Fitch Ratings issued a report on November 16 on the U.S. banking sector saying that “the risks of a negative shock are rising” if the effects of European debt crisis keep spreading. (“Fitch’s Warning Spooks Investors, “ Wall Street Journal).
Continue reading "Concerns Rise Regarding Wall Street Banks" »
JP Morgan Chase and Goldman Sachs have sold credit default swaps that put them on the hook for $5 trillion of debt – but they won’t say whose debt they are on the hook for. That leaves investors worried that it may be debt issued by Greece, Italy, Ireland, Portugal and/or Spain. Greece and Italy are insolvent, and the others are not very creditworthy, according to experts.
Continue reading "Wall Street Firms Refuse to Disclose Exposure to European Debt" »
Many commentators have noted recently that the Wall Street meltdown of 2007-2008 was not a “black swan” – that is, an unprecedented and therefore unpredictable occurrence. Named for an influential 2007 book titled The Black Swan by investment fund manager Nassim Nicholas Talib, the black swan was used as a metaphor to explain why humans rely too much on the past to predict future events, and it has since been used as a defense by Wall Street to justify its inability to predict the 2008 crash. Talib himself maintains that the 2008 crisis was not a black swan event because, unlike the avian rarity of nature, it was predictable. The crisis was not only predictable, but it was actually predicted by many analysts whose voices were either ignored by the firms that employed them, or drowned out by the exuberant hype of brokers pushing the firms’ latest financial products without regard for their soundness.
Continue reading "The 2007-2008 Financial Crisis was not a 'Black Swan' Event" »
Reuters blogger Felix Salmon seems to see evidence of the SEC colluding with banks to let them off the hook for most of their “built to fail” synthetic (derivatives-based) CDOs (see “Is the SEC colluding with banks on CDO prosecutions?”). What has raised eyebrows was an email from a Citigroup spokesperson saying that Citigroup has settled all its potential liabilities with the SEC by agreeing to pay $285 million in a case involving a single collateralized debt obligation (CDO) transaction (i.e., Class V Funding III). According to this email, Citigroup believes “the SEC has completed its CDO investigation(s) of Citi” and will not be examining any of the dozens of similar CDO deals.
Continue reading "Is the SEC Selectively Enforcing the Securities Laws?" »
Liquidity concerns are swirling around Morgan Stanley. Worries of defaults by European banks or governments are eroding the value of its assets and derivatives contracts. Hedge funds are so concerned that they have begun to withdraw cash from their prime brokerage accounts at Morgan Stanley. In the face of these developments, Morgan Stanley is telling investors not to worry, that its liquidity is strong.
Continue reading "Is Morgan Stanley Telling the Truth about its Condition?" »
Investors should use extreme caution before investing in alternative investments. Alternative investments have become the popular “investment du jour" but these investments are fraught with risks. Simply stated, alternative investments are not the panacea that so-called experts represent them to be. For the reasons discussed below, investors need to be very skeptical of any recommendation encouraging them to invest in alternative investments.
Continue reading "Most Alternative Investments Carry Huge Risks" »
Morgan Stanley’s credit default swaps and bond yields are climbing, signaling that investors are concerned about the firm’s creditworthiness. The price of a credit default swap on Morgan Stanley represents the price demanded to insure its debt against default. The higher the price, the greater the risk the bank will default, in the eyes of its insurers. According to Moody’s Analytics, Morgan Stanley’s credit default swap price level implies a credit rating of Ba2, which is non-investment grade, speculative – aka junk. That is down from Ba1 (also junk level) a month ago and vastly below the high-grade rating of A2 assigned by Moody’s Investors Service (a different Moody’s company).
Continue reading "Storm Clouds Over Morgan Stanley" »
In recent years, hedge funds have become dominant players in the investment markets and the evidence suggests that hedge fund trading (which regularly involves thousands, if not hundreds of thousands, of shares) has been a significant contributing factor to market volatility.
Continue reading "Do Hedge Funds Create and Burst Bubbles for their Own Benefit?" »
SEC Enforcement Chief Robert Khuzami recently stated that the SEC’s decision not to charge top executives of Wall Street banks with wrongdoing in cases involving structured products was appropriate, according to Suzanne Barlyn’s Wall Street Journal article entitled “SEC: Structured-Product Cases Haven’t Reached Top Bank Officers.” According to Mr. Khuzami, top executives were not involved in, and did not know about, the key decisions relating to structured product problems.
“Nation Goes on Its Merry Way to Ruin” (WSJ) by Pam Luecke, the Donald W. Reynolds professor of business journalism at Washington and Lee University in Lexington, Va., provides her take on Gretchen Morgenson’s and Joshua Rosner’s “Reckless Endangerment: How Outsized Ambition, Greed, and Corruption Led To Economic Armegeddon.”
Continue reading "Economic Armegeddon Ahead?" »
J.P. Morgan Securities LLC has agreed to pay $153.6 million to settle SEC charges that it misled investors in a complex “built to fail” mortgage securities transaction just as the housing market was starting to plummet.
