The story of former Jefferies MBS trader Jesse Litvak, who is currently on trial in New Haven federal court accused of defrauding investors of $2 million by lying on trades of mortgage-backed securities, is well known to regular readers: it was summarized previously in "We Are Doneski Gorgeous!" - How Bond Trading On Wall Street Really Works [5]. In that article we showed, more than just an isolated case of alleged fraud, that when it comes to OTC trades which do not transact on an exchange but instead take place over the phone between a salesman and a buyer, it is all a game of lies, fraud and misinformation... however one which both it is a game of lies, fraud and misinformation. Today, Mr. Litvak confirmed as much when he said, quoting Bloomberg [6], "My lying is part” of making deals, he said, “although I generally consider myself a truthful person."
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And that, in a nutshell is not only Wall Street, but how Wall Street perceives itself: a business in which "truthful people" must resort to lying - even if that means being sued for fraud - to make a living.
More on this story from Bloomberg [6]:
Litvak, 39, is on trial in New Haven federal court accused of defrauding investors of $2 million by lying on trades of mortgage-backed securities. He’s the only person charged with fraud in connection with an initiative to distribute more than $20 billion from the Troubled Asset Relief Program, which the U.S. government created during the 2008 credit crisis to help bail out banks.
Joel Wollman, a portfolio manager with QVT Financial LP, testified yesterday that he told Litvak that his firm’s limit for a bond purchase was 57 cents on the dollar because anything more than that wouldn’t provide a 10 percent yield.
Under cross-examination from John Hillebrecht, one of Litvak’s attorneys, Wollman admitted he told another broker that he’d get a 10 percent yield at 58 cents on the dollar, and that he wasn’t telling the whole truth to Litvak. The charges against Litvak include claiming that a third party was selling the bonds when Jefferies was the actual holder.
“Volunteering information would not give me an edge, keeping information would give me an edge,” Wollman said.
You want the other guy to believe something that may not be entirely accurate,” Smith asked Lemin, Magnetar’s assets manager. “Isn’t that the case?”
“It is one of the strategies,” Lemin said. “For what I do in mortgages, it is appropriate to use skepticism.” The perception that the other side either withholds information or tells falsehoods “is exactly why I don’t say, ‘How high?’ when they tell me to jump,” Lemin said.
One can only hope that retail consumers, or what little is left of them, will do the same and use "skepticism" in following the rest of the herd right over the cliff as the second dot com bubble, one which has now engulfed the entire market, finally bursts.