Strong Advice For Big Bank Management in Dealing With the Increasing Influence of Blogs and New Media

Reggie Middleton's picture

It has come to my attention that several banks have actually blocked
rank and file level access to my blog through their intranet. That, my
dear friends, is asinine, and does nothing but engender distrust. While I
admit I can be rather flamboyant in my writings, I am nonetheless quite
fair. In addition, my opinions are analytically driven, by design.
Thus, if you have a differing opinion all you really need to do is
challenge me with the facts. One of us will be proven to be right, or at
the very least it will be shown to all how we came to our conclusions. I
have absolutely no problem admitting when I am wrong or have made a
mistake. I have been right long enough and often enough that I have
plenty of emotional and even egotistical room for error. I know fully
that no one is perfect, and while I would much rather catch any error
first, before a third party does it (particularly a dissenting third
party) I know that things don’t always happen that way.

A commenter had a very intelligent dissent against my Goldman Sachs
post on Zero Hedge the other day. While cogent, eloquent and very
lengthy, it was still wrong but it definitely exemplified what a bank
(or any other entity) should do when they feel that I am not in the
right. Of course, if you put yourself out there, there is always the
risk that you can be proven wrong as well. Believe it or not, and
contrary to what you marketing and PR advisers may tell you – it is
alright. As a matter of fact, it is actually good sometimes. You see, to
many of the people that matter, it is not only acceptable, it is
expected that you will not be right all of the time. Anybody who is
right all of the time should be held up to a much higher level of
scrutiny. Just ask Bernie Madoff. The true test of character and
fortitude is to be able to publicly admit when you have made a boo-boo,
and be willing to do something about it. That goes a lot farther in my
eyes, than abject perfection. This is a lesson that the global and
national banking industry in the US has yet to learn.

On that note, let’s go over a few emails that I have received recently…

Reggie,

Huge fan of yours. Just wanted to
drop by and say that I am so thankful that you are out there.  You are
shining the light on the people in the cave. Learned so much from your
site.  Funny story, I used to work at smells fargo, and they have your
site blocked.  I thought you might take a slight degree of satisfaction
from knowing that.  Keep shining the light. One love.

As I have stated above, this is not the way to go about things. I
truly believe my site to be a wellspring of information and opinion that
is quite uncommon among media (both new and old). Confront the issues,
don’t try and hide them. You should be able to tell from the demeanor of
the ex-employee above how well the site/IP blocking endeavor has
worked. Is this what Goldman, JP Morgan and Wells Fargo want from their
employees?

Here is a another letter that really struck a nerve from a reader
that has offered a considerable amount of unsolicited, yet constructive
advice in my confronting the big banks on their reporting and quarterly
performance. In response to his string of advice, I queried to find out
who this guy was and the impetus behind his efforts. The following was
his reply.

Reggie,
You ask who I am and fair enough. Why am I so passionate about this
issue that I would write a total stranger with all sorts of unsolicited
advice.

A few days ago, I got this letter from a friend who left a good job at
IBM to work with the homeless – names and dates redacted, and just so
you know “Ballard” is a neighborhood in Seattle.
>

Hello beautiful Washington Peeps,
> King County is planning to cut DESC’s HOST budget by over $800,000
per year. The annual budget of HOST is just over $1,000,000.  If
implemented, this cut would eviscerate our street outreach program. 
Late last week, DESC was informed of a draft plan for mental health
budget reductions for a number of County programs funded by non-Medicaid
money, including HOST.  The county has moved that decision to tomorrow
morning (10/27)  Please look at the attached and contact your  the King
County Executive and Director of Community and Human Services (via email
or phone).  Your calls/emails today are extremely important.  Also,
please consider contacting King County council members to raise the
limit on supplantation authority from MIDD (Mental Illness and Drug
Dependency) sales revenue to the maximum by the state legislature.
> As many of you know, I have had the privilege of working at DESC
for X years and the HOST program for over X years.  I selected the HOST
program because it’s specifically targets the chronic homeless mentally
ill population that cannot access services on their own.  Some cannot
access it due to their disability.  Many cannot access it because they
are not eligible for Medicaid health benefits.  If this program is
terminated, I will be releasing 75% of my case load to “self”.  Self
means there is no program available to pick them up.  What does this
mean?  Each of my clients would be a different story and I wish I could
share them all.  “Jane” lived in Ballard and often slept near the
Majestic Bay Theater.  She has a diagnosis of schizophrenia paranoid
type.  She was detained for “harm to others” since she was frequently on
buses, at churches, and markets yelling at people because she believed
she was working for police department.  Since her release from the
hospital she has accepted transitional housing, takes medication, meets
with psychiatrist, goes to church daily and enjoys making Rosary Beads
for her fellow church goers..  For her the end of this program means she
no longer has access to the medication, psychiatrist, and case
management that are essential for her to remain stabilized.  She is a
typical HOST client! 
Thank-you for your time in reviewing this material. I hope it moves you to action today.

