Just because Goldman refuses to get it, and wishes to inflict even more pain on itself with more and more public appearances, here is Lloyd on Charlie Rose last night. More of the same: "We did well because we had the disciplined hedging [on housing]."Paraphrase: "Thank you Paulson for letting us steal your idea and have our prop book go $10 billion short two months before HSBC and New Century went tits up. Also thank you for reminding us to short hundreds of millions worth of Bear stock." Also, the amount of money put into Goldman by the government was not important for us. Ok Lloyd, please refund all the $2 billion in CDS profits you made by shorting AIG immediately. And again Lloyd blatantly misrepresents the truth, by saying that doing away with prop trading would only cost the firm 10% of the firm's revenue (so why the massive fight against the Volcker rule?). Forget all this market maker, liquidity provider generic fallback bs and mumbo jumbo. How about some disclosure on just how you classify prop trading Lloyd? Because something tells us that at least 50% of your flow and correlation desk is purely Prop (and certainly serves to bolster prop profits instead of putting clients "first" as we have disclosed about 10 times in the past week alone), as the 901 pages in Goldman discovery make only all too obvious (we will post on that soon). Hey Lloyd, here's an idea - how about instituting P&L stop limits on all your OTC FICC prop trades just like RBS? Oh yes, we'll go there... and in much more detail. Soon.
Eric King reports the breaking news that in a letter obtained by Ted Butler, the DOJ's Antitrust department is considering launching an investigation into silver market manipulation by JP Morgan. Should an announcement of a full formal probe of manipulation by JPM follow, it would be tantamount to a confirmation of what numerous individuals have been claiming over the years, that JP Morgan, the LBMA, the CFTC, various banks, and even that kindly old grandpa who was so much against derivatives except when he was about to lose money as a result of regulation that he is spending the whole weekend telling his investors in Omaha to run, not walk, to Borsheim's, and buy all their massively overpriced trinkets (you can't be a quadrillionaire without first being a trillionaire), are nothing but a borderline criminal cabal that traffics in wealth extraction courtesy of a few monopolist players. As Eric King discloses in its letter the Anti-Trust division announces that "it will carefully consider the issue of silver market manipulation by JP Morgan and other traders. Generally the CFTC investigates these types of market manipulations. However, the suggestion that JPMorgan Chase may be signaling other traders, warrants further analysis. The DOJ will carefully consider the issue you raise, and you can be assured that if we conclude that silver traders have engaged in anti-competitive conduct, we will take appropriate enforcement action."
The leaders of our industry have poured gasoline on the banking crisis and accelerated it completely out of control. It has gotten to the point where legislators and regulators seem to be doing their best to burn the industry down to the ground to rid it of the evils that caused the crisis in the first place. I put this squarely at the feet of our industry's leaders. They ignored common sense, signs, hints, nudges and flat out requests to curb their risk taking to the point where governments now are proposing rules that not only will force institutional break-ups and hurt our industry, but that very well may cripple the capital formulation engine Main Street needs to generate jobs. Talk about cutting off our proverbial nose to spite our face. All that our industry leaders needed to do was come together, highlight the major gaps that led to the subprime crisis and come up with a solution to solve the most egregious issues. Yes -- in order to keep the industry whole and the world sane, some profitable business would need to be eliminated, sacred cows slaughtered and sacrifices made to appease government leaders and stop the gathering hordes from marching down the Street with torches and pitchforks. - Larry Tabb, founder and CEO, TABB Group
Well it seems that at last Europe is embracing currency debasement, unless the parliament decides on a final insult to injury and turn down the package proposed by the ECB/IMF French dynamic duo Trichet/DSK. The choice was slim with contagion raging. No help means an inevitable downgrade by Fitch of Greece (at 20% 2Y borrowing rates like we saw this morning refinancing is impossible, there is no way out) which in turn renders Greek bonds inelligible for repo at the ECB facility. Who are the holder of Greek bonds? European banks of course, especially French ones. Then obviously the same happens for Portugal, Spain, and the entire banking system in Europe collapses. - Nic Lenoir
Recently the general public had the unpleasant experience of seeing what the real face of Warren Buffett looks like when it comes to derivative reform: a man ready to maim and kill to prevent even a minor loss when it involves controlling what he previously called "weapons of financial mass destruction." Sigh - yet another another hypocrite unmasked. However the battle over derivatives is just beginning. As the attached presentation from erdesk.com indicates, the big banks are not about to let a $55 billion annual revenue stream go away without a massive fight. And despite what Blanche Lincoln thinks, with Financial Reform suddenly stalling hopelessly in yet another indication that Chris Dodd's many years of robbing the middle class blind need to end yesterday, derivatives are not going anywhere in a hurry: with $11 billion in IR, $22 billion in FX, $10 billion in Credit, $10.5 billion in commodities and $1.5 billion in mortgages, most of it split between Goldman, DB, CS, MS and JPM, for anyone to think that the firms who run the world will cede such a core part of their business to the exchanges is naivete defined. We recommend the attached simplified overview to anyone who has a passing interest in not only the fascinating $600+ trillion world of OTC derivatives but of ongoing (futile) attempts to reform it.
