Dancing with the Devil: A Breach of Trust

Yet again, the Golden Child of Wall St. is revealed as a fox in sheep’s clothing.
I was engaged in a debate about the role Goldman Sachs may have played in the downfall of Greece’s economy with a relative (through marriage) who migrated from Greece to the United States when she was 10. My research on the near collapse of the US financial market clearly points to the gradual deregulation and the unethical banking practices. There are a number of factors that contributed to the fiscal crisis, particularly the securitization of subprime Housing Loans, re-packaged and sold Globally as “A” rated paper. Regardless of the fact that the underlying debt was “C” rated, banks had the audacity to sell the mortgage-backed securities as “A” rated, low risk bonds. Of course, we can’t ignore the rampant Securities and Banking fraud, which generated hundreds of charges and investigations by the SEC against Banks and Hedge Funds.
I’ve written numerous articles about the Euro crisis. Like many economists, I believe the U.S. fiscal crisis precipitated the downward spiral of a number of EU members. This is mainly because of large quantities of foreign investment in U.S. Housing securities, which went sour. Much to my surprise, in the process of gathering data surrounding the global crisis, I learned that EU members; Greece, Italy, Spain and France, carried out non-transparent, accounting practices for over a decade. No doubt the high debt ratios hidden by accounting loop-holes would have eventually brought the weakest EU members to fiscal ruin at some point anyway.Although, our financial calamity accelerated the timeline of the reveal. America's financial troubles was the equivalent of lighter fluid, igniting the masked problems of the EU’s weakest links.

Apparently the Greek-American community seem to have a different slant on how Greece's economy found itself engulfed in a fiscal and political battle for stability. The lack of transparency and debt-to-revenue ratio was certainly taking its toll on the weakest EU members. This was made worse when changing leadership was blind-sighted by the urgency of country’s debt portfolio – particularly the derivative-structured debt owed to Goldman Sachs. When the housing market collapsed, interest rates increased, drastically increasing the debt service on the Goldman/Sardelis deal
My Greek-American in-law (who shall remain nameless), vehemently contends that Goldman Sachs is the monster that brought her beloved country to its knees. This is hardly the case, since Greece's debt was already 127% of its GDP by 2009. Also, by that time, Greece was seeking a bailout for over 300 billion Euros. Nevertheless, She was referring to a secret transaction between Goldman and the Managing Director of Public Debt Management Agency (Christoforos Sardelis), back in 2001, where a masked loan of $2.8 billion Euros was signed, sealed and delivered. Executed completely under the radar. The loan, which was thought to be earmarked for the preparation of hosting the 2004 Olympics, was later revealed not to be the case. Although I admit, the unholy alliance with Goldman was a financial set back, it was not the smoking gun.

The under-the-radar transaction executed by Sardelis and Goldman was a Currency Swap. Given the variable rate structure, there was mounting debt service, as interest rates increased, making it difficult for Greece to contain. I appears that Greece’s Debt Management Agency didn’t thoroughly analyze the deal to determine the long-term impact of this type of debt structure for Greece, given their compromised economy. A simple “what if” analysis would have helped them to analyze the impact of increasing interest rates. The Currency Swap transaction belongs to the derivative family, which are always complicated to quantify or analyze given the fluctuating market, currency and structure. These are highly risky transactions, and certainly not recommended for unstable municipalities suffering from high debt, declining GDP, and 25% unemployment.

The secret deal between Sardelis and Goldman could be classified as irresponsible given the size of the debt, and the fact that it was tied to fluctuating interest rates. The operative word being, “fluctuating”. Regardless of Sardelis’ good intentions, “it takes two to tango”. Therefore, Sardelis is equally at fault. My Greek-American in-law may be reluctant to accept it, but the blame has to be shared.

Since 2010, when I initially started writing about the Euro crisis, I learned that Sardelis was motivated by the Maastricht Treaty, requiring all EU members to show “improvement” in their public finances. This Goldman swap was a "dance with the devil" and simply a desperate attempt to “hide” the debt from the country’s books to comply with the Maastricht Treaty. These swaps were one of several techniques that European governments used to meet the terms of the treaty. There were certainly alternatives techniques available, so why did Goldman push this particular structure? Whatever the case, Sardelis was out of his element, and out smarted by his trusted Bankers. It was reported in the Wall St. journal that Goldman served up fictitious, historical exchange rates for the transaction, which earned them $760 million in U.S. fees.

Attemps to Implement Austerity Measures Lead to Violent Protests.

By the time Spyros Papanicolaou took over the Public Debt Management Agency in 2005, the loan had ballooned to over 5 billion Euros. Given the role that Goldman played in the fiscal unraveling of the housing market, which sent trimmers across the globe, you would think that their CEO, Blankfein, would consider a forgiveness of some portion of the debt. Goldman and Papanicolaou did get around to restructuring the debt, but I’d be willing to bet there was no forgiveness of debt.