Sincerely,
XXXXXXXXXXX

As it happens, King County lost tens of millions in its own money and money it managed for municipalities on a phony Goldman ABCP deal (and here’s the pitch book for anyone who’s interested).

Before we go on, I would like to note how egregious the
performance some of these mortgage and real estate deals actually were,
and how easy it was to see that they were being done at the top of the
market:

Excerpts from the must read ““:

image006.png

Does anybody think that Lehman was a “one
off” occurrence? Or for that matter does anyone believe that only
Goldman is guilty of a lack of actual performance for their clients vs.
their bonus pool???

Then there is “Wall Street Real Estate Funds Lose Between 61% to 98% for Their Investors as They Rake in Fees!
of Thursday, April 15th, 2010. I believe anyone interested in this
story should also review this post in its entirety, but here is an
excerpt (when you review the post, be sure to download the bank fleecing
model to determine how much you may have been fleeced as well):

I shorted GGP in November of 2007 at about $57.
It was a volatile, bumpy ride but I was confident CRE was sure to
crash and GGP was the CRE leveraged poster boy. The rest was bankruptcy
history. Why am I recounting history? Well, it appears as if this
blogger was on to something that the number one and number two
investment banks in the world somehow missed. No, it wasn’t knowing
that the CRE market would crash. I knew it, and I believed that at
least some of the bankers and analysts at Goldman and Morgan Stanley
knew it too. The big secret was how to go through the crash without
FLEECING your clients.

In the post, “Doesn’t Morgan Stanley Read My Blog?”,
I lamented on the fact that I made very clear in 2007 that anyone who
bought the Sam Zell/Blackstone flips were guaranteed to lose money. It
was literally etched in stone. It was a miracle that Blackstone didn’t
lose their shirt. Well, guess who bought those buildings on behalf of
their clients as they raked in the fees. You guessed it. None other than
Morgan Stanley. This purchase was a 100% equity loss. The entire fund apparently lost about 61% of the shareholder’s money. See this WSJ article: Morgan Stanley Property Fund Faces $5.4 Billion Loss.

Not to be outdone. Goldman lost nearly 100% of thier clients money in a similar CRE fund. Reference this FT article: Goldman real estate fund down to $30m (they lost $1.76 billion, yes, that’s a very big percentage loss).

These funds did very well during the
boom, but when the obvious bust came (and I blogged about it in full
detail, so no one could say they didn’t see it coming), these funds
crashed. Professional asset managers should know better. They are
simply delivering market beta, not alpha. Investors are paying a
fortune in fees to ride the ups and downs of the market.

Oh, yeah! About them Fees!

Last year I felt compelled to comment on
Wall Street private fund fees after getting into a debate with a Morgan
Stanley employee about the performance of the CRE funds. He had the
nerve to brag about the fact that MS made money despite the fact they
lost abuot 2/3rds of thier clients money. I though to myself, “Damn,
now that’s some bold, hubristic s@$t”. So, I decided to attempt to lay
it out for everybody in the blog, see ”Wall Street is Back to Paying Big Bonuses. Are You Sharing in this New Found Prosperity?“.
I excerpted a large portion below. Remember, the model used for this
article was designed directly from the MSREF V fund. That means the
numbers are probably very accurate. Let’s look at what you Morgan
Stanely investors lost, and how you lost it…

Okay, now that we have an adequate background wherein we can possibly determine how this municipality got fleeced for bonuses lost its money, we should return to the letter from the BoomBustBlog reader…

You can draw whatever political
conclusion you like, but helpless people are going to be thrown into the
street in part because money is not there and other people committed
fraud with impunity causing money not to be there.