Now we know why BRK, CAT and the other big corporates came oozing out of the woodwork last year to defend the OTC derivatives market. JPMorgan (JPM), Goldman Sachs (GS) and the other OTC dealers let Warren Buffett's Berkshire Hathaway (BRK) and the other "AAA" corporates play at the roulette table w/o any chips. Isn't this the man who called OTC derivatives weapons of mass destruction?
The rush for money debasement around the world has escaped nobody's attention, and as a result the one undilutable commodity (unless everyone demands physical delivery at the same time) gold has seen investors around the world scramble to get their hands on the commodity, either in physical form or via ETFs. The World Gold Council has released its Q1 2010 update, according to which "Investors bought 5.6 net tonnes of gold via exchange traded funds (ETFs) in Q1 2010." This has brought the total amount of gold in monitored ETFs hit a new record of 1,768 tonnes ($63.4 billion worth of the shiny metal). Some more on the unquenchable demand for gold: "GFMS reports that the over-the-counter market saw a moderate increase in net demand during the first quarter. Meanwhile, previously existing long positions have generally continued to be very firmly held. Net long positions on gold futures contracts, a proxy for the more speculative investment, fell from the highs experienced in Q4 2009, but they remain high by historical standards." Despite the persistently high price of gold, and despite the strength of the dollar over the past quarter, demand for gold is not going away.
Interest rate derivatives certainly help many individual businesses control and hedge their costs.
But when a bunch of individuals all attempt to reduce their risks at the same time in the same way, it can increase the risk to the overall system.
A second whistleblower speaks. As the topic of physical delivery has gained prominent attention recently, it is crucial to complete the circle and show how this weakest link in the PM market is (ab)used by the big boys: Phibro and Warren Buffet. Pay particular attention to the analogues between the methods employed in the 90's commodity market and how the PM (and equity) market is being gamed currently. And to think that each new generation of traders believes it has discovered something new...
CPM's Jeffrey Christian opens his mouth (again), tries to defend his recent "foot in the mouth" acrobatics, hilarity ensues. To wit: "I've worked with major banks and these guys are incredibly conservative, risk averse people. Banks make their money at the margin. They borrow from so and so at 75 bps and they lend it out at 85 bps. They've made a tenth of a percent and they are very happy." The real punchline - according to his bio, the only major bank he has worked at, is Goldman Sachs.
Banks are busted, all of the big guys were doing the Lehman thing, and it gets worse. I take a look under the hood of the big boys to see what they were hiding. On a side note, as I type this the story is breaking all over the place. Is this the return of true, investigative reporting? I hope so!
