble ahead and tried to profit from the market’s decline. Goldman says it was merely trying to protect itself from losses and didn’t have a crystal ball. It says it was serving clients that wanted to make the bets.

SEC v. Goldman

The SEC sued Goldman Sachs and trader Fabrice Tourre on April 16. Here is the SEC’s civil complaint alleging Goldman committed fraud.

Here is a summary of Goldman’s response to the complaint.

The SEC issued a confidential Wells notice to Goldman in the summer of 2009, warning that the staff intended to bring charges against the firm. In September 2009, Goldman responded to the SEC’s allegations in two documents.

Since the SEC’s suit, broader questions have re-emerged about Goldman’s conduct during the mortgage meltdown. In this document released Saturday, Goldman gives its version of the firm’s trading in 2006-07, contending that it sought to protect itself from losses but didn’t take advantage of clients. Goldman also released emails from the period in which executives discussed the mortgage market.

Meanwhile, the Senate Permanent Subcommittee on Investigations is preparing to hear testimony from Goldman executives Tuesday. The subcommittee on Saturday released a statement and its own selection of Goldman emails in which executives cheer their profits from trades betting the mortgage market would weaken.

In a statement Saturday, Sen. Carl Levin, chairman of the subcommittee that will hear the Goldman testimony, said investment banks such as Goldman Sachs “were self-interested promoters of risky and complicated financial schemes that helped trigger the crisis.”

Comment by X-GSfixr
2010-04-25 10:26:34

So Tourre DID see it coming?

So why isn’t he Goldman’s CEO?

Comment by Professor Bear
2010-04-25 10:46:04

A pirate ship wouldn’t want the captain to have to be the fall guy who gets to walk the plank.

Comment by SanFranciscoBayAreaGal
2010-04-25 15:36:45

Not true, not true.

Contrary to popular belief, the crew of the priate ship elected their captain. If the captain failed at his duties, another captain was appointed.

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Comment by Professor Bear
2010-04-25 15:54:20

I guess piracy and banking aren’t the same thing after all, then?

 
Comment by pressboardbox
2010-04-25 17:15:09

Pirates are cool, bankers are dorks.

 
 
 
 
 
Comment by Mike in Miami
2010-04-25 08:35:49

Market recovery?
The FED buys all malinvestments from Megabank Inc. with freshly printed dollars. The colateral backing those malinvestments are sitting all over Miami and other former bubble markets. I have a bunch of houses in my n’hood that’ve been sitting empty for years. Some have been empty for over 2 years, that’s right.
Now inventory that’s actually for sale is a fraction of the houses that are sitting empty. Over that last few weeks houses in the $200 - $400K range are selling at a brisk pace. Those are older 30s - 50s houses, 1500 - 2200 sqft on 10K sqft lots in a decent n’hood. Pre bubble prices were maybe $125 - $250 while in 2006 those homes sold for $400 - $700K.
So the FED enables inventory being held back indefinitely. Since prices are pretty much a function of supply, demand and the ability to pay the monthly nut I could see that the market, through heavy manipulation, has bottomed out.
So no matter how bad an investment Megabank Inc makes, the FED can always come to the rescue by buying out everthing and anything with freshly printed money. Of course Megabank knows this and is bound to take full advantage of its too big to fail status.
Can this go on for ever? Will there be a day of reckoning? Why and how? Extend and pretend has worked fine up to today, how about 1 year from now? How about 10 years from now? All the other kids/central banks are doing it. Every deadbeat will be bailed out with borrowed money. Don’t worry, there’s more where that came from. It’s called a printing press or its electronic equivalent.

Comment by joeyinCalif
2010-04-25 09:06:30

Right now, housing support boosts the economy, but there will come a time when continued support of the housing market will become a drag on the economy.

 
 
Comment by cactus
2010-04-25 08:36:35

met a freind who bought high in Escondido interest only loan

he went to a lawyer who said he and his wife make enough to pay the mortgage so don’t walk away even though they are 150K under water.

must not have been one of the Radio laywers I keep hearing telling people to go bankrupt and have better credit and a better life.

Comment by Green Shoots
2010-04-25 08:48:47

“…Radio laywers I keep hearing…”

‘Banks got their bailout; why not you?’

 
Comment by Kim
2010-04-25 09:10:07

Its sounds like they make too much money and they don’t qualify for a Chapter 7 (discharge of debts), only a Chapter 13 (restructuring).

 
Comment by joeyinCalif
2010-04-25 09:16:37

As long as they didn’t intend on flipping for a profit, or using the house as an ATM, what’s it matter how much equity a house has or doesn’t have.

I guess people imagine some disaster happening where they couldn’t pay the mortgage and would have to try and sell it, and that would make anyone nervous.

These days it might be best to add such a disaster into the plan. If you can’t make the nut under the worst possible circumstances, don’t buy a house.

 
 
Comment by Reuven
2010-04-25 09:57:59

Charlie Rose interview with Rahm Emanuel in this week’s Bloomburg Businessweek. This question and answer was interesting.

Rose: Can Obama Turn around the anger of people who think they haven’t been heard?

Emanuel: There are legitimate reasons for the anger out there. The middle class has seen their incomes lost and cost of living go up while those at the top acted with a sense of irresponsibility that led to the economic crisis. Now the hard working middle class is bailing out the economy. Anybody who thinks the anger is just being pumped up just doesn’t get it.

I’m dumbstruck! Our administration apparently doesn’t see the “middle class” trying to get-rich-quick with housing as an equal part of the problem! They don’t question the fact that 80% of all stated income loans were fraudulent. This allegedly hard-working middle class is getting all sorts of handouts, from $8,000 homebuyer giveaways (with a 50% fraud rate) to tax holidays on forgiven debt, and a hands-off policy on auditing home equity interest deductions.

The real victims, of course, are savers and small businessmen who are truly paying for all of this. Bit our administration doesn’t care about them because there are more votes to be bought from the “angry middle.”

Comment by RioAmericanInBrasil
2010-04-25 10:23:10

Our administration apparently doesn’t see the “middle class” trying to get-rich-quick with housing as an equal part of the problem! They don’t question the fact that 80% of all stated income loans were fraudulent.

Your points are all very good but I will add the twist that the middle-class trying to get-rich-quick with housing was partially a result of the middle-class’s plight and economic indoctrination.

The middle-class had seen 30 years of declining wages, gutting of pensions, outsourcing and downsizing at the same time propaganda and culture was promoting the get-rich-quick and we’re-on-our-own ethos.

Then we were given the crazy tools (a housing bubble and liar-loans etc) of our own destruction.

Comment by X-GSfixr
2010-04-25 10:42:27

“……small businessmen are paying for all this.”

Please. You don’t think “small businessmen” are some holier-than-thou, above reproach bunch that didn’t profit in any way?

You either participated, or didn’t. And if you were smart enough not to participate, you are in better shape financially than those who didn’t.

Comment by Reuven
2010-04-25 10:45:27

Ok then. What about “savers” who I said were also being punished? It’s OK for them to suffer with artificially low interest rates to prop up Sally Specuvestor and Harry Homedebtor?

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Comment by X-GSfixr
2010-04-25 11:28:06

The savers are taking it in the shorts currently, but at some point cash is going to be a rare commodity again, so they will do okay.

Just sit back, wait, and enjoy the show.

 
Comment by Sammy Schadenfreude
2010-04-25 19:55:06

Reuven,

That’s the most infuriating part to me. The government is deliberately punishing savers and encouraging speculation. The markets are going up past all logical limits because people want to “invest” their money rather than have it sitting in savings losing money to real inflation.

 
 
 
Comment by Green Shoots
2010-04-25 10:42:35

It’s hard to tell who the good guys and the bad guys are when the rules are written and administered to punish the prudent and to reward the foolish.

 
Comment by Ki
2010-04-25 17:27:16

“that the middle-class trying to get-rich-quick with housing was partially a result of the middle-class’s plight”

LOL.

Yeah getting boob jobs and buying $60K Hummers was done by the middle class to fight off the economic plight.

You’re too much some days.

Comment by RioAmericanInBrasil
2010-04-26 11:20:02

Strawman:

Someone: I like bubblegum.

Ki: Yea right, we could all just survive just eating bubble gum huh?

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Comment by CA renter
2010-04-26 03:48:09

Your points are all very good but I will add the twist that the middle-class trying to get-rich-quick with housing was partially a result of the middle-class’s plight and economic indoctrination.

The middle-class had seen 30 years of declining wages, gutting of pensions, outsourcing and downsizing at the same time propaganda and culture was promoting the get-rich-quick and we’re-on-our-own ethos.

Then we were given the crazy tools (a housing bubble and liar-loans etc) of our own destruction.
————————

Nailed it again, Rio.

 
 
Comment by alpha-sloth
2010-04-25 11:18:39

Emmanuel: There are legitimate reasons for the anger out there. The middle class has seen their incomes lost and cost of living go up while those at the top acted with a sense of irresponsibility that led to the economic crisis. Now the hard working middle class is bailing out the economy.

Sounds like he agrees with the general consensus here.