Like you, in 2007-2008 I realized
that financial disaster was going to strike with Great Depression
implications, all because otherwise respectable people decided to make
money using massive fraud at every level of the mortgage business.
Unlike you – although I tried – I could not persuade anybody that it was
happening – that it had, in effect, already happened. I remember
September 18, 2008. It was a beautiful day. I gave up and went to a bar –
with my ex, actually – and we watched the people here in Seattle
walking around in the sunshine with no idea the financial tsunami was
coming.

It was a terrible feeling and it’s
been no fun since. So, I make every effort to support, persuade and
encourage people who are effective in carrying the message of the
devastation wrought by this fraud – and the danger yet out there.

To you, it probably seems a task of
persuading people of the intrinsic merit of your ideas. But what I’ve
observed from politics is that it is and always has been the social role
of persuasive people to represent many who are not so persuasive.
Whatever your intent may be, when you’re out there you’re not just
representing yourself – de facto. As a public person, you’ll find that
people will like you – and help you – because this is what people do and
this is the way it has always worked.

You’ll have to excuse me if I remain
anonymous other than my name (which is real). I’m afraid I don’t have
your confidence. To the extent my views are useful to you, I’m glad. If
not,…

Time will tell if this reader’s benevolent take on mankind is
accurate. As it stands, several banks are actually blocking my site. I
believe the mentality on Wall Street does not take into consideration
the damage that is done in the relentless pursuit of larger bonuses. The
impetus in my writing the piece on Wall Street and fleecing of the
private equity investor (), was the boasting and bragging of a CRE
banker in saying that Morgan Stanley could not have lost money in their
under performing funds due to the excessive fees that they charge.
Whaaattt??!!! And you are comfortable boasting about this in public?
Here are some extensive posts on the economics of said funds: Even With Clawbacks, the House Always Wins in Private Equity Funds and The
Conundrum of Commercial Real Estate Stocks: In a CRE “Near
Depression”, Why Are REIT Shares Still So High and Which Ones to Short?

The cogent commentator who laid into my GS quarterly opinion (A Few Questions on Goldman Sachs 3rd Quarter 2010 Results That No One Thought to Ask)
made clear his admiration for Goldman and their operations. When I
brought up the topic of big losses at the top of the bubble in relation
to risk management we had a lengthy exchange. This is an excerpt:

Reggie says:

Was the architect of the Abacus deal
fired? How about the Litton Loan purchase that failed to oversee the
admin of document signing? Was the entire team of the GS RE fund that
lost 92% of investors equity fired? You don’t get fired for taking
stupid risk with shareholder’s money. You get fired for losing partner
capital, which probably wasn’t even lost in the RE fund, at least not
as drastically as its investors. To bad for the investors, though.

Commentator says:

    1. The architect of the Abacus deal did not need to be fired. It was a good risk deal for GS. Kinda sucky for the guarantor, but not bad for GS.
    2. Litton Loan? Good implementation of investment risk (MSRs in a
      distressed asset environment are an excellent business), lack of
      diligence on operational risk. Strike 1.
    3. The GE RE team which lost 92% of investors’ equity? That was not their only fund, and GS made money by being the asset manager. GS may have had money in it. Strike 2. But if you buy at the top and lose, so be it.

Now, don’t get me wrong. I actually believe this commentator appears
to be a stand up (and very knowledgeable) guy from the very little that I
know of him. He does appear to be BLINDED by the “revenue at all costs”
mentality of Wall Street, though. These deals, products, services and
structures are a lot more than potential bonus checks and wide girth
swinging dick bragging rights! They are life lines for mentally
disabled, widows retirement funds, potentially life saving programs for
AIDS victims, domestic abuse victims, orphans, etc.

Hey, I’m all for making money (a lot of money even), and I know that
in order for you to make money someone else has to lose it. There must
be boundaries drawn, and ethics adhered to, though. It is a must! Don’t
ban the web sites of guys who have the heart and the analytical insight
to declare such. Investigate the allegations, and if they have merit act
upon them. Do the right thing and you just might make more money by
doing business that actually helps people versus fleecing them! There is
a wave of law suits coming down the pike, and if the plaintiff’s
lawyers can get their acts together (truly knowledgeable and persuasive
expert witnesses and a true grasp of what actually is going on), there
will be hell to pay in the banking industry. While there may not be much
on can do about that now, you can work on changing the culture that
caused it moving forward – or not!

Related reading for those in the know, or at least want to be!

