This page has been archived and commenting is disabled.
Wall Street Banks: Too Big To Blame For Subprime?
By EconMatters
Goldman Sachs has historically been one of the more bullish investment houses on Wall Street, but the firm has recently taken a dark macro view. The Wall Street Journal reported on Sept. 1 that Goldman issued a 54-page report sent to their institutional clients on August 16th arguing that as much as $1 trillion in capital may be needed to shore up European banks; that small businesses in the U.S., a past driver of job production, are still languishing; and that China’s growth may not be sustainable.
The trading ideas suggested by Goldman,
"....a fancy option play that offers a way to take a bearish position on the euro, and a bearish bet through an index of insurance contracts on the credit of European financial stocks."
But Goldman is also facilitating sales of Spanish sovereign bonds. From WSJ:
".....On Wednesday [Aug. 31], Goldman and two other major banks hosted a presentation in London in which the Spanish economics secretary, Jose Manuel Campa, planned to outline Spain’s fiscal austerity measures and pitch Spain’s case to investors, according to an invitation seen by The Wall Street Journal. Goldman has a leading position among banks in facilitating sales of Spanish sovereign debt."
Furthermore,
"Goldman's own trading positions potentially could benefit if hedge funds and other clients make trades based on the report. Goldman says in bold letters at the top of the report that other Goldman traders, or "Goldman Sachs personnel," may already have acted on the material in the report."
So what that means is that Goldman is already in positions and is front-running their clients. Now that's really delivering the promise of putting the interests of clients first. Moreover, there could be some potential conflict of interest.
That is, on one hand, Goldman is getting compensated to market the sovereign bond of Spain, but on the other hand, Goldman has put in positions and advised its big clients to bet against the Euro and European banks, which is, in essence, betting against the Spanish bond the firm is supposed to facilitate sales, albeit indirectly.
So, it'd be very interesting (and entertaining), to say the least, to be a fly on the wall to listen to what Goldman's response would be when challenged by the potential investors of the Spanish bond with questions such as "Are you sure we should buy these bonds? You guys are pretty bearish on the Euro and European banks and are supposedly betting against them?"
An even better question is when Goldman would reverse its recommendation (and release it to the media and general public) whenever the situation fits as it did within a-month time on commodities and crude oil in April and May this year leaving the majority of regular investors holding the bag, while the firm would be most likely already positioned to benefit from the resulted market reaction...."Chinese Wall" notwithstanding.
This came just two months after Goldman has reportedly received a subpoena in June 2011 from the office of the Manhattan district attorney "stemming from a 650-page Senate report from the Permanent Subcommittee on Investigations that indicated Goldman had misled clients and Congress about its practices related to mortgage-linked securities."
You might recall prior to the 2008 financial crisis, Goldman Sachs, along with some other big Wall Street banks were peddling complex synthetic collateralized debt obligations, or CDO’s (the more infamous one is Goldman's Abacus 2007-AC1). These big banks then not only made short bets, but also pitched their hedge fund and institution clients to bet against the housing market, and pocketed huge fees and profits.
In April 2010, the U.S. SEC (Securities and Exchange Commission) did file a civil fraud law suit against Goldman for creating a mortgage product that was intended to fail. But Goldman settled with the SEC in June 2010 for mere $550 million (Goldman's gross profit is $39.16 Billion for the past 12 months)...... without admitting or denying guilt.
Not to worry, along came the latest party pooper of Wall Street banks--the FHFA (Federal Housing Finance Agency)--the federal regulator that placed Fannie and Freddie into conservatorship about three years ago. In a bit to recoup billions of dollars in losses from failed subprime mortgage bond investments, after filing in July against UBS AG, seeking $900 million in damages, the FHFA went on and sued some of the biggest banks on Wall Street on Sept. 2 (See the list below from WSJ):
- Ally Financial (ex-GMAC), $6 billion
- Bank of America Corp., $6 billion
- Barclays Bank, $4.9 billion
- Citigroup, $3.5 billion
- Countrywide, $26.6 billion
- Credit Suisse Holdings USA, $14.1 billion
- Deutsche Bank, $14.2 billion
- First Horizon National, $883 million
- General Electric, $549 million
- Goldman Sachs, $11.1 billion
- HSBC North America, $6.2 billion
- J.P. Morgan Chase, $33 billion
- Merrill Lynch/First Franklin Financial, $24.853 billion
- Morgan Stanley, $10.58 billion
- Nomura Holding America Inc., $2 billion
- Royal Bank of Scotland Group, $30.4 billion
- Societe Generale, $1.3 billion
The FHFA waited till the 11.5th hour to file these suits with the filing deadline approaching this month. I'd imagine the FHFA is taking its time to collect enough ammunition since most of these big banks have some of the country's top lawyers either on staff or on retainer. The amounts in the FHFA's suits weighed on the financial stocks on Friday, Sept. 2 (See Chart Below), and could get worse for these banks as things progress.