Aren’t ’savers and small businessmen’ generally members of the middle class? Only a spinmeister could somehow attempt to separate and oppose the two.

Comment by Reuven
2010-04-25 12:27:26

Aren’t ’savers and small businessmen’ generally members of the middle class? Only a spinmeister could somehow attempt to separate and oppose the two

No, because savers and small businessmen are two groups that aren’t getting any handouts/tax breaks from Obama.

Comment by alpha-sloth
2010-04-25 14:44:14

So being in the middle class means you’re getting handouts/tax breaks from Obama? If you don’t get the handouts/tax breaks, by definition you’re not middle class?

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Comment by Reuven
2010-04-25 17:11:32

Basically.

There are two major groups getting the bulk of the handouts.

1. Too Big To Fail Banks / Car companies

2. Middle-class houseflippers, specu-vestors, and homedebtors

 
Comment by CA renter
2010-04-26 03:50:06

Reuven,

Instead of making it a “middle class” issue, I’d say it’s more appropriate to distinguish between **gamblers (of all stripes)** versus those who are responsible workers/savers.

 
 
 
 
 
Comment by Lip
2010-04-25 10:12:13

Option Arm Reset Chart

” low interest rates won’t last forever — they’ll now likely strike next year and continue well into 2011.”

http://www.businessinsider.com/john-carney-chart-of-the-day-monthly-mortgage-rate-resets-2009-9

IMO another round of resets are on their way and any talk about us hitting bottom already just don’t apply to the NW Phoenix market.

While looking at houses in two zip codes, 4 houses were lender owned, 28 were short sales (waiting to foreclose) and NONE were ordinary homeowners trying to sell.

Yikes, at what point do values drop off the cliff? Or, when does inflation rear its ugly head to steal all of our capital?

Comment by Green Shoots
2010-04-25 10:44:51

From the looks of that chart, 2012 might be a good time to buy, as there is likely to be loads of high-end inventory on the market smothering the prices of all lower-quality housing. The myth that the low end of the market has finished correcting and the high end will finish its correction “by the end of this year” (whatever year it happens to be) is likely to be shattered come 2012.

Comment by In Montana
2010-04-25 13:31:04

That would be good. There are too many $210k houses out there that should not be even $80k, given rents and incomes.

 
 
Comment by jeff saturday
2010-04-25 17:04:03

Fed to extend “extended period” April 25, 2010 4:02 PM ET

WASHINGTON (Reuters) - With official interest rates near zero and the Federal Reserve unable to cut them any further, every policy meeting by definition brings the central bank one step closer to an eventual monetary tightening.

As signs of firmer U.S. growth become more widespread, investors are getting antsy about anticipating the Fed’s next move, a guessing game sure to gather momentum as the Federal Open Market Committee holds a two-day meeting this week.

Much of the discussion in the markets now centers upon how soon the Fed will abandon a commitment to keep rates really low for an “extended period” — and how quickly after that it might get down to the real business of pushing rates higher.

 
 
Comment by pressboardbox
2010-04-25 10:48:22

Mortgage Writedowns. Are They Fair?

Reader Comment:

Fire at will…must be a realtard.

How is it the neighbors business? We’re not talking about the government bailing the homeowner out, its a business decision between the lender and the borrower. The bank has to decide if having one more foreclosure is better than simply taking a smaller profit and allowing the homeowner to stay in the house. As you said, normally people who can’t afford their house would sell it and move. But the housing market is out of whack big time. There are so many homes out there that are foreclosures or are short-sales that selling and covering your principle and Realtor fees and other closing costs is often impossible. Plus if you do go ahead and foreclose, it will actually effect your neighbors property value. So even though its none of their business, your neighbors should be in favor of it. -Again, we’re not talking about tax dollars.

Read more: http://stellahopkins.blogspot.com/2010/04/mortgage-write-downs-are-they-fair.html#ixzz0m8RsYBG7

Comment by CA renter
2010-04-26 03:54:40

Isn’t it funny how so many people think *today’s* market is “out-of-whack,” and that the 2001-2006 market was “normal”?

 
 
Comment by SUGuy
2010-04-25 10:49:48

Revisited: Where is the Money Coming From to Fund

When I make a mistake I will admit it.

In my analysis of consumer spending I asserted that the sources of increases in spending were (1) a draw-down of savings and (2) the redirection of defaulted mortgage payments to spending. I was half-right which another way of saying I was half-wrong.

I missed one the basic laws of economics, Bastiat’s “Broken Window Fallacy.” You know, the kid breaks the cobbler’s window, the cobbler pays for a new window and everyone thinks that the cobbler’s spending helped the economy because the glazier had work. The fallacy is that the cobbler was going to buy new clothes from the tailor and now can’t afford it. So the cobbler still has a window, is out the cost of the window repair and the new clothes. It’s a net loss to the economy.

The lesson is that you always need to look at the unseen as well as the seen. I missed that point entirely when I claimed that people spending their mortgage payments on consumer goods. Someone loses here and that is the lender. I forgot to ask what the lender was going to do with the money. Thanks to Caroline Baum, the very excellent writer for Bloomberg to point out the obvious. (See, “Honey, I Lost the House. Now It’s Time to Party.”)

Mea culpa and apologies. Unfortunately many, many people made the same mistake (Mark Zandi, David Rosenberg among others).

http://dailycapitalist.com/2010/04/22/revisited-where-is-the-money-coming-from-to-fund-spending/

Comment by pressboardbox
2010-04-25 11:16:14

Won’t the Federal government pay the lenders the difference to “make them whole”? Aren’t the lenders too big to fail? Didn’t we all just learn this lesson firsthand? Where is the problem, exactly - who gets hurt? The plan is perfect. Don’t question perfection. Forget about it and spend.

 
Comment by combotechie
2010-04-25 14:38:37

When the FB stops paying the bank the FB gains from the thousand or two a month that used to go for house payments, but the bank ends up taking a several hundred thousand dollar hit all at once.

But the bank doesn’t take this hit until the loan is declared to be uncollectable and is written off against the bank’s assets.

So as long as the policy of extend-and-pretend is in place the economy will benifit from the money flowing into spending instead of flowing into the bank (where much of it will most likely stay).

But the longer the policy of extend-and-pretend is in place the deeper will be the balance sheet hit to the bank when extend-and-pretend ends.

Comment by combotechie
2010-04-25 14:49:39

This is a case where money can be seen to be in two places at the same time.

FB money that used to go for house payments instead goes into the economy. But the bank doesn’t count this missing inflow of money as missing, it just adds the missing money to the amount of the loan. So, in effect, the money supply increases by the amount not paid to the bank.

It’s all good. Party on.

Comment by Professor Bear
2010-04-25 16:30:47

“Scam float”?

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Comment by Professor Bear
2010-04-25 11:03:07

Editor’s Round Table
Fridays at 9 a.m. on KPBS San Diego

Foreclosures Increase, Defaults Down

It’s hard to understand what’s happening in the local housing market. Bank of America reported a surge in local foreclosures last month. While a different report released this week, said default notices in the first quarter were down 40 percent from one year ago.

By Megan Burke, Hank Crook, Gloria Penner
Editors Roundtable | Friday, April 23, 2010

“We have some friends who owned a home in North County. I believe they got their financing through Countrywide Mortgage, which went belly up and then the loan got assumed by Bank of America. They recently left town to return to a notice of auction on their door, and they subsequently lost the home and joined the renter class. My question is, how does Bank of America, what’s the legal standard for them to decide who gets kicked out of their home and who gets forbearance? And is there a potential class action lawsuit against them for arbitrary decisions about who gets kicked out and who gets to stay in their home rent free? How does that work?”

AUGUST: I don’t know.

PENNER: We’ll have to get opinion on this because I don’t think any of our editors are attorneys and probably…

LEWIS: I think…

PENNER: Scott.

LEWIS: …that’s a great question. It would be a great inquiry as to what is the process, what is the formula that they use to decide which people they’re going to kick out. If there’s several people – You know, if they’re leaving people in condos because they know they can’t sell the condos but they’re kicking people out of nicer homes that they could perhaps sell for a better value, then is that really ethical? Is there – should there be more formulaic (sic)? Then again, do you want the government to intrude even more to decide how they should run their operations? It’s a very interesting question. I would love an inquiry on it.

PENNER: Well, it’d be interesting to do some enterprise reporting on something like that. Maybe one of our…

AUGUST: No…

PENNER: …journalists would be interested in that.

AUGUST: …that or if you’ve got a subpoena. If we could have some subpoena power as journalists, which I wish we had, we might be able to find out.

 
Comment by SUGuy
2010-04-25 11:06:23

Grantham: This Crazy Market Could Go Roaring Right Back To Its Old Highs

From the article

The government is trying to reflate the housing market after the collapse of one of the most powerful housing booms ever in the U.S. The Obama Administration and most Republicans and Democrats in Congress believe this is a positive force for the economy. If the housing bust taught us anything it is that the housing market was way overbuilt and overpriced and that price increases cannot be infinitely sustained.