  1. A Step by Step Guide to Exactly How Much Derivatives Risk Each of the 5 Big Banks Actually Have, and How It Could All Go Boom!Monday, October 25th, 2010
  2. Four Facts That BANG JP Morgan That You Just Won’t Hear From The Sell Side!!!Friday, October 22nd, 2010
  3. JP
    Morgan’s 3rd Quarter Earnigns Analysis and a Chronological Reminder of
    Just How Wrong Brand Name Banks, Analysts, CEOs & Pundits Can Be
    When They Say XYZ Bank Can Never Go Out of Business!!!
    Sunday, October 17th, 2010
  4. Did Reggie Middleton, a Blogger at BoomBustBlog, Best Wall Streets Best of the Best?Friday, October 15th, 2010
  5. The
    Robo-Signing Mess Is Just the Tip of the Iceberg, Mortgage Putbacks
    Will Be the Harbinger of the Collapse of Big Banks that Will Dwarf 2008!
    Tuesday, October 12th, 2010
  6. Are We In a “Banking” Depression?Friday, October 1st, 2010
  7. The Great Global Macro Experiment, BoomBust Cycles, and the Refusal to See the Truth: Bubble Economics in the Mainstream MediaWednesday, September 1st, 2010

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steelhead23's picture

So, you think the banksters would gain if they allowed their employees to gain the knowledge imparted by your blog?  Let's see, your blog frequently details how the products touted by said banksters is junk.  The banksters want their employees to pump the junk to its clients, focus on bank and individual returns, not investor ROI.  Could you please identify how information from your site would aid this business model?

Reggie Middleton's picture

You modify the business model. There is definitely a market for junk, as there are many who feel the junk is a jewel. One man's treasure is another man's trash. Just don't lie about it! Hey, I wouldn't put my money in Apple right now (I'm actually working on a short scenario/strategy), despite the fact that nearly the whole world outside of my blog and maybe ZH think it's God's gift to the long buy and hold investor. It's a fine company, its just that there's two sides to every trade.

Money can be made on both sides of the Apple trade without raping a single pretty maiden! Like the commenter said above, banning the site simply increases the site's popularity.

chopper read's picture

without raping a single pretty maiden! 

in that case, I'm out.  

RockyRacoon's picture

Fret not, Reggie.  Your work is appreciated here -- and passed on!

Sunshine n Lollipops's picture

These silly banks. They don't understand basic human behavior. As soon as you tell someone not to do something, it becomes the very thing they want to do the most.

I suspect that these bank employees are surreptitiously 'walking on the wild side' on their home PCs. I'm also guessing a good number of 'em weren't on the receiving end of giant bonuses (boni?), possibly spawning a swell of righteous anger from inside the great sucking beast.

Ya never know.

Lionhead's picture

Press on Reggie, press on!  What is heartbreaking is the municipality frauds that have undermined the social services that are needed. Thank you for exposing this aspect of the banking frauds in the US.  Readers will see how all these frauds come home to effect us all.

Careless Whisper's picture

While I admit I can be rather flamboyant

oh bay bay, u got a ways to go to get flamboyant status, like this aaa tranche of flamboyance:

http://www.youtube.com/watch?v=A13eNRTCwDc

i saw u on max keiser and what u said was important, but there is def room to dial up the flamboyance. just sayin'

 

Mr Lennon Hendrix's picture

For the fashionistas, he wore the jacket and tie.  Great interview Reggie!

Reggie on The Keiser Report:

http://www.youtube.com/watch?v=jQwlElVfdHY&feature=player_embedded

doolittlegeorge's picture

Great stuff.  Love paranoid people screaming "end of the world" while pretending to be the police.  my type of people.  HUMAN people.  having seen what white powder can do to government and media employees both (can't pay for sources or you die, right?) i've always found it interesting "it was a single biologist who killed himself before we could ask him if he did it."  of course "we can't blame that guy for the current situation."  we shall see "as the tide goes" which government officials are standing naked.  clearly "they and their bankers have you near and dear to there heart" Reggie.  Keep up the great work since work it indeed is.

YHC-FTSE's picture

Thanks RM. I've always said that society is judged by how it treats its most vulnerable people. 

amanfromMars's picture

Reggie,

Don't forget to let us all know if you receive one of these dodgy missives .... http://cryptome.org/0002/citigroup-dmca/citigroup-dmca2.htm

MarketTruth's picture

Reggie, have been at this Internet information distribution 'game' since pre-Internet (BBS system) and continue to this day in my own field of endeavor. The more they hate you, the more 'right on-target' you generally are. So consider it a compliment of the highest degree... and well deserved compliment imho. Keep doing the excellent work, we truly appreciate it and are grateful for your diligence.