 |
| Chart Source: WSJ.com |
In Goldman's case, the firm has one more advantage beyond the high-priced attorneys. The revolving door between Goldman and the U.S government has resulted in quite a few Goldman alumni and affiliates in high government places....four dozen, according to CBSNews.
Reportedly, there were critics saying the lawsuits represent a "piling on" by federal and state regulators that threaten to crimp credit and undermine a housing recovery. Granted over-regulation does present impediment to business, but there has to be a check and balance in the system.
WSJ notes the FHFA suits represent "the most sweeping action to date from a federal regulator stemming from the mortgage meltdown." Since government agencies have resources and power unavailable to regular investors, it'd interesting to see how these FHFA suits unfold. Nevertheless, if history is any indication, the most likely outcome could be settlements without admitting guilt.
And judging from the civil actions brought by the government agencies so far, it would seem that either the U.S. financial regulation system could use a fast and furious overhaul to have some real legal power to hold these big banks accountable for any subprime-like mess, or the U.S. banking structure and the sector's political clout has morphed it into one that's too big to regulate or reform.
Further Reading:
Wall Street Bailout: Too Big To Collect?
Wall Street Bailout: Fed's $1.2 Trillion Secret Loans
EconMatters Recent Wall Street Bankster Coverage
© EconMatters 2011 All Rights Reserved | Facebook | Twitter | Post Alert | Kindle
»
- EconMatters's blog
- 10591 reads
- Printer-friendly version
- Send to friend
- advertisements -
Wholesale Pen
Lunch Box
Health Care Products
Wholesale Ashtray
Muslim Products
Silicone Products
Wholesale Compass
Consumer Electronics
Wholesale Scissors
Wholesale Puzzle
Wholesale Fan
Wholesale Scissors
Wholesale Shoe
Wholesale Stress Ball
Wholesale Magnifier
Wholesale Dartboard
Promotional Items
Electrical Gifts
Wholesale Clothes Rack
Wholesale iPod iPhone
Wholesale Flag
Personal Safety Products
Industrial Supplies
Wholesale Compressed Products
Silicone Products
Wholesale Massager
Wholesale Swimming Products
Inflatable Products
Name Card Holder
Wholesale Raincoat
Wholesale Banner
Flash Gift
World Cup Products
Eye Mask
Wholesale Compass
Valentine Gifts
Wholesale Clap Hands
Wholesale Radio
Wholesale Calculator
Wholesale Sticker
Wholesale Halloween Gift
Wholesale Lighter
Wholesale Bedding
Silicone Bakeware
Personal Safety Products
settlements without admitting guilt...
Indeed. All acts performed by an abstract concept called "corporation"...a fairy tale of limited liability to ensure "and lived happily afterward".
for example, golden parachutes of bankster/executive failures
IN the bible, charging any interest is usury. And it is considered a grave sin. By banks being allowed to charge interest, eventually they
end up with all the money and assets of everyone. The money changers (banks) are evil by definition if you believe in the bible.
Eliminate the present banking system of Urury, the noise in the media of lawsuits is what you would call controlled opposition that is bankrolled by the banks. Better to control your opposition to give the impression to the public that they are being controlled, all a show.
Make no mistake the real problem is Ursury. The Govt pays it partner the banking system interest on money it borrows, this is bullshit. THE NEXT PRESIDENT SHOULD ELIMINATE THE FEDERAL RESERVE, AND THE US GOVT SHOULD PRINT MONEY ACCORDING TO ASSET BASED SPENDING NOT DEBT BASED SPENDING. WHICH OF THE CANDIDATES INCLUDING THE PRESIDENT WILL DO THIS. I WOULD VOTE FOR THAT CANDIDATE, ALL OTHERS ARE BOOTLICKERS TO THE BANKS.
http://online.wsj.com/article/SB10001424053111903895904576542703587784540.html?mod=WSJ_hp_LEFTTopStories#articleTabs%3Dvideo
I would argue that Wall Street banks are not big enough to be the only culprits. The banks should go down, of course, but they are not the only ones who need to answer for their actions. This crisis was a collusion of legislators (who were bought and paid for by the industry), regulators (who were staffed by former members of said Wall Street banks) and the banks themselves. Each level in the pyramid of fraud should be held to account.