Until excess supply is liquidated the housing market will continue to tie up valuable capital in these overvalued homes with their under-secured debt. The only thing that will accomplish this cleansing liquidation is continued declining home prices which will continue until the market tells us that prices meet consumer demand and lenders feel comfortable lending. At that point balance sheets will be cleared off and bank and the financial structures supporting the housing market (yes, mortgage backed securities) will be able to raise new capital to fund this market.

This is one of things that is tying up the credit markets.The other major factor is commercial real estate and their loans that are still held by regional banks (the majority of CRE). CRE is now in the process of a liquidation and deflation unless the government steps in to further “help” these lenders (extend and pretend and other programs). Credit will remain frozen until the debt associated with these assets are liquidated, banks go belly up, and new or healthy lenders step back into the market.

http://www.businessinsider.com/henry-blodget-grantham-this-crazy-market-could-go-roaring-right-back-to-its-old-highs-2010-4

Comment by Sammy Schadenfreude
2010-04-25 15:11:36

Henry Blodget? Is this the same infamous “analyst” and shill who was the poster boy of the Bubble.com era hucksterism?

Comment by Ki
2010-04-25 17:33:58

But he was right. He predicted Amazon would go to $400. Lots of people thought he was nuts for making that call.

And today split adjusted, Amazon is about $650.

Comment by aNYCdj
2010-04-25 17:51:29

and housing will double/triple in price and nobody will be underwater by 2012…but then minimum wage will be raised $19.95/hour

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Comment by Hard Rain
2010-04-25 11:23:29

Just what we need former IndyMac officers advising on lending standards:

“Two former IndyMac Bank executives are lobbying federal officials in support of a bold plan to make it easier for borrowers who have gone through a foreclosure to get home loans.

The plan, dubbed the Second Chance Program, seeks to hasten a recovery in the beleaguered housing market by reducing the amount of time a foreclosed-upon borrower must wait before obtaining a new mortgage”

http://www.labusinessjournal.com/news/2010/apr/14/indymac-veterans-make-credit-push/

These people have no shame, none.

Comment by pressboardbox
2010-04-25 12:10:32

Right. Since the taxpayers make up for all of the losses, then it is very important for Americans to get out there and buy and default on as many mortgages as they possibly can in one lifetime. The (fake)economy must go on!

Comment by Wee Willy
2010-04-25 19:33:03

What is the Guinness Book of Records for the most mortgage defaults by one person?

 
 
 
Comment by WT Economist
2010-04-25 13:37:58

In Manhattan, rent now or be priced out forever.

http://www.nytimes.com/2010/04/25/realestate/25cov.html?hpw

“The good times may be nearing an end. Though rents are still significantly below the level of even a year ago, they are starting to edge up in many neighborhoods. At the same time, some landlords are putting an end to the freebies. Others are considering doing so.”

Lower rent and concessions are considered “good times.” But falling housing prices are considered “bad times.” Perhaps the Times doesn’t want people to buy after all.

“A report released this month by Prudential Douglas Elliman, the brokerage, and Miller Samuel, the real estate appraisal firm, found that the median monthly rent in Manhattan in the first quarter of 2010 was 6.9 percent higher than in the previous quarter, although it was still down 6.1 percent from the same period a year earlier.”

At 6.9% per quarter, rents will be up 55.5% in two years, meaning the rent-justified price will go up 50 percent! But then, perhaps that won’t happen.

Comment by CA renter
2010-04-26 04:06:53

For now, rents are tightening up again here, too.

The rental market looked pretty weak about a year ago, but seems to have improved since then. I just hope rents don’t start rising again like they did in 2005-2006.

 
 
Comment by Sammy Schadenfreude
2010-04-25 15:17:27

http://www.telegraph.co.uk/finance/financetopics/financialcrisis/7632538/Germany-refuses-to-help-Greece-unless-it-agrees-to-tougher-terms.html

Mindful of their upcoming May 9th elections, where voters will punish them for going against the popular will, German leaders are stalling on their so-called commitment to bail out Greece.

 
Comment by Sammy Schadenfreude
2010-04-25 15:20:30

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/7632366/Maastricht-madhouse-fuels-EMU-wide-contagion-from-Greece.html

Don’t look now, but the “contained” Greek contagion is spilling over to the other PIIGS. Lets see how long the deluded obliviousness of global markets continues.

 
Comment by CarrieAnn
2010-04-25 15:22:54

This could explain why some towns are devestated while another nearby appears untouched:

Boeing CEO Jim McNerney succinctly summarized a recent study by Northwestern University’s Center for Labor Market Studies regarding unemployment rates for different income brackets:

The Center analyzed the labor conditions faced by income-grouped U.S. households during the fourth quarter of 2009.

In the face of one of the worst economic environments in memory, those in the highest income groups had nearly full employment levels, with just a 3.2 percent unemployment rate for households with over $150,000 in income and a 4 percent rate in the next-highest income group of $100,000-plus.

The study – published in February – notes that the poor are suffering Depression levels of unemployment:

Workers in the lowest income decile faced a Great Depression type unemployment rate of nearly 31% while those in the second lowest income decile had an unemployment rate slightly below 20% … Unemployment rates fell steadily and steeply across the ten income deciles. Workers in the top two deciles of the income distribution faced unemployment rates of only 4.0 and 3.2 percent respectively, the equivalent of full employment.

The relative size of the gap in unemployment rates between workers in the bottom and top income deciles was close to ten to one. Clearly, these two groups of workers occupy radically different types of labor markets in the U.S.

The study is subtitled “A Truly Great Depression Among the Nation’s Low Income Workers Amidst Full Employment Among the Most Affluent”.

Arianna Huffington, commenting on the study, pointed out that it if (sic) were the high-earners suffering 31 percent unemployment, the media would be discussing unemployment non-stop. But because it is the poor who are suffering Depression-level unemployment, they largely ignore it.

Comment by CA renter
2010-04-26 04:08:38

Yes, the wealth disparity is growing ever wider…and it seems to be accelerating.

 
 
Comment by Sammy Schadenfreude
 
Comment by Sammy Schadenfreude
2010-04-25 15:37:34

http://californiawatch.org/watchblog/right-and-left-whitman-hit-ties-goldman-sachs

Meg Whitman, Goldman Sachs whore extraordinaire. I hope her Goldman ties sink her like a mob informant in the East River.

Comment by Professor Bear
2010-04-25 18:05:45

Looking forward to reading a new story about Whitman’s ties to Gollum every day from now until election day.

Meg Whitman has her own definition of ‘the right thing’

The gubernatorial candidate dismisses her preferential treatment in Goldman Sachs IPOs early in the decade as ‘nothing illegal’ at the time and ‘very old’ news. It’s newly relevant now.
April 24, 2010|By Michael Hiltzik, Los Angeles Times

Meg Whitman says she lives by the principle of doing the right thing. It’s there in the very first line of her autobiography.

“What is the right thing to do here?” she recalls challenging her underlings at EBay, where she was chief executive, after some troubling issue of customer service had arisen.

I’ve been trying to reconcile that principle with her actions in what’s become known as her “spinning” scandal.

Eight years ago, it came out that Whitman was among an elite group of favored executives who had accepted preferential stock deals from Goldman Sachs while it was seeking business from their companies.

In spinning, executives would typically get shares in coveted initial public stock offerings, which they would “spin,” or resell, into a soaring market, usually within days and sometimes within hours. Their quick and almost entirely risk-free profits were effectively gifts, and the investment banks the givers.

Whitman attempted to dodge responsibility for her actions by claiming that there was “nothing illegal” about them at the time. (This is rather at odds with a credo appearing on page 130 of her book: “Be accountable.”)

Whitman’s campaign suggests that the episode already has been thoroughly masticated in the press. “This is news that is literally very old,” Whitman’s spokesman, Tucker Bounds, told me.

Possibly, but it’s also newly relevant. For one thing, Goldman Sachs is all over the news, these days for its alleged ethical shortcomings, as is the rest of Wall Street. More pertinently, Whitman, whose wealth from EBay now exceeds $1 billion, is running for governor. She has placed her business smarts and her “integrity” (the word appears on her website in big letters) front and center among the reasons Californians should vote for her. So if her business ethics and judgment have come into question, it’s proper to review the facts.

 
 
Comment by Professor Bear
2010-04-25 15:59:33

I guess Gollum’s position is that although the guy screwed lots of GFs, he never screwed a client?

The Wall Street Journal
* BUSINESS
* APRIL 25, 2010, 6:37 P.M. ET

Goldman’s Tourre Meets With Senate Investigators

By JOHN D. MCKINNON And SUSANNE CRAIG

Congressional investigators interviewed Fabrice Tourre, the Goldman Sachs Group Inc. trader accused of fraud by the Securities and Exchange Commission, as the company prepared for a showdown with lawmakers at a hearing Tuesday.

Mr. Tourre met in a daylong session Saturday with investigators from the Senate Permanent Subcommittee on Investigations. Mr. Tourre and four Goldman executives, including Chairman and Chief executive Lloyd C. Blankfein, are set to testify before the panel, which is scrutinizing the role of investment banks in the financial crisis.
SEC v. Goldman

The SEC sued Goldman Sachs and trader Fabrice Tourre on April 16. Here is the SEC’s civil complaint alleging Goldman committed fraud.