Reggie Middleton's picture

Whoa, I actually forgot about bulletin board systems. We have come a long way, eh?

Uncle Remus's picture

Yeah, well, don't throw away that software, toss your modems or unplug that shortwave.

chopper read's picture

we may be back to communicating with roped coffee cans and carrier pigeons before its all said and done. 

Unlawful Justice's picture

I say fuck being perfect............ let's evolve

~Tyler Derden

kathy.chamberlin@gmail.com's picture

reggie you da man. like your reads, charts are tough for me, but interesting the chart language.

jus_lite_reading's picture

Reggie- Read (or watch) THE RUNNING MAN

It's almost prophetic. TPTB know their time is short. They hate you because you are one of the few who speak the truth, and that goes against their grain. However, consider it a "good thing" that they are blocking you- people will soon discover this, and it will raise awareness of this dire situation. They will read your site when they get home and perhaps, send their slave master (insert big name bank here) an F U note. I say, "Let them eat cake!"

MarketFox's picture

RM....

Another area of concern are commodities and the dollar....

 

It is because of the big banks that oil is $80 when it should be $30...

The same goes for food stocks...

 

And do note who designed the dollar hedge for the oil players vs the dollar....regardless of the economy ....oil is inverse to the dollar....

The big banks are distorting the economy at the expense of the poor and middle class....

Something needs to be done about it....

 

jus_lite_reading's picture

Just read in a European newspaper, December 7th, the masses of Europe will withdraw all of their money from the banks. Will the US join them?

Bagbalm's picture

" I know that in order for you to make money someone else has to lose it."

Yes, that is how the economy seems to work now. Nobody makes money mining or manufacturing or growing something. You know, PROducing SOMETHING. The big bucks now are made as you intimate - by being a worthless parasite playing big boy poker to move money around. How noble of you to not want to scam the poor and helpless.

chopper read's picture

if it were not for short-sellers you would not hear the bad news until you were choking in the gas chamber, asshole.  don't shoot the messenger.  Rather, quit your whining and lose your dependence on Public and Corporate pensions. Return power to your local governments and to yourself.  

Get your balls back, America. 

janchup's picture

Sarcasm always reveals inner weakness.

Reggie Middleton's picture

If you mine something, that means that that something is now not available for someone else to mine. That someone else took a loss, even if it is an opportunity loss. That aside, the topic of discussion is limiting the pursuit of revenue (in reference to Wall Street, it's not even profit, but revenue) when that loss (opportunity or otherwise) inflicted upon others reaches the point of undue and unnecessary hardship.

Long story short, have a f@#$ing heart!

NotApplicable's picture

That's a real stretch of logic, Reggie.

Basically, what you're saying is that life is a zero-sum game, but only in the context of infinte opportunities to create the total sum. While I appreciate the zero/infinity thought experiment (I love the book Zero: The Biography of a Dangerous Idea http://www.amazon.com/Zero-Biography-Dangerous-Charles-Seife/dp/01402964...) I fail to see how it adds any value to your topic of discussion, which I thought, was about giving advice to bank management for blocking your blog. ;)

As for your revised topic, what's your point? These are banks you're talking about here, to expect them to have a heart is to not understand their criminal charter to steal.

chopper read's picture

their criminal charter to steal.

fractional reserve counterfeiting.  great work, if you can find it. 

Reggie Middleton's picture

It's not a stretch at all. Wealth is relative. How wealthy you are really depends on how poor everybody else is, hence opportunity loss in the mining example. Wealth and making money is definitely not a bad thing. To do so, or put more aptly, only being able to do so by putting your foot on someone else's neck is what I take issue with.

As for your revised topic, what's your point? These are banks you're talking about here, to expect them to have a heart is to not understand their criminal charter to steal.

Believe it or not, all bankers are not bad. While it is cute and convenient to villify bankers for being bankers, it is not fair nor accurate. BUT, there is a pervasive culture on Wall Street that allows one (even one with a strong sense of ethics) to take finance and investment as one would take a video game and causes many to forget the real world implications of their actions. Then again, you just have the bad guys - but their are bad guys everywhere and in every industry/profession, arent' they?