In this two-part special on CBS's 60 minutes, Michael Lewis continues on his crusade of exposing Wall Street's massive delusion that it provides a service of value to society. "The incentives for people on Wall Street got so screwed up, that the
people who worked there became blinded to their own long term
interests. And because the short term interests were so overpowering.
And so they behaved in ways that were antithetical to their own long
term interests." His observations and conclusions are, as always, spot on.
- Ah, the benefits of monopolies: Goldman Sachs Demands Derivatives Collateral It Won’t Dish Out (Bloomberg)
- FASB hypocricy: banks face mark-to-market hypocricy (WSJ)
- Rising money market rates hint Treasury losses amid Fed exit (Bloomberg)
- EU to discuss Greek aid, Germany skeptical (Reuters)
- Stocks decline in China economy concern; pound, euro weaken (Bloomberg)
- Paul Murphy: The truth about speculators - they are doing God's work (FT)
- Could Lehman be E&Y's Enron (Reuters)
RANsquawk 15th March Morning Briefing - Stocks, Bonds, FX etc.
- Asia stocks, commodities fall on China tightening speculation.
- China’s stocks decline to five-week low on tightening concern.
- Debate brewing in OPEC over what its post-recession production might look like.
- EU finance chiefs to weigh Greek rescue as ministers seek to avoid bailout.
- Euro near 5-week high versus Yen on Greece bailout, BOJ policy.
- Consumer tax hikes hit Greece as EU to discuss debt crisis.
- The Federal Aviation Administration ordered airlines to perform an emergency inspection of some 600 Boeing 737 airplanes.
The rating agency, whose "objectivity" was recently fully exposed after it has been persistently the one rater who refuses to downgrade Greece, even after its peers S&P and Fitch have made Greek bond eligibility for ECB collateral contingent purely on Moody's lack of conscience, is pretending that it has some credibility after all, by doing a little extra posturing, and grumbling that if things get much worse, it may, just may, consider dropping the US AAA rating. This, of course, despite Tim Geithner's promise that the US would only be downgraded over his dead body, or something like that. Furthermore, as we have recently learned, the FRBNY has a "proactive" influence in rating agency decisions. To assume that Mr. Brian Peters of the New York Fed would return a Moody's call and say "yes, we agree with your assumption that the US is not really AAA-worthy, please go ahead and downgrade us" requires copious amount of prior consumption of LSD and other hallucinogenics. Yet for those who still care about what output Moody's produces, here is the full relevant text discussing the outlook for the United States.
GATA Presents New Evidence Of The Fed's Gold Price Supression Scheme, Combing Through Oddly Unredacted FOMC MinutesSubmitted by Tyler Durden on 03/14/2010 - 18:36
GATA's Adrian Douglas has done a tremendous job of combing through dozens of hundred-plus page FOMC transcripts, and has compiled numerous quotes by assorted FOMC-related personnel, including former Chairman Greenspan, which provides yet another piece of evidence, demonstrating the persistence of the Fed's gold price suppression scheme. As Douglas puts it: "My thinking was that if an organization is so inept at covering up that detailed transcripts were retained, then perhaps it is also inept at completely redacting sensitive and incriminating information. What I found is quite astounding and serves as documented evidence by the Federal Reserve itself that it manipulates the gold market." We present the relevant quotes dug up by Douglas, whom we applaud for his effort, together with his very relevant commentary, which once again exposes the Fed's covert gold price suppression intentions.
This weekend the New York Times has published an interesting observation of gender differences when quanitfying the intangible concept of "overconfidence" as it relates to stock trading. While the article throws a relatively minor wrench at the spoke of "efficient markets", we are following it up with a scientific paper by Wei Xiong and Jialin Yu, discussing the Chinese Warrant Bubble, in which speculative mania gripped the trading of warrants so deep out of the money that they were certifiably worthless, yet trading at an increasing turnover rate, and substantially inflated prices. With numerous unequivocal examples of bubbles in the history of capital markets, starting with Dutch tulip mania (1634-37), progressing through the Mississippi bubble (1719-20) the South Sea bubble (1720), the Internet bubble in the late 1990s, and the housing bubbles of the mid 2000s, it appears that human traders never learn from history as the speculative element overpowers rationality each and every time. The underlying premise: the hope that another greater fool will emerge. And emerge they do, until they don't, and markets collapse bidless. It is certainly easy to draw a parallel between the Chinese Warrant Bubble, and the trading of AIG, C, FNM, FRE and a whole slew of otherwise worthless companies, which on occasion make up over 30% of of the volume of the US stock market, which in turn drives the momentum that pushes the balance of all stocks. Another parallel: the entire US stock market is now one big "greater fool" trap waiting to spring once the greater fools have their fill of gambling fever.