Best-selling “Reckless Endangerment: How Outsized Ambition, Greed, and Corruption Led To Economic Armegeddon,” by Gretchen Morgenson and Joshua Rosner, “calls out greedy guys behind mortgage mess,” according to a USA Today book review by Kathryn Caravan. See also “Home Truths,” by James Freeman of the Wall Street Journal. Both reviews provide examples of how the book peels back layer after layer of a bad onion to reveal how a nice-sounding idea (home ownership for all) turned into a house of cards that was doomed to collapse, after being propped up by private greed and public corruption.
Continue reading "The Subprime Mortgage Mess: How the American Dream Turned into a Nightmare" »
The Securities and Exchange Commission is broadening its investigation into the world of “built to fail” collateralized debt obligations (CDOs) by looking at Merrill Lynch’s CDO business, according to articles by Marian Wang of Pro Publica (“Merrill Lynch Investigated for CDO Deal Involving Magnetar”) and Kara Scannell of the Financial Times (“SEC Probes $1.5 Billion Merrill CDO Sale). The news is apparently “sending chills” through other banks that put together deals with Magnetar, such as Citigroup, UBS, Wachovia (now Wells Fargo) and Deutsche Bank, according to John Carney of CNBC (“Who Else Did Magnetar Deals?”).
Continue reading "Magnetar CDO Deals Haunt Wall Street Firms" »
Defense-minded institutions that have long remained on the sidelines when defrauded have finally woken up and are jumping on the plaintiff-recovery bandwagon as they seek to protect themselves against a variety of wrongdoing, according to Vanessa O’Connell’s Wall Street Journal article entitled “Company Lawyers Sniff Out Revenue.” These actions include waves of claims against Wall Street financial institutions for fraud in the sale of mortgage backed securities, CDOs and related exotic investments.
Continue reading "Institutional Investors Are Filing Big Claims Against Financial Services Firms" »
Simply stated, senior investors (in fact, all investors) should be very leery of high-risk structured products. Author John Wasik, in conjunction with Demos and The Nation Institute, has published a white paper entitled “How Safe Are Your Savings? How Complex Derivative Products Imperil Seniors’ Retirement Security.” The paper’s focus is on structured products and how they are mis-marketed to seniors, the group most in need of safe and secure income. The paper is reportedly the result of more than a year of research involving interviews with investors, state securities regulators, investors’ attorneys and officials with the Securities and Exchange Commission (SEC).
Continue reading "Study: Structured Products Pose Huge Risks to Investors' Portfolios" »
The number one rated analyst covering brokerage firms, Brad Hintz, is telling his clients that if Goldman Sachs committed any crimes by misleading its clients about mortgage-backed securities, the firm will will be offered a “slap on the wrist” deal called “deferred prosecution” because it is viewed as “too big to fail,” according to Christine Harper’s Bloomberg article entitled “Goldman Sachs ‘Too Big’ to Face Criminal Prosecution, Hintz Says.” In other words, if a brokerage firm is going to be bad, it pays to be very big and very bad.
Continue reading "Is an Organization "Too Big to Fail" Above the Law?" »
FINRA CEO Richard Ketchum recently stated that structured products are “areas of concern” for the Financial Industry Regulatory Authority (“FINRA”), according to a Bloomberg article by Jesse Hamilton and Alexis Leondis entitled “Finra’s Ketchum Says Structured Products Are ‘Areas of Concern.’” If FINRA is concerned, it better act fast. “Sales of structured products rose 46 percent last year to a record $49.5 billion,” according to the article, citing data compiled by Bloomberg.
Continue reading "Attention Investors - Beware of Structured Products" »
Just when Wall Street banks thought they were was going to get off scot free, New York Attorney General Eric Schneiderman is launching an investigation into the very heart of fraudulent scheme that led to the financial crisis. This has the potential to be the “Mother of All Nightmares” for the banks, according to a Rolling Stone article by Matt Taibbi entitled “A New Wall Street Investigation: Is the Hammer Finally Coming Down?”
JP Morgan says that it is in “advanced” negotiations to settle its part of a broad U.S. Securities and Exchange Commission investigation into how mortgage-linked securities were packaged and sold as the housing market unraveled, according to a Bloomberg article by Joshua Gallu and David Scheer entitled “JPMorgan Is in ‘Advanced’ Negotiations to Resolve CDO Probe.”
Continue reading "JPMorgan Chase is Close to Settling "Built to Fail" CDO Investigation" »
A California federal court has unsealed a whistleblower suit accusing AIG, Goldman Sachs, Merrill Lynch, Deutsche Bank, and Societe Generale of perpetrating a fraudulent scheme to dupe the Federal Reserve Bank of New York and the U.S. Department of the Treasury into issuing AIG more than $137 billion in bailout loans during the 2008 financial crisis, according to a Law 360 article by Derek Hawkins entitled “Whistleblower Accuses AIG, Banks of $137B Bailout Fraud,” referencing an amended complaint that had been under seal since September 2010.
Continue reading "Financial Services Firms Accused of Duping the Government out of $137 Billion" »