Dudley talks theory, avoids practice, when discussing the driving force behind today's market - the biggest asset bubble reflation in history. Although to be fair, Dudley does destroy the concept of efficient markets and notes that when we enter the irrational exuberance everyone piles on the same side of the trade, only to realize there is nobody to sell to when the bubble pops. Dudley says nothing to indicate that Fed pundits are anything beyond theoretical puppets of Wall Street, whose sole purpose is to reflate the market to the highest possible point before recent events catch up with Wall Street surreality. And we quote, courtesy of Geoffrey Batt: state of emergency in Thailand, Kyrgyzstan and parts of South Africa, increasing violence in Iraq and Pakistan, bombing in India, multiple bombings in Russia, imminent Greek default, talk of Iran invasion, Karzai claiming he may join the Taliban, South Korean ship attacked and destroyed, Israel considering using nukes as a preemptive weapon, UK elections, massive banker backlash, and so much more. Yet all investors care about is whether the iPad's WiFi can penetrate 1 inch of drywall (ignoring that by buying apple shares, they are selling life insurance on Steve Jobs), and whether everyone can pretend just long enough that there is nothing moving this market but excess liquidity, before it all unravels with the 1% of the population that has profitted the most long taken profits and relaxing on a beach in a non-extradition Pacific island.
Commerzbank Pulling Greek Repos, Lehman Deja Vu As Greece Shifts To Full Blown Liquidity Crisis ModeSubmitted by Tyler Durden on 04/07/2010 11:04 -0400
And so the Greek funding crisis shifts to a liquidity crisis yet again. Bankingnews.gr reports that Commerzbank, among many others, is now pulling its repos with Greek banks, essentially killing liquidity in the entire financial system. Cue Lehman Brothers and Sunday CDS trading. At least it's not Friday so OTC traders don't have to worry they will be pulled from their Hamptons retreat. The Greek website is reporting that according to sources, Commerzbank which is one of the biggest repo counterparties to Greek institutions, was dumping bonds in yesterday's sell off. Not only that, but it is now pulling repos, in essence starting a cascade of asset liquidation, in which banks, already experiencing a depositor run, will be forced to sell assets at any prices they can get just to fund their operations for one extra day.
“We Are in a Cabal... Five or Six Players ... Own the Regulatory Apparatus. Everybody Is Afraid to Regulate Them"Submitted by George Washington on 04/01/2010 20:59 -0400
I'm not against derivatives - including credit default swaps. But keeping them secret and hidden is a recipe for disaster ...
When we put up a link to last week's CFTC hearing webcast little did we know that it would end up being the veritable (physical) gold mine (no pun intended) of information about what really transpires in the commodities market. First, we obtained direct evidence from Andrew Maguire (who may or may not have been the target of an attempt at "bodily harm" as reported yesterday) of extensive manipulation in the silver market. Today, Adrian Douglas, director of GATA, adds to the mountain of evidence that the commodities market, and the CFTC, stand behind what is potentially the biggest market manipulation scheme in the history of capital markets (we are assuming for the time being that all allegations of the Fed manipulating the broader equity and credit markets are completely baseless). Using the testimony of a clueless Jeffrey Christian, formerly a staffer at the Commodities Research Group in the Goldman Sachs Investment Research Department and now head and founder of the CPM Group, Douglas confirms that the "LBMA trades over 100 times the amount of gold it actually has to back the trades."
Christian, who describes himself as "one of the world’s foremost authorities on the markets for precious metals" yet, in the words of Gary Gensler, said "that the bullion banks had large shorts to hedge themselves selling elsewhere- how do you short something to cover a sale, I didn’t quite follow that?" and proves that current and former Goldman bankers are some of the most arrogant people alive, assuming that everyone else is an idiot and will buy whatever explanation is presented just because the CV says Goldman Sachs. Yet Christian confirms that the gold market is basically a ponzi: "in the “physical market” as the market uses that term, there is much more metal than that…there is a hundred times what there is." And there you have it: as Douglas eloquently summarizes: "the giant Ponzi trading of gold ledger entries can be sustained only if there is never a liquidity crisis in the REAL physical market. If someone asks for gold and there isn’t any the default would trigger the biggest “bank run” and default in history. This is, of course, why the Central Banks lease their gold or sell it outright to the bullion banks when they are squeezed by high demand for REAL physical gold that can not be met from their own stocks" and concludes "Almost every day we hear of a new financial fraud that has been exposed. The gold and silver market fraud is likely to be bigger than all of them. Investors in their droves, who have purchased gold in good faith in “unallocated accounts”, are going to demand delivery of their metal. They will then discover that there is only one ounce for every one hundred ounces claimed. They will find out they are “unsecured creditors”.