Presenting an update of North American Investment Grade CDS. While Month To Date the credit market has ripped in line with equities, with just CTL and AA marginally wider for the period, Year to Date the vast number of names is still wider than at January 1, or at beast unchanged, demonstrating that credit is certainly not as enthused about the equity market activity over the past two and a half months.
Ultimately the biggest loser from the whole Repo 105 scandal may not be the perpetrators, i.e., Fuld, the firm's numerous CFOs, Tim Geithner and Mary Schapiro, but the alleged "fact-checkers" - auditors Ernst & Young. Just like Enron's Star Wars-based off balance sheet accounting gimmicks brought down Arthur Anderson, so "Repo 105" may likely be responsible for the downfall of E&Y. Although while in Enron's case, it was just the accounting that brought the firm down, in Lehman's case the confluence of numerous factors will render each individual one relatively less critical, potentially to the point of irrelevance. And while book cooking was just as big of an issue for Lehman as it was for Enron, the fact that the bank did pretty much every other borderline illegal thing possible, will take away focus from just the Repo 105 fiasco, or just the liquidity misrepresentations, or just the commercial real estate book mismarking, and so forth. So to facilitate a decision on E&Y culpability, we present a candid look at Ernst & Young's Financial Services Office, the company's presentation on Paragraph 10 of IAS 39 overseeing Repo agreements, E&Ys analysis of FAS 140 "Accounting for Financial Transfers and Repurchase Financial Transactions", the Examiner's conclusions on the firm's breach of conduct, the firm's soon to be dwindling banking client base, and last, and most certainly least, a snapshot of E&Y's Lehman co-lead partner, Hillary Hansen, against whose negligent actions, as part of the Lehman E&Y practice, the Examiner concludes "that sufficient evidence exists to support a colorable claim for malpractice."
"Virtually no one was calling for this kind of rally a year ago. But it happened. So investors are either seeing the “green shoots” supposedly sprouting from the moribund economy or believe that they’re about to break ground any day now. That sentiment is continually reinforced by government officials and media talking heads who almost universally proclaim that “the worst is past,” “we’re back from the brink,” or other words to that effect. It’s often said that stock market action is a leading indicator, reflecting what investors think the economy will be like six or nine months down the road. Are they right? Will good times soon be here again? Or is this just a big dead?cat bounce?" - Doug Hornig
We already know that the Federal Reserve System was blind, mute, dumb, and frankly, retarded when it came to Lehman's Repo 105, and pretty much every other aspect of the Lehman collapse. As the Examiner discloses: "Secretary Geithner “did not recall being aware of” Lehman’s Repo 105 program", "Jan Voigts, who was an Examining Officer in FRBNY’s Bank Supervision Department, had no knowledge of Lehman removing assets from its balance sheet at or near quarter?end via a repo trade", "Arthur Angulo, who was a Senior Vice President in FRBNY’s Bank Supervision department, likewise was unaware that Lehman engaged in repo transactions at quarter?end" although the latter did point out that "the described repo transactions appeared to go “beyond other types of [permissible] balance sheet management.” And lastly, "Thomas Baxter, FRBNY General Counsel, had no knowledge of Repo 105 transactions, either by name or design." Yet it is these clowns that want to become America's uber-regulator. Now that is funny, considering that at the apex of the greatest cataclysm for the financial industry, the Fed was blissfully unaware of one of the most egregious book cooking scams ever conducted by a Wall Street firm. Yet with all the Fed's bells and whistles, with all its Bloomberg terminals, all its fancy daytraders, all its Flash trading enabled momentum chasing algos, one central bank, half way around the world, knew all too well what was going on at Lehman - the Reserve Bank of Australia. Which is why we nominate the RBA's chair, Glenn Stevens, to be direct supervisor of the entire ungodly and corrupt mess that is Wall Street (and to make Ben Bernanke his butler). We also strongly endorse the nomination of Amanda Drury to supersede that of Janet Yellen, as the Fed's new chair of vice. At least she will bring some inflationary pressures to the Marriner Eccles building.