Here is a summary of Goldman’s response to the complaint.

The SEC issued a confidential Wells notice to Goldman in the summer of 2009, warning that the staff intended to bring charges against the firm. In September 2009, Goldman responded to the SEC’s allegations in two documents.

Since the SEC’s suit, broader questions have re-emerged about Goldman’s conduct during the mortgage meltdown. In this document released Saturday, Goldman gives its version of the firm’s trading in 2006-07, contending that it sought to protect itself from losses but didn’t take advantage of clients. Goldman also released emails from the period in which executives discussed the mortgage market.

Meanwhile, the Senate Permanent Subcommittee on Investigations is preparing to hear testimony from Goldman executives Tuesday. The subcommittee on Saturday released a statement and its own selection of Goldman emails in which executives cheer their profits from trades betting the mortgage market would weaken.

The SEC alleges in a civil fraud lawsuit filed April 16 that Goldman and Mr. Tourre sold a financial instrument called Abacus 2007-AC1 without disclosing that a hedge-fund firm betting on its decline helped to pick some of its underlying mortgages. Goldman denies wrongdoing, saying all its clients were sophisticated investors and got the information they needed.

Over the weekend, signs of stress emerged in the relationship between Mr. Tourre and Goldman.

On Saturday, Goldman released batches of emails by Mr. Tourre to girlfriends that revealed doubts about some mortgage securities issued by the company and an occasionally dismissive attitude toward the investors buying them.

Goldman also released translations of portions of emails that originally were in French, including some messages with details about Mr. Tourre’s personal life.

The scope of the released documents led to widespread speculation that Goldman was seeking to make more-senior executives who also are caught in an uncomfortable political and public-relations spotlight look better by comparison to the 31-year-old trader.

Although the emails are unfortunate and embarrassing to the firm, we have consistently said and continue to say Mr. Tourre did nothing improper in connection to the transaction,” a Goldman spokesman said Sunday. Mr. Tourre’s lawyers didn’t respond to requests for comment.

 
Comment by Sammy Schadenfreude
2010-04-25 16:11:17

http://www.nypost.com/p/news/local/sharpton_pledge_to_fight_ariz_immig_O7cdlDmQ5GwTBrqZrorD5O

Shakedown artist Al Sharpton is coming to Arizona to stir things up over the immigration bill. Maybe he should have a word with some of the African-American workers being displaced by illegals.

Comment by bobo4u
2010-04-25 19:00:05

He’s just trying to do his Martin Luther King thing. He better brush up on his spanish, so his amigos know which way to march.

 
 
Comment by Professor Bear
2010-04-25 16:23:41

Does anyone else have any novel ideas for ending the Fed and transitioning to a more honest monetary regime?

Right Side News
The Right News for Americans
Ending the Fed From the Bottom Up
Written by William Greene
Monday, 12 April 2010 18:05

Since its inception, the U.S. Federal Reserve’s monetary policies have led to a decline of over 95% in the purchasing power of the U.S. dollar. As a result, there have been several attempts to curtail or eliminate the Federal Reserve’s powers (for example, the efforts of Rep. Louis T. McFadden in the 1930s; the efforts of Rep. Wright Patman in the 1970s; the efforts of Rep. Henry Gonzalez in the 1990s; and the efforts of Rep. Ron Paul since the 1990s); however, none have proven successful to date, due mainly to the constraints of strong political opposition at the national level.

In contrast to these attempts at the national level, a paper I recently presented at the Mises Institute’s “Austrian Scholars Conference” proposes an alternative approach to ending theFederal Reserve’s monopoly on money: the “Constitutional Tender Act,” a bill template (first introduced by Georgia State Rep. Bobby Franklin) that can be introduced in every State legislature in the nation, returning each of them to adherence to the U.S. Constitution’s “legal tender” provisions of Article I, Section 10.

Such a new tactic could achieve the desired goal of abolishing the Federal Reserve system by attacking it from the “bottom up” - “pulling the rug out from under it,” by working to make its functions irrelevant at the State and local level. Under this Act, the State would be required to only use gold and silver coins (or their equivalents, such as checks or electronic transfers) for payments of any debt owed by or to the State (e.g., taxes, fees, contract payments, etc.).

All contracts, tax bills, etc. would be required to be denominated in legal tender gold and silver U.S. coins, including Gold Eagles, Silver Eagles, and pre-1965 90% silver coins. All State-chartered banks, as well as any other bank that is a depository for State funds, would be required to offer accounts denominated in those types ofgold and silver coins, and to keep such accounts segregated from other types of accounts such as Federal Reserve Notes.

Upon going into effect, the Constitutional Tender Act would introduce currency competition with Federal Reserve Notes, by outlawing their use in transactions with the State. Ordinary citizens of the State, being required to pay their Statetaxes in gold and silver coins, would find it necessary to open bank accounts in those denominations.

Businesses operating within the State, being required to pay their State sales taxes and license fees in gold and silver coins, would need to do the same; and in order to acquire such coins, they would begin to offer their goods and services in “dual currency” denominations, where customers could choose to pay inFederal Reserve Notes (which would still be necessary to pay Federal fees and taxes) or gold and silver coins (including checks and debit cards based on bank accounts denominated in such coins). Customers, having found the need to open such accounts in order to deal with the State, would be able to engage in commerce using those accounts.

Over time, as residents of the State use both Federal Reserve Notes and silver and gold coins, the fact that the coins hold their value more than Federal Reserve Notes do will lead to a “reverse Gresham’s Law” effect, where good money (gold and silver coins) will drive out bad money (Federal Reserve Notes). As this happens, a cascade of events can begin to occur, including the flow of real wealth toward the State’s treasury, an influx of banking business from outside of the State (as citizens residing in other States carry out their desire to bank with sound money), and an eventual outcry against the use ofFederal Reserve Notes for any transactions.

At that point, the Federal Reserve system will have become unwanted and irrelevant, and can be easily abolished by the people’s elected Representatives in Washington, D.C.

I believe this “bottom up” approach to ending the Fed would have a greater likelihood of success than a “top-down” approach for a number of reasons. First, it is decentralized: rather than facing concerted political opposition at a singleFederal level, it attacks the issue at the State level, where strategies and tactics can be adapted to the types and amount of political opposition they encounter.

Second, it is diffused: it can be attempted in any number of States, which can cause the opposition to spread its resources much more thinly than would be necessary at theFederal level. Finally, it is legally sound: it relies on the U.S. Constitution’s negative mandate in Article I, Section 10, that “No State shall… make any Thing but gold and silver Coin a Tender in Payment of Debts.”

Under this Act, not only would the use of FRNs by the State be made illegal; the use of legal tender U.S. gold and silver coins would be encouraged amongst the general population as well, along with any other currency that parties mutually consent to using.

This will have three immediate effects: the elimination of Federal Reserve Notes from State transactions; the requirement of individuals and businesses to cease using FRNs in their transactions with the State; and the introduction of competition in currencies amongst the general population. With all three effects working in tandem, the use of low-value pieces of paper issued by theFederal Reserve will become irrelevant, and an emaciated Federal Reserve system can be brought to a welcome, if inglorious, end.

Bill Greene is a Professor of Theology at Miami Christian University, teaches Social Sciences at the Verity Institute, and is the founder of ConstitutionalTender dot com.

Comment by packman
2010-04-25 20:43:20

That one will never fly of course. For one thing all non-Fed currency - if it was even legal - is subject to an extra 10% tax, per the 1865 National Bank Act.

Best tack is to start with an audit, i.e. HR. 1207 / S. 604.

 
 
Comment by Professor Bear
2010-04-25 16:29:33

This certainly sounds fraudulent, and Enron to mind, but I guess if ‘they’ say it is legal, then it is perfectly legal? I am guessing we will be soon learning about how these ‘window dressing’ activities extended to governments (e.g. Greece, California, etc)?

From The Times
April 10, 2010
Wall Street banks accused of window dressing debt
Alexandra Frean, US Business Correspondent

Leading Wall Street investment banks have been accused of understating debt levels used to finance security trades by an average of 42 per cent at the end of each financial quarter for the past five quarters.

A group of 18 banks including Goldman Sachs, Bank of America, JP Morgan and Citigroup, which release debt data each quarter, subsequently boosted the debt levels in the middle of successive quarters, according to The Wall Street Journal.

The findings were based on data from the Federal Reserve Bank of New York. They suggest that 18 months after the collapse of Lehman Brothers and the ensuing global financial crisis that was in large part sparked by excessive leverage at financial institutions, banks have become very sensitive about showing high levels of debt and risk for fear that their credit ratings and share prices might suffer.

While the practice of “window dressing”, or using cosmetic devices to make published accounts look more attractive, is not necessarily illegal or uncommon, the findings have led some to question how much the banks have learnt from the crisis.

Only a month ago Lehman Brothers was criticised in a court-ordered report for its “inherently improper” use of an accounting practice called Repo 105 to temporarily remove $50 billion of debt from its balance sheet.