Goldman Sachs may soon be faced with a public image dilemma, but until then I supposed they’ll continue to carryout their Mission to squeeze clients for every possible dollar.

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Romney’s Victory Website: And The Ugly Truth About Politics

It appears that Mitt Romney and his GOP “posse” had a Vision that the Election was going to yield a landslide victory! Although they could not have been more wrong, their arrogance was palpable. I am sure by now you’ve heard reports about Mitt Romney admitting that he only wrote a Victory speech. That is more than positive thinking, that is sheer arrogance (and not the most attractive trait in a candidate). Fox news, and other conservative media outlets had pre-election panels, and Election-day panel discussions, that harshly laid out reasons why Democrats, and Obama, will be shown the door. During the early afternoon on November 6th, the conservative news anchors and pundits entertained themselves by predicting what the Romney Cabinet would resemble. Who are the likely candidates for the Romney Administration, and who would be passed over for one reason or another. It was not unlike pre-Super Bowl chatter, only this game will impact the entire country, and the world. As the day progressed, the conservative political analysts were confident and excited.

There seem to be such utter certainty, that I was startled by it. It was like being in an alternate world, chiefly because I couldn't see how one-plus-one could equal four. It appeared that Fox News, and conservative Talk Radio, converted simple math (adding likely Romney votes) into an algebraic equation....and it all made sense to THEM. Looking at the issues influencing voters, which bore out to be true, I took note of the following issues:

 Women in America want the right to choose what goes on with their bodies, and don’t appreciate being referred to as “Binders of women”
 Latinos are concerned about immigration laws that impact their children and families.
 FEMA should be left alone; States and local governments, and citizens need financial help after Natural Disasters .
 A sizable portion of the “47%”, Romney wrote off, were retired, or veterans who have paid a lifetime of taxes, or risks their lives fighting for this Country. They’ve earned the right to Social Security, and other government programs
 Auto Makers, their 181,000 auto workers and their families were happy that Obama didn’t take Romney’s advice to “let them go bankrupt”
 Gays are passionate about having heir marriage legally recognized, giving them the same rights as heterosexual married couples.
 Youth votes are more likely to vote for Democrat, given the “Occupy Wall Street” movement, which blames the wealthiest 1 %, and the Bush Administration for the economic and fiscal crisis

The above political and social issues can be translated to a simple addition problem. Accordingly, the 7 bullet points could be treated as an aggregate of votes away from the republican candidate, Mitt Romney. Although the slow economy and high unemployment were working against Obama, as long as the turnout were as strong, or better than 2008, he had a good chance of winning re-election.

So why then, were the Republicans and Carl Rove so vehemently certain that Romney would be elected the 45th President of the United States? To the extent that he had his Victory Website rolled out early Thursday morning?

Perhaps this tidbit of information will provide a clue: Shortly after Obama’s stunning victory, I read a disturbing article that attempted to explain a complicated web of investment companies and venture capital that involved Mitt Romney’s son, Tagg Romney. In a nutshell, Tagg Romney owns the company that invested in the company that bought a controlling interest in a Voting Machine Vendor. What? I was so shocked, that it took the wind out of me. What this amounts to is so incredibly unethical, I can’t help but to think of Watergate. So, that explains the why the Romney camp felt so sure they would be moving into the White House. This is unfathomable and beyond a mere “conflict of interest” issue. This also explains why several concerned voters released video tapes the rigged voting machines they encountered, and posted it on YouTube. One male Caucasian Voter illustrated that when he chose Obama for President, a check would appear next to Mitt Romney’s name. He tried it multiple times, and eventually left that booth. He did not indicate who he ultimately voted for, but stated that he just wanted to report a “strange” occurrence.

Provided below is just one of the "Rigged Voting Booth" videos.

The combination of the Tagg Romney’s secret ownership of a voting machine company, and the YouTube videos of rigged voting machines is too much of a coincidence. I also believe that if this Article was misstating the facts, there would have been a lot of noise and defamation claims coming from the GOP or the Romney camp. Instead there is silence - as if the planned strategy was not to respond, so that the issue would quickly go away. I am almost certain that the Obama Administration is too busy to pursue the matter, especially since the stolen votes did not help them achieve their goal. The outcome of the this election, begs the questions: If Nixon hadn't won the election, would the Watergate break-in become the scandal that rocked Capital Hill - to destroy Nixon's political career? Given the lack of attention drawn to the Rigged Voting Machines connected to Tagg's Venure Capital Company, I can't help but wonder if Watergate would have become one of the biggest scandals in America's political history, if Nixon did not get Elected? Whatever the case, politics is left with a black eye, as democracy stumles on.