How Lehman, With The Fed's Complicity, Created Another Illegal Precedent In Abusing The Primary Dealer Credit FacilitySubmitted by Tyler Durden on 03/13/2010 - 15:44
Five months ago, Zero Hedge observed the nuances of the Federal Reserve's Primary Dealer Credit Facility (PDCF) and concluded that this artificial liquidity boosting construct was nothing more than yet another scam to allow banks to extract ever more money from taxpayers, with the complicit blessing of the Federal Reserve Board Of New York (as the original piece also provided an in-depth discussion of the triparty repo market which is now a parallel to the buzzword of the day in the form of Lehman's "Repo 105" off balance sheet contraption, it should serve as a useful refresher course to anyone who wishes to understand why while Repo 105 with its $50 billion in liability contingency may have been an issue, the true Repo market, with over $3 trillion of likely just as toxic assets, is where the real pain in the future will come from). The PDCF would allow assets of declining and even inexistent value to be pledged as collateral, thus making sure that taxpayer cash was funneled into sham institutions holding predominantly toxic assets, and whose viability was and is limited, yet still is backed by the Fed, which to this day continues to pour our money into them. Today, with a tip from the NYT's Eric Dash, we demonstrate just how grossly negligent the Federal Reserve was when it came to Lehman's abuse of the PDCF, and how the trail of slime of Lehman's increasingly obvious manipulation of its books goes to the very top of the Federal Reserve Bank of New York, and its then governor - a very much complicit Tim Geithner.
Just in case you thought there was any confuction about which way the Goldman propaganda wheel turns: "Investors we met this week remain bullish in both outlook and positioning, consistent with our view. We expect S&P 500 to rise to 1300 by mid-year (+13%), before ending 2010 at 1250 (+9%)." So it was spoken and so it shall be. Amen.
Sprott's Last Decade Retrospective: It’s Déjà Voodoo Economics... All Over Again - This Weekend's Must ReadSubmitted by Tyler Durden on 03/13/2010 - 01:12
If you’re of a certain age, chances are you remember exactly where you were when JFK was assassinated. Similarly, if you’re from Canada or the United States and have an even remote interest in hockey, it’s highly likely that you remember exactly where you were when ‘Sid the Kid’ scored the winning overtime goal in the Olympic gold medal game. These were both "significant events", albeit for different reasons. We wonder, however, if any of you recall where you were on September 18th, 2008? Do you remember that day? We can’t seem to recall it either, which is strange, because it was one of the most important days of the decade. October 7, 2008 is another day that should stick out in our memories, but we’re sure you don’t remember that day either – and we’re in the same boat. How is it, then, that we can’t recall where we were or what we were doing on the two days the entire financial system almost collapsed?!? It boggles our mind. These dates should have been emphasized in every "review of the decade" written at the end of 2009, but we’ve been hard pressed to find them mentioned in any mainstream publication. This is troubling to us, and makes us wonder if people are even aware of the incredible events that took place on those fateful days only eighteen months ago. - Eric Sprott And David Franklin
We present two rather amusing research reports by then-Merrill Lynch Securities Broker/Dealer analyst Guy Moszkowski, discussing Lehman Brothers. Just because with financial analysts like this, who needs a shotgun Bank of America bail out. Oh yeah, Merrill. We also present a soundbite by Fox Pitt Kelton "analyst" David Trone, who, based on his extensive experience determines that David Einhorn, who nailed Lehman, is "looking at data from an inexperienced standpoint; investment banks are very complicated." Oh yes, David, they are indeed. In fact, please give us your mailing address, so we can dispatch this particular piece of literature you so richly deserve.