Matt McCormick, a banking analyst and portfolio manager at Bahl & Gaynor Investment Counsel, said that the banks’ actions were “deceitful, but legal … Unfortunately, this is not surprising. This is a form of window dressing. The banks do it because there is no real penalty for these activities.”

Related Links
* Obama declares war on Wall Street bankers
* Lenders quizzed about credit aftershock fears
* We’re on a green road to hell

 
Comment by Professor Bear
2010-04-25 16:33:17

Decent people can only interpret all these deceptive activities by Wall Street banks as fraudulent. But I guess they must be perfectly legal, or else regulatory authorities would step in to stop them and to throw the perpetrators of fraudulent activities into prison?

U.S. Banks Hid Risk by Lowering Debt Before Reporting, WSJ Says
Share Business Exchange

By Chris Peterson and James Gunsalus

April 9 (Bloomberg) — U.S. banks masked their true risk levels by temporarily lowering debt before reporting it, the Wall Street Journal said, citing data provided by the Federal Reserve Bank of New York.

Goldman Sachs Group Inc., Morgan Stanley, JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc. and 13 other banks all understated the amount of debt used to pay for securities trades by cutting them by an average of 42 percent at the end of five quarterly periods; the debt levels were then boosted midway through each quarter, the newspaper said.

After the collapse of Lehman Brothers Holdings Inc., spurred in part by excessive borrowing, in 2008, banks have become more concerned that reporting high debt levels could jeopardize share prices and credit ratings, the Journal said. While not illegal, the practice can distort investors’ impression of risk being taken by banks, the report said.

Hong Kong-based spokespeople for Goldman Sachs, Morgan Stanley, JPMorgan and Citigroup declined to comment on the Fed data or the report. Banks not identified in the report confirmed that they temporarily cut borrowings at the end of a quarter and some noted their regulatory filings tell investors debt levels can rise and fall during the quarter, the Journal said.

Comment by CA renter
2010-04-26 04:28:41

Thanks for posting this, PB.

 
 
Comment by Professor Bear
2010-04-25 16:35:09

Deccan Herald
Monday, 26 April 2010
Goldman’s fraud

“Many banking practices are in the grey area.”

The initiation of prosecution against Wall Street icon Goldman Sachs by the US Securities and Exchange Commission (SEC) is a step towards cleansing the US financial system of the murky practices that caused the global economic meltdown two years ago. Goldman Sachs is among the world’s top investment banks and came out unscathed from the financial storm that shook the US and the world. But the SEC claims that it resorted to deceitful and fraudulent practices, and made money at the expense of its customers. It has charged that Goldman structured and sold sub-prime securities, which were at the heart of the US financial crisis, knowing very well that they would fail. It allegedly colluded with a hedge fund manager who also profited from unethical practices. The bank is said to have made profits and thrived on the risky instruments it sold, all the while knowing that these were bad investments for its customers. The crux of the charges is concealment of vital information. Apart from individual customers, other banks and pension funds that bought Goldman’s products suffered major losses.

Goldman has stoutly denied the charges and claimed that it has done nothing illegal. The problem in the arcane world of the US financial system is that many banking and investments practices are in the grey area between morality and legality. Successful prosecution of financial institutions for fraud and malpractices has been rare. Some of the institutions failed in the aftermath of the bubble because they could not cope with the financial consequences of their actions, not because they were made to pay a legal price for them. It may not be easy to prove the case against Goldman Sachs in courts because of the infirmities of the existing regulatory system. The legal system has not been able to catch up with the complexities of the products and practices evolved ingeniously through many years.

Whatever be the fate of the prosecution, the SEC action has sent out the message that it is ready to deal with the questionable practices of the big boys of high finance. It has also put into sharper focus the need for better and tighter financial regulations. President Obama has declared that he would go ahead with a regulatory reform plan. Such reforms will again not be easy in the US where politics and business are strongly interlinked and where there is a strong ideological opposition to regulation.

 
Comment by Professor Bear
2010-04-25 16:39:04

Goldman’s “Fabulous” Fab’s conflicted love letters
Steve Eder and Karey Wutkowski
NEW YORK/WASHINGTON
Sun Apr 25, 2010 5:57pm EDT

NEW YORK/WASHINGTON (Reuters) - Fabrice Tourre and his girlfriend talked like a couple very much in love.

They emailed back and forth about how they wanted to curl up in each other’s arms and how they looked forward to tender moments together. Tourre, a Goldman Sachs bond trader, also wrote in the emails of the impending collapse of the subprime mortgage market and how he was masterminding ways at Goldman to make money from it.

Little did they know that three years later these very personal emails written through Tourre’s Goldman Sachs e-mail account would become part of one of the biggest investigations into the subsequent financial crisis.

In the email exchanges between Tourre and his girlfriend, Marine Serres, Tourre comes off as a young, hotshot trader who foresaw the subprime meltdown while still selling shoddy subprime-backed products so prolifically he could peddle them to “widows and orphans.”

But Tourre — the only individual the Securities and Exchange Commission charged in its fraud case against the firm — also seems ethically conflicted.

“Anyway, not feeling too guilty about this, the real purpose of my job is to make capital markets more efficient and ultimately provide the U.S. consumer with more efficient ways to leverage and finance himself, so there is a humble, noble and ethical reason for my job ;) amazing how good I am in convincing myself !!!” Tourre said in an e-mail to Serres in January 2007.

That portion of the e-mail reflecting Tourre’s conflicted views on his role in the subprime meltdown immediately followed another part of the e-mail that the SEC released in its complaint earlier this month.

The SEC’s complaint only included Tourre referring to himself as “fabulous Fab” and talking about “standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstruosities!!!”

Related News

* Goldman CEO lauded profit from subprime shorts
Sat, Apr 24 2010
* UPDATE-3 Goldman CEO lauded profit from subprime shorts
Sat, Apr 24 2010
* Government watchdog to probe SEC’s Goldman lawsuit
Fri, Apr 23 2010
* Senate panel called Goldman trader before SEC suit
Fri, Apr 23 2010
* UPDATE 1-Senate panel called Goldman trader before SEC suit
Fri, Apr 23 2010

Comment by Hwy50ina49Dodge
2010-04-25 17:49:24

“…the real purpose of my job is to make capital markets more efficient and ultimately provide the U.S. consumer with more efficient ways to leverage and finance himself.”

BWAHAHAHicHAHAHicHAHAHAHAHicHAHAHic* (DennisN™) :-)

 
 
Comment by Professor Bear
2010-04-25 16:41:54

True confession: I never realized before the onset of the Second Great Contraction just how exciting a field finance could be.

Financial News
Trust at issue as Goldman faces the SEC
Renée Schultes
26 Apr 2010

The clash between America’s Securities and Exchange Commission and Goldman Sachs, over its dealings with German bank IKB, has highlighted the complexity of some of the products that characterised the boom years.

It has also raised more questions about the quality of investments bought by institutions that were increasingly hungry for yield in the run-up to the crisis.

It is not the first time that banks have faced such accusations. In several cases in the past five years, institutions across the continent have sued, alleging fraud and misrepresentation by banks that sold them complex trades that subsequently turned sour.

However, while credit ratings played an important role in convincing banks on the continent to buy collateralised debt obligations, what links many of the deals under scrutiny is the relationship the institutions involved had with the arranging investment banks in London and New York.

Saul Haydon Rowe, a partner at structured credit specialist Devon Capital in London and a former credit derivatives trader, said: “Undoubtedly some were clearly naive, but trust went a long way towards cementing these trades.”

In response to litigation, investment banks have argued caveat emptor – buyer beware. They claim they were dealing with professional investors. In response to the SEC charges, Goldman Sachs, which disputes the allegations against it, said IKB was “a large German bank and sophisticated CDO market participant.”

It claimed extensive disclosure was provided, and that IKB was aware the trade necessarily included a long and a short element.

However, in continental Europe, many take a different view. Dario Loiacono, a Milan-based lawyer who has represented Italian banks in several CDO cases, said that culture is an important point in these cases.

He said: “The caveat emptor mentality is foreign to many banks in continental Europe. The big problem of European market regulation is this: it does not take into account that there are different players with different mentalities, which date back centuries. Allowing banks to trade everywhere without clear and uniform rules is dangerous.”

Although the relationship in countries such as Germany and Italy was often with an investment bank’s local office, bankers and sales staff in London and New York got involved in the deals, especially on the technical side. Some believe that complicated the matter.

Julian Roberts, a partner at Wolfsteiner, Roberts & Partner in Munich, who has represented several local authorities in cases against banks, said: “The banks were rather schizophrenic. Local offices were put under enormous pressure to sell these products. Someone from head office didn’t necessarily have the kind of loyalty to the client they were expecting. In several cases the local man often left, through shock and disillusion.”

Banks point to disclaimers contained in prospectuses and offer documents. Last week, Goldman Sachs argued “the risk associated with the securities was known to these investors”.