It was more ACORN/community organizers/CRA that told the banks to loan to people who could not repay including illegals. Fannie & Freddie with Rahm and Gorelnick set the bomb to blow up for the election in 2008. Fannie & Freddie are a works project filled with hope & change postale workers types. It all blew up, taxpayers bailed it out and now the banks will bail out corrupt fannie and freddie, which should be shut down, and the taxpayers pay again. It is redistribution of wealth to the priviledged class including govt/union workers with the right melanin.
TBTC
too big to control
GS just doing God's work
The banks may be too big to fail but the CEOs are not. They should all be subject to investigation. Too bad the SEC is too busy surfing porn.....sad.
Bottom line. . .double jeopardy will be the final defense, after the feds screw up this prosecution attempt.
The banks as arms of the Federal Government will consolidate to some extent as we saw during the intial phase of the crisis (think Merrill and Wachovia et al) as well as fail (Lehman and Bear). The key though is that shareholder's equity will be wiped out even if the government bails out selected institutions and that will take the stock prices to Zero. I assume that Lord Blankfein will like working for the Post Office. :)
http://www.youtube.com/watch?v=a5NrqqK60OI
this Fiasco needs a commemorative song; sing-a-long with Barney.
follow the bouncing foreclosures...
I prefer Capital (It fails us now)
http://www.youtube.com/watch?v=PgJeTwZjZF0
But for my own self indulgence and reflection on my own state...
http://www.youtube.com/watch?v=WnieMPy1xtM
... paradise, if you could earn it...
Yeah, Dingleberry, I am. Between the two major debt crisis, brought on by poor underwriting and credit analysis, the level of nonperforming debt swamps the banking system in Europe and the US. Because of the sovereign debt crisis on both sides of The Pond, the governments don't have the borrowing capacity to fund bail outs high enough to cover the bad debt. The hedge fund is short by alphabet Bank of America, Barclays, Bank of New York, Citibank, Credit Suisse, GE, Goldman Sachs, HSBC, JP Morgan, Morgan Stanley, UBS, and Wells Fargo. We'll never close the short positions in the fund out as they will all ultimately, over time, resolve as penny stocks. The other half of the fund is in gold and we continue to add to our shorts and long on Euphoria and Pull backs.
Yeah, Dingleberry, I am. Between the two major debt crisis, brought on by poor underwriting and credit analysis, the level of nonperforming debt swamps the banking system in Europe and the US. Because of the sovereign debt crisis on both sides of The Pond, the governments don't have the borrowing capacity to fund bail outs high enough to cover the bad debt. The hedge fund is short by alphabet Bank of America, Barclays, Bank of New York, Citibank, Credit Suisse, GE, Goldman Sachs, HSBC, JP Morgan, Morgan Stanley, UBS, and Wells Fargo. We'll never close the short positions in the fund out as they will all ultimately, over time, resolve as penny stocks. The other half of the fund is in gold and we continue to add to our shorts and long on Euphoria and Pull backs.
Sometimes I get surprised, can someone with a mortgage backround explain to me:
1. in FHFA, their own internal compliance dept contracted advised and reported over -12.7% NON compliance at bank america, over -27% at merrill non compliance underwriting within AAA FNMA guidelines with cumulative first and 2nd mortgages loans CLTV over 100% loan to values, de factor breach of the compliance guidelines as security for the Mortgage conduit.
within 1 year of purchase of the loans / securitized there is a Mandatory buy back provision of loans not meeting guidelines and thrown out of the CMO pool back to wholesaler.
these loans were put back to the wholesaler by law. if not why not?
2. As i remember in 2005-2007 there were no more home loans to fund thru fnma/fhlmc (bottom of barrel was reached.)
All of a sudden 27-40% of loans fnma bought were not subprime
but ALT A loans NO DOC ( stated income no verification or tax returns; Non owner loans speculator new condo construction loans and 2nd houses (which werent fnma) that were not really
subprime, but priced as such, and sold AAA credit, with very high FICO scores 700 + required: with high down payments 15- 20% down on firsts, but speculator non owner occupied loans in Florida, Nevada, Arizona to fund the condo mania real estate boom.
most of these non owner AAA credit high net worth loans, had no recourse, and went under in default as the non owners went
negative equity and walked away (non recourse) ...
as i remember FNMA FHLC frowned on NOO non owner occupied, speculator homes, with limits on 2nd homes rentals as full Doc only.
what happened here?