Comment by Hwy50ina49Dodge
2010-04-25 17:53:35

“The banks were rather schizophrenic…” :-)

“We love money, we love it not?”…”We love money, we love it not?”

BWAHAHAHicHAHAHicHAHAHAHAHicHAHAHic* (DennisN™)

 
 
Comment by pressboardbox
2010-04-25 17:07:51

Banks try being nicer to troubled borrowers
Banks are turning to incentives instead of bullying tactics to resolve failing loans.

http://www.miamiherald.com/2010/04/24/1595580/banks-try-being-nicer-to-troubled.html

Comment by Hwy50ina49Dodge
2010-04-25 17:59:34

“Banks are turning to incentives instead of bullying tactics…”

Bully: “Give me your lunch money!”

Lil’ Timmy: “I had sex with your sister!”

Bully: “Then give me 1/2 your of lunch money!”

Lil’ Timmy: “I had sex with your sister & your mother!”

Bully: : “Damn…”

 
 
Comment by Sammy Schadenfreude
2010-04-25 17:59:22

http://www.marketwatch.com/story/pmi-first-quarter-loss-widens-as-revenue-falls-2010-04-25

PMI Group Inc. said Sunday its first-quarter loss widened to $157 million, or $1.90 a share, from a loss of $115.3 million, or $1.41 a share, in the same quarter a year before. Analysts had expected a loss, on average, of 93 cents a share, according to a FactSet Research survey. Total revenue for the quarter was $156.6 million, down from $245.1 million in the year-ago period. The Walnut Creek, Calif.-based financial firm said U.S. mortgage insurance revenues were $192.4 million in quarter, compared to $209.1 million a year earlier, with the decrease “primarily related to lower new insurance written and a decline in primary insurance.” It added that new defaults in the first quarter fell to 34,268, compared to 37,835 in the fourth quarter of 2009 and 43,307 in the first quarter of 2009.

 
Comment by Professor Bear
2010-04-25 18:01:36

So long as Gollum is handsomely profitable, who cares about those fraud charges, or the ties to the insider-trading scandal? ‘Tis a mere flesh wound.

NPR
Goldman Sachs Director Tied To Insider-Trading Scandal
12:47 pm
April 23, 2010
By Frank James

Goldman Sachs’ public-relations problems continue. The Wall Street Journal reports that a Goldman director has been tied to an insider-trading scandal.

The WSJ reports that the director told indicted hedge-fund manager Raj Rajaratnam about a $5 billion investment famed investor Warren Buffet made in the investment bank in 2008 before that information was made public. Rajaratnam has been charged with trading on insider information.

An excerpt from the WSJ:

A Goldman Sachs Group Inc. director tipped off a hedge-fund billionaire about a $5 billion investment in Goldman by Warren Buffett’s Berkshire Hathaway Inc. before a public announcement of the deal at the height of the 2008 financial crisis, a person close to the situation says.

The revelation marks a significant turn in the government’s case against Raj Rajaratnam, the hedge-fund titan at the center of the largest insider-trading case in a generation. Mr. Buffett’s investment in Goldman in September 2008 was a watershed moment in the financial crisis. One of the world’s savviest investors, Mr. Buffett helped allay fears about the instability of the financial system by backing America’s leading investment bank.

The new disclosure stems from a government examination into whether the Goldman director, Rajat Gupta, gave inside information to Mr. Rajaratnam. In a court filing March 22, the government alleged that Mr. Rajaratnam or “co-conspirators” traded on non-public information about Goldman. In a filing last week, the government provided more details about the information it alleges Mr. Rajaratnam received, including advance notice about the Buffett transaction with Goldman.

That information came from Mr. Gupta, a person familiar with the matter says. Federal prosecutors notified Mr. Gupta in a letter that they had intercepted phone conversations between him and Mr. Rajaratnam. Mr. Gupta told Goldman last month he wouldn’t seek re-election as a director.

Coming as it does on the heels of the Securities and Exchange Commission’s fraud lawsuit against Goldman, the bad publicity just keeps growing for the investment bank.

The good news for Goldman, however, is that it’s still making eye-popping profits, announcing this week that it’s first quarter profit nearly doubled to $3 billion. So that probably assuages some of the negative media it’s getting.

 
Comment by Professor Bear
2010-04-25 18:16:26

I personally would give Gollum’s PR staffers an F- for standing back while their firm’s reputation gets flushed down the toilet.

PRNewsOnline dot com
Oh My! Goldman Sachs Uses ‘Public Relations Officers’ to Help Manage the Crisis

Posted on April 19, 2010
Filed Under General

Public Relations has come a long way, but once again it’s been shorted by those who don’t understand the value of this discipline. Hardly a day goes by that I don’t read or hear about a situation (global or local) that is just a “PR ploy” or “PR maneuver.” It’s as if “public relations” is a naughty 2-word phrase that hides the ugly truth about something.

The recent news about the SEC charges of fraud against Goldman Sachs has led to some public posturing from the investment firm and accusations from analysts and commentators that the company is rolling out a PR strategy to defend against the charges. Don’t you shudder at the thought of a company in crisis using PR tactics? How crazy is that? Of course, it’s referred to in a negative light – as if PR is the tactic deployed from the playbook of lies and deceit. I am not going to comment on the unfolding Goldman Sachs investigation, but it is interesting to watch it unfold in the media.

On CNBC’s Street Signs show on Sunday, a principal at R&R Consulting – Sylvain Raynes – accused host Jim Cramer of only having “public relations officers for Goldman” on his show. Insinuating that Cramer and others on the show were associated with Goldman Sachs and therefore biased in favor of the firm, host Erin Burnett warned Raynes to stop insulting the hosts, took a commercial break and told the viewing audience (assured them?) that Raynes would not be back after the break. The episode is a case study in poor hosting and the dearth of media training by spokespeople and purported experts.

Raynes, a mathemetician who holds a PhD in aeronautical engineering, could use a few pointers on how to get his message across without insulting the messengers. And host Erin Burnett and Jim Cramer, by taking his barbs personally, set back the notion that the media is objective and open to all lines of thought.

But back to the criticism that Goldman is fielding its “public relations officers” during this latest crisis. What they’re doing is not a bad thing. It’s Crisis Management 101. Regardless of how the investigation pans out, the role of the Public Relations Officer doesn’t change – to manage the organization’s reputation and communicate the right messages at the right time.

Diane Schwartz

Comment by Hwy50ina49Dodge
2010-04-25 20:36:48

“…to manage the organization’s reputation and communicate the right messages at the right time.”

= Scientology, with Tom Cruise as the spoke-person. ;-)

 
 
Comment by Professor Bear
2010-04-25 18:20:32

the raw story
In revealed e-mails, Goldman chief says we ‘made more than we lost’ by betting against market

By Andrew McLemore
Saturday, April 24th, 2010 — 6:56 pm

Goldman Sachs’ top executives were aware that the company made money by playing against the US housing market, according to internal e-mails released Saturday.

The bank’s chief executive Lloyd Blankfein wrote in November 2007 that the firm “didn’t dodge the mortgage mess,” but “made more than we lost” by betting against the housing market, the Associated Press reported.

The e-mail was one of several company documents subpoenaed by a Senate investigations panel. In many of the e-mails, Goldman executives brag about money they were making as the market crashed around them.

One Goldman Sachs trader wrote in e-mails to a woman he apparently was courting that investments he had sold were “like Frankenstein turning against his own inventor.” In another e-mail, the same trader dismissed the debts created for the bank as “pure intellectual masturbation.”

“I’m trading a product which a month ago was worth $100 and today is only worth $93,” wrote Fabrice Tourre, who was charged along with the bank in a civil complaint filed this month by the Securities and Exchange Commission. “That doesn’t seem like a lot but when you take into account … (the investments) are worth billions, well it adds up to a lot of money.”

The documents seem to contradict Goldman’s denials that it profited from the subprime mortgage meltdown by secretly betting that housing prices would fall. At the same time, Goldman was selling tens of billions of dollars in risky mortgage securities.

Goldman Sachs, the world’s largest investment bank, was the only major Wall Street firm to escape much of the subprime crash that triggered a world-wide economic meltdown.

The company now says that it only bet against the market for the sake of its clients.

According to media reports, the bank is already preparing a detailed defense against accusations that it intentionally misled the public and therefore shares guilt for the economic crisis.

The supposedly 11-page-long document will be used by Blankfein when he testifies Tuesday in front of the Senate Permanent Subcommittee on Investigations.

The e-mails are only the latest scandal that will help Democrats push financial reform through Congress, according to New York Times columnist Frank Rich.

He added, however, that it remains uncertain how much influence the banks’ lobbyists will exert over the legislation:

Salutary as this rush of events is, it still adds up so far to just one small step for mankind. We don’t yet know how many loopholes lobbyists will slip into the bill-in-progress. We don’t yet know the outcome of the S.E.C. case, let alone what other much-needed legal pursuit of Wall Street may follow it. And we still don’t know what, if any, true correction lies ahead for the financial sector’s runaway casino culture — much of it legal — that turned a subprime-mortgage bubble in a handful of overheated American states into an international economic meltdown.
The Associated Press contributed to this report.

Comment by CA renter
2010-04-26 04:42:09

Again, they seem to be focusing on the short selling…

Intentionally directing our attention away from the real problem (the securities that made the housing market go UP).

 
 
Comment by Professor Bear
2010-04-25 18:24:06

The Arizona Republic
April 25, 2010 |
Viewpoints

Buyers have no moral duty to lenders
by Brent T. White Brent T. White - Apr. 25, 2010 12:00
Associate professor of law, UA The Arizona Republic

As a result of the housing collapse, many Arizonans have seen their homes lose half of their value. Many owe several hundred thousand dollars more than their homes are worth and are unlikely to dig out of their negative equity hole for decades.

For these homeowners, the American dream has become a nightmare - and their financial future is dim.

To compound the stress and anxiety, when they’ve called their lender to work out a solution, they’ve discovered that their lender won’t even talk to them about a loan modification or a short sale as long as they are current on their mortgage.

With no help in sight, some of these underwater homeowners have decided that they would be better off letting go of their homes and have stopped making their mortgage payments. Many have done so with the hope that defaulting will finally bring their lender to the table, but they are also resigned to the fact that they will likely lose their homes.

It has been suggested that such homeowners are immoral or, at least, irresponsible. I disagree.

Before explaining why, it is important to emphasize that the decision to strategically default on a mortgage involves many complex, localized and individualized factors. No one should decide to strategically default on their mortgage without sitting down first with a knowledgeable professional.

But let’s say that you’ve actually sat down with a professional to do the calculations and have concluded that defaulting on your mortgage is the only way out of your financial nightmare. Would it be immoral or irresponsible for you to do so?

The arguments against homeowners intentionally defaulting on their mortgages generally center on the same three basic points.

First, underwater homeowners “promised” to pay their mortgages when they signed the mortgage contract. Second, foreclosures lead to depreciation of neighborhoods, so underwater homeowners should hang on in order to help preserve their neighbors’ property values. And, third, if all underwater homeowners defaulted, the housing market might crash. Homeowners thus have a social obligation to pay their underwater mortgage in order to save the economy.

While all three of these arguments might hold some initial appeal, none holds water.

First, a mortgage contract, like all other contracts, is purely a legal document - not a sacred promise.

Think of it this way: when you got your cellphone, you likely signed a contract with your carrier in which you “promised” to pay a set monthly payment for two years. Would it be immoral for you to break your contractual “promise” to pay for two years if you decided that you no longer needed the cellphone and elect instead to pay the early termination fee? Of course not. The option to breach your “promise” to pay is part of the contract.

Though involving more money and something of great sentimental value to most people, a mortgage contract is simply a contract. Like a cellphone contract, a mortgage contract explicitly sets out the consequences of a breach of contract.

In other words, the lender has contemplated in advance that the mortgagor might be unable or unwilling to continue making payments on his mortgage at some point and has decided in advance what fair compensation to the lender would be. Specifically, the lender included clauses in the contract providing that the lender can foreclose on the property and keep any payments that have been made. By writing this penalty into the contract, the lender has agreed to accept the property and any payments already made in lieu of the remaining payments.

Moreover, lenders charge Arizona borrowers on average an extra $800 per $100,000 borrowed because Arizona is a non-recourse state, meaning the lender cannot come after the borrower for a deficiency judgment on a purchase money loan. In other words, borrowers in Arizona pay for the option to default on a purchase money loan without recourse. The lender can only take the house.

That’s the agreement. No one forced the lender to make the loan or sign the contract. Indeed, the lender wrote it. And, to be sure, the lender wouldn’t hesitate to exercise his right to take a person’s house if it was in his financial interest to do so. Concerns of morality or socially responsibility wouldn’t be part of the equation.

In short, as far as the law is concerned, choosing to exercise the default option in a mortgage contract is no more immoral than choosing to cancel a cellphone contract. Indeed, exercising the default option in your mortgage contract is similar to cashing in on an insurance policy. You paid for it - and have you a right to exercise it.

Comment by Lip
2010-04-25 19:16:56

PB,

Agreed, its a simple contract and the only caveat is that the people mailing in the keys should be leaving the houses in good condition. Trashing the house shows a lack of class.

My market research (85310 and 85383) is showing about 87% of the “for sale” homes are short sales. Therefore people are getting ready to mail in the keys in huge numbers, but the banks are holding off on the actual foreclosures.

 
Comment by joeyinCalif
2010-04-25 19:29:56

Here’s the thing.. we gotta think ahead.

Like in AZ where borrowers pay more because it’s a non-recourse state, lenders will eventually get their pound of flesh. Sure, we can all walk away and say screw you..

But somewhere down the line, we should not be surprised when lenders charge everyone enough extra money to cover potential walk-away losses.
Maybe 25% interest or higher, and 50% down or more, plus collateral.. $10 to use an ATM.. endless possibilities..

 
Comment by Hwy50ina49Dodge
2010-04-25 20:40:20

“…Many owe several hundred thousand dollars more than their homes are worth and are unlikely to dig out of their negative equity hole for decades.”

That’s not the stinkin’ problem..it’s illegal aliens. :-)

Comment by Hwy50ina49Dodge
2010-04-25 20:45:29

For clarification of their directed ANGER:

“…many Arizonans have seen their homes lose half of their value.” :-)

 
 
 
Comment by Professor Bear
2010-04-25 18:25:59

The Wall Street Journal
* EUROPE NEWS
* APRIL 25, 2010, 8:42 P.M. ET

Greece Confident of EU-IMF Bailout Package
By GEOFFREY T. SMITH And ADAM COHEN

WASHINGTON—Greek Finance Minister George Papaconstantinou said Sunday that he expects final terms and conditions of an aid package for Greece to be ready by early May and that it will be acceptable to all his partners in the euro zone, including Germany.

After weeks of speculation and increasing signs of panic in financial markets over Greece’s ability to get its public debt under control, the country finally asked its partners in the euro zone and the International Monetary Fund on Friday to activate a €45 billion ($60 billion) support mechanism.

“We’re all confident that this will be done in time and that we will be able to finance Greek public debt without any problem,” Mr. Papaconstantinou told a news briefing. “Early May is a good ballpark figure.”

 
Comment by Sammy Schadenfreude
2010-04-25 20:03:41

http://www.economist.com/business-finance/displaystory.cfm?story_id=15955288

AMERICA’S GDP is growing, employment is finally expanding and the stockmarket is buoyant. Yet one thing has not changed: the Federal Reserve’s monetary pedal remains firmly pressed to the floor. For more than a year it has kept its short-term interest-rate target near zero while pledging to keep it there for an “extended period”. It has also bought $1.7 trillion of long-term bonds, primarily mortgage-backed securities (MBS), to keep long-term interest rates down.

That is unsettling some inside the Fed, fueling speculation it will soon signal an exit from that ultra-easy monetary policy, perhaps even by altering its “extended period” commitment when its next two-day policy meeting wraps up on April 28th.

The most vocal dissident is Thomas Hoenig, president of the Federal Reserve Bank of Kansas City and the Fed’s longest-serving policymaker, who has twice formally objected to the Fed’s “extended period” language. That commitment plus zero rates, he explained on April 7th, lead “banks and investors to search for yield… take on additional risk [and] increase leverage”. He argued the Fed should soon raise rates to 1% to “end the borrowing subsidy”.

The next day Narayana Kocherlakota, president of the Minneapolis Fed, voiced a different concern: that the excess bank reserves created by the Fed’s MBS purchases create the potential for high inflation. He advocated selling $15 billion-25 billion of MBS a month, which would clear the Fed’s inventory in five years instead of the 30 it would take for the bonds to mature.

The rest of the Fed and its chairman, Ben Bernanke, have listened politely but are not ready to drop or even water down the “extended period” language, much less raise rates. Dropping the commitment would be tantamount to a tightening of monetary policy as bond yields rise in anticipation of short-term rate hikes. Mr Bernanke has already said the Fed would eventually sell some MBS, but not now. By pushing up long-term rates that too would be a tightening of monetary policy.

 
Comment by Professor Bear
2010-04-25 20:56:48

* The Wall Street Journal
* BUSINESS
* APRIL 26, 2010

Goldman’s Take-No-Prisoners Attitude
Mortgage Division Cast Bets Boldly; Awaiting ‘Big One’
By KATE KELLY

EARNING A TICKET: Traders hoped big returns would put them on Goldman’s ‘Hitters Row,’ on the 50th floor of One New York Plaza.

Goldman Sachs Group Inc.’s mortgage traders, under the spotlight because of the U.S. government’s fraud lawsuit against the securities firm, made markets in more than just bonds during the real-estate bubble.

They also cast bets on a White Castle hamburger-eating contest.

In December 2007, after the firm distributed multimillion-dollar bonus checks in part thanks to bets on a mortgage meltdown, about 10 Goldman mortgage traders, surrounded by dozens of cheering colleagues, wolfed down the burgers, according to attendees. Bystanders wagered cash on how many burgers the traders could eat.