Florida condos are down 75% suck on that.
Many below what builders sold in 1990 for. Burp. (Itching my ass)
http://www.xtranormal.com/watch/12373724/q-a-w-larry
All this sounds great if you take past sales.. which is how the Corporations earn monies to pay Bonuses / Dividens.. and divide by? now adjust the earned income. is retail going to outperform this year too? LOL!
as for FL Condo Prices.. what do you think the Fannie / Freddie throwbacks are trading at in bulk? how many pennies on the dollar is a hint.
If you are thinking George Perez and Miami for condos? forget it.. the boys have long since carved him into pieces!
But!! FL looks like Heaven compared to California!
Plain and easy to understand english.
Goldman Sachs are corrupt to the core.
why would anyone do biz withGS? heads they win...tails you lose.
personally i would fire any employee who brought me a pitch frm GS.
So, the scenario is Goldman formulating a plan to bilk investors, implementing the plan, putting the profits in the corporate pockets, and then paying a small portion of that profit in fines for having done the wrong thing. Great business plan! The only thing that will stop that process would be some jail time to accompany the fines. Not gonna happen.
And where are these profits coming from? Stupid asshole fat cat investors or from money printed out of thin air by Buffon Bernanke?
Don't forget deals with corrupt government officials that end up fucking the taxpayers up the ass
These banks cannot fail as they are the largest shareholders of the 12 member banks of the Federal Reserve System
Until everyone realises that Bernanke and the Federal Reserve work for their shareholders, the American people deserve to be pillaged
You only have yourselves to blame, so make sure you use your vote wisely
So, how about telling us who is going to be on the ballot that will even try to make real changes?
Lehman
Bear Stearns
These banks cannot fail as they are the largest shareholders of the 12 member banks of the Federal Reserve System
Until everyone realises that Bernanke and the Federal Reserve work for their shareholders, the American people deserve to be pillaged
You only have yourselves to blame, so make sure you use your vote wisely
Josh,
Vote twice, please. I have a vote that's all yours---I never use'em om
They will never fail regardless of how many times the beleagured taxpayer has to forego actual income to keep them afloat.
You win a cigar. And Monica Lewinsky to go with it.
Settlements without admitting guilt. I am going to go with that one.
I run a private hedge fund out of San Francisco that sort of front ran the banking crisis when Citibank broke down technically back in late 2007. The XLF at the time had just hit an all time high and being that we are short selling specialists, we like taking the otherside of obvious trades and everyone was long the banks back then. For full disclosure, we didn't know what was causing the break down then. Since then we've done our homework and set and kept our short positions on in 13 major banks and brokers including Goldman Sachs. Even though now it is fairly well understood by many analysts that Goldman's Fair Market Value is Zero, it is still nonetheless a real pleasure to see the market grind out the BS that the firm has spewed including the double dealings they have had in the MBS markets.
Karma is a real pain and seeing the stock reach it's FMV continues to be a real pleasure since the initial positions were at $174 a share.
BULLETIN: You're a fucking asshole! BAC has so much shit offshore in SIVs, and Citi too! If you don't know this, well, you are a Great Idiot, be thankful for your last paycheck. Suck it Trabeck!
Are you saying Goldman is going to zero? If I live long enough to see that happen, I am throwing the BIGGEST mother fucking block party in the history of all mankind. But I have trouble believing Bernanke will let any more big banks fail after what happened with Lehman, although I can dream....
I would love to see Goldman go to zero and all the current and ex management including Corzine, Rubin, Paulson et al go to gallows set up at Broad & Wall and watch the fvkkers swing from a rope.
This has probably been asked before, but does anyone know why Wells Fargo is not included in the suit?
Because Berkshire/Buffett owns Wells
They signed an agreement to waive the statute of limitations.
Suit comes Tuesday, along with Suntrust, USBank, regions... Why else would KRS be down more that BKX? You fucking asshole, you know jack shit, so shut the fuck up.Buy Gold bitchez! Suck my ass.
Why?
Fuck, pile on? We should pile fuck them in the ass....
Thank You William - I have been wondering about that myself.