BE LIKE BRADY: Young traders were told to take a cue from methodical and cool-under-pressure quarterback Tom Brady.

The annual event resembled a scene out of “Liar’s Poker,” a book depicting bawdy antics of bond traders at Salomon Brothers in the 1980s. In fact, the 2007 contest was held just a few floors away from where the Salomon traders worked when that firm leased space in the same Manhattan building.

It was a lower-stakes version of what went on every day in the group: aggressive, take-no-prisoners trading. Mortgage-backed bonds, including complex derivatives that tracked pools of risky loans, were traded for big money in Goldman’s 400-person mortgage unit.

In 2007, the group wagered that mortgage prices would plunge, creating a nearly $4 billion windfall, according to people familiar with the matter at the time. Goldman now says net revenues from residential mortgage-related products were less than $500 million—perhaps reflecting losses from other areas.

Still, the traders hoped their big returns would lead eventually to a ticket to “Hitters Row,” the 50th-floor enclave in Goldman’s One New York Plaza building where the firm’s top securities-business executives worked.

Recently, the group’s profile has risen. The financial world is riveted on the Securities and Exchange Commission lawsuit filed earlier this month against Goldman, which is accused with one of its traders in the mortgage group of creating a product secretly designed to fail for the benefit of a favored hedge-fund client.

Goldman has repeatedly denied any wrongdoing, but the unit will be a focus of testimony this week before the Senate’s Permanent Subcommittee on Investigations, which is examining the causes of the financial crisis.

Young traders in Goldman’s mortgage unit were told to take a cue from Tom Brady, the New England Patriots quarterback regarded as methodical and cool under pressure, say people who were in the unit. For a group filled with Red Sox and Patriots fans—and led by a Texas A&M University graduate who traveled back to his alma mater for football games—the analogy struck a chord.

But there was little time for watching sports during chaotic 2007, when mortgage bonds melted down and paved the way for 2008’s full-blown financial panic. Traders worked punishing hours in a drab office space with long rows of computer terminals and phones.

Daniel Sparks, the Houston-born Goldman lifer who ran the mortgage department, usually arrived by 7:30 a.m. Michael Swenson and David Lehman, co-heads of the structured-products group, arrived shortly afterward, say people who were there at the time.

Messrs. Sparks, Swenson and Lehman declined to comment for this article.

Late nights were frequent. “I’m still stuck at work at 10PM, but it’s been six years since I’ve been functioning on this @!$#@!$@$# schedule, so who cares,” wrote trader Fabrice Tourre in a Jan. 31, 2007 email to a friend. “I feel like I’m losing my mind and I’m only 28!!” wrote Mr. Tourre, who is a defendant in the SEC’s lawsuit.

 
Comment by Hwy50ina49Dodge
2010-04-25 21:00:09

Coyote vs. Greyhound: The Battle Lines Are Drawn

Rewrite: :-)

GoldenmanSucks vs. Mr. Bear: The Battle Lines Are Drawn:

http://www.nytimes.com/2010/04/26/sports/26greyhounds.html?src=me

Comment by Professor Bear
2010-04-25 22:04:04

I just post articles here; I actually don’t have a dog in the fight against Wall Street coyotes and other vermin that do business there.

 
 
Comment by Professor Bear
2010-04-25 22:07:43

Monday April 26, 2010
Bloomberg
Summers Says Goldman E-Mails Underscore Need for Transparency
By Mark Rohner

April 25 (Bloomberg) — White House economic adviser Lawrence Summers said the kind of revelations contained in newly released Goldman Sachs Group Inc. e-mails illustrate the “importance of transparency.”

Summers, the director of the White House National Economic Council, said that while he would not comment on specific companies, the revelations underscore “what is at the center of the president’s vision” for overhauling financial regulation. That includes “the importance of things being in the open,” and of knowing “who’s got a stake in success, who’s got a stake in failure,” Summers said. The Securities and Exchange Commission sued Goldman Sachs on April 16, alleging the firm defrauded investors when selling a debt instrument tied to mortgages. Senator Carl Levin, the Michigan Democrat who chairs the Senate’s Permanent Subcommittee on Investigations, yesterday released internal Goldman e-mails that he said illustrate that the firm “made a lot of money by betting against the mortgage market.”

 
Comment by Professor Bear
2010-04-25 22:18:41

Monday April 26, 2010
Bloomberg
Goldman Sachs E-mails Show Need for Volcker Rule, Brown Says
April 25, 2010, 7:13 PM EDT

(For more stories on the lawsuit, see {EXT2 }.)

By Michael J. Moore

April 25 (Bloomberg) — Internal Goldman Sachs Group Inc. e-mails released yesterday by the Senate’s Permanent Subcommittee on Investigations show the need for financial reform that includes banning proprietary trading at U.S. banks, Senator Sherrod Brown said.

“These emails signify that there are all kinds of conflicts of interest on Wall Street, that Wall Street is working for its clients and working against its clients in the same sort of bundled toxic securities,” Brown, a Democrat from Ohio and member of the Senate Banking Committee, said today on ABC News’s “This Week.” “That’s why we need the Volcker rule. That’s why we need really strong reform that will separate the proprietary trading from banking functions.”

Carl Levin, a Michigan Democrat who leads the subcommittee, posted the e-mails on his website yesterday, which he said show the firm “made a lot of money by betting against the mortgage market.” Goldman Sachs responded with documents indicating the firm lost money on mortgages in 2008 and that executives didn’t know the market would fall.

Chief Executive Officer Lloyd Blankfein, 55, and six current and former Goldman Sachs employees face questions from Levin’s panel against the backdrop of fraud claims from the U.S. Securities and Exchange Commission. The regulator sued the firm on April 16, saying it defrauded investors when selling a debt instrument tied to mortgages, a claim Goldman Sachs contests. President Barack Obama proposed the Volcker rule, named after former Federal Reserve Chairman and current presidential economic adviser Paul Volcker, in January. If approved in financial regulatory-reform legislation making its way through Congress, the rule would forbid commercial banks from trading for their own accounts and holding stakes in hedge funds and private equity funds.

Comment by Housing Wizard
2010-04-26 00:44:48

Isn’t it just clear that Glass-Steagall was good law and it was needed . They figured it out in the 1930’s and the stupid self interest groups got to the Politicians and they changed good law . But the financial systems are also complicated now by them being World markets .

It will also be interesting looking at the STANFORD CASE that is now in the criminal system . Same story with inflating assets to create money
where a bunch of retirees lost a bundle .

 
 
Comment by Professor Bear
2010-04-25 22:22:01

The Financial Times
E-mail howlers bring murky credit business out of shadows
By Gillian Tett

Published: April 26 2010 03:00 | Last updated: April 26 2010 03:00

… Late last week, a senate committee released e-mails from Standard & Poor’s and Moody’s which revealed something long suspected, but never proven: that from 2005 the rating agencies faced growing pressure to cut corners in how they rated complex credit instruments in order to win lucrative business from banks.

Hence, in 2007, one Moody’s managing director admitted that its behaviour in terms of handing out triple A ratings for, say, mortgage bonds, made it “either incompetent at credit analysis, or like we sold our soul to the devil for revenue”. An S&P official said its mortgage team had “become so beholden to their top issuers for revenue they have developed a kind of Stockholm syndrome which they mistakenly tag as customer value creation”. Another Moody’s official told a banker that his colleagues were “looking into some adjustments to his methodology that should be a benefit to your folks”.

 
Comment by Housing Wizard
2010-04-26 01:05:51

When you look back at how crazy and outright fraudulent the lending was
during especially the latter years of the boom ,its hard to believe that this actually took place . You can’t mess with real estate because it’s to big of a purchase and it’s tied to taxes . Sure ,hard money loans were made to
sub-prime borrowers in past lending cycles but at a very much reduced loan to value ratio to allow for the risk .

But ,the way that Wall Street Lenders actually created this inflated market and than went to short it just shows what the psychology of Wall Street
Investment Houses /Banks are ,they thrive on prices not being stable .

It was always a mystery to me where in the hell they were getting all this money to fund these junk loans until you realize that they were marketed as AAA rated loans and the middle men were riding on the past reputation of the Secondary market that had a low default rate .

 
Comment by SDGreg
2010-04-26 03:22:30

Krugman on the rating agencies:

http://www.nytimes.com/2010/04/26/opinion/26krugman.html

“No, the e-mail messages you should be focusing on are the ones from employees at the credit rating agencies, which bestowed AAA ratings on hundreds of billions of dollars’ worth of dubious assets, nearly all of which have since turned out to be toxic waste. And no, that’s not hyperbole: of AAA-rated subprime-mortgage-backed securities issued in 2006, 93 percent — 93 percent! — have now been downgraded to junk status. What those e-mails reveal is a deeply corrupt system. And it’s a system that financial reform, as currently proposed, wouldn’t fix.”

Comment by CA renter
2010-04-26 04:59:57

This is exactly right. The ratings agencies (not short sellers!) were instrumental in causing the financial crisis. One might argue that the bubble could not have existed without the ratings agencies.

Short sellers had nothing to do with the financial crisis.

 
 
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