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Financial Fraud Strikes Again

Haven't we had enough of financial scandals? Of course not, here we go again. This time it is with a boutique futures trading broker - Peregrine Financial Group, also known as P.F.G.. On July 9, 2012, the National Futures Association (NFA) - the industry wide, self-regulatory organization for the U.S. futures industry, made an inquiry with U.S. Bank and learned that out of the $225 million in customer segregated funds that P.F.G. had reported to the NFA as being on deposit at the Bank just days earlier, only approximately $5 million was actually on deposit. The NFA also learned that, although P.F.G. submitted confirmations that U.S. Bank account balances as of February 2010 and March 2011, were reported to be approximately $207 million and $218 million, respectively, P.F.G.'s actual balances were less than $10 million for each one of these months.

On top of the reported financial fraud, a day earlier, the chairman and chief executive, Russell Wasendorf Sr., tried to commit suicide outside of the firm’s offices in Cedar Falls, Iowa .The Federal Bureau of Investigation is investigating the matter, according to a spokeswoman for the Omaha office, Sandy Breault. Ms. Breault indicated that the Chicago office of the agency might also get involved.

The Commodity Futures Trading Commission (C.F.T.C.) is seeking a restraining order against P.F.G., to prevent the destruction of any information that may be needed in the course of the investigation. The C.F.T.C. is also asking a federal court to appoint a receiver for the firm and freeze its assets.

This feels a lot like a curtain call for MF Global, where $1.6 Billion is still missing. (refer to a prior article in this blog for more information about MF Global). Similarly in this case, as the complaint states: “P.F.G. and Wasendorf have used customer funds for purposes other than those intended by its customers, and consequently, have misappropriated these funds”. “The whereabouts of the funds is currently unknown".

Needless to say, the operations of the firm have been halted. Unfotunately, I am one the many victims. For two years, I was an active futures trader with the company which offered  proprietary trading platforms to small retail customers like myself with unique and robust features that were not available from other brokerage houses. Although it has been several years since I day traded, due to time constraints, I still kept a funded account with P.F.G.. I contacted the NFA today and registered my name as an account holder. I urge all others affected to do the same. It may not amount to much but at least it is better to take some kind of action and to make your voice heard.

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C. Cohn
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To Be or Not To Be: EU Shows signs of cracking

Twenty years ago, when the idea was circulating about a unified currency in Europe, it seemed like such a brilliant concept, based upon sound economic and political arguments. Today, it almost seems like an impossible dream. Landon Thomas of the New York Times asks in his article "Can they muster the will and resources to keep the euro zone from breaking apart?

As the world looks on, and markets take defensive positions, the Euro crisis unfolds like the climax of a mystery novel. Greece's dramatic elections - where the people ousted Sarkozy, opting for an unlikely candidate, François Holland. The outcome of the election was a clear sign that the people were not ready for the strict austerity measures needed to turn their economy around. Bailout alone was not going to save Greece, it was only expected to buy them time to pull their policies, and fiscal plan together. The political and civil unrest in Greece, gave little hope for a turnaround. Instead the notion of Greece leaving the European Union resurfaced with somber overtones of reality.

By the end of May, Spain had decided to pump 19 billion Euros into its struggling Lender, Bankia, SA, as a strategy to illustrate stability, and quell any notion that the crisis continues for its financial sector, in light of Greece's downward slide. This is a prop-up strategy that is effective in influencing perception, which is crucial in the realm of investors and financial markets. The US equivalent of $24 billion, was a rich injection that is twice the amount Spain spent in the recent past to straighten out the banking sector during US housing market collapse - causing a global rippling affect. Spain is swiftly reacting to mitigate a repeat of the fiscal mayhem stemming from billions of dollars lost in toxic mortgage-backed securities.

Meanwhile, two weeks ago, S&P downgraded Bankia, and several other Spanish Banks, causing worldwide concern. The rating agency made matters worse by painting a gloomy near-term forecast for the region, citing their belief that Spain is heading toward a double dip recession. S&P also noted that there was a reasonable expectation of an increase in troubled assets. On the heels of Frances downgrade, and Spain’s fiscal concerns, the question becomes, was this unified currency such a sound economic and political move in the first place. Friday, the DOW closed 300 points lower, illustrating investor sensitivity to the Euro Crisis - although, it should be noted that market anxiety was further stimulated by the soft jobs report.

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K Reilly
The Cohn-Reilly Report
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BFF: Ballad of the Facebook Fiasco

Countless individual investors, and some intrigued "average Joes" thought that the Facebook IPO was going to be the atom bomb of Silicon Valley. The Golden Egg of the privately held tech companies, and its fearless leader, Zuckerberg, was sure to deliver. As the highly anticipated IPO jettisoned into history, as being the most anticipated offering of the millennium - I too thought FACEBOOK would be the IPO not to be missed. "get in now", I thought, "or you will regret it". Of course, I truly expected that the offering would be priced in the mid-teens, $13 or $15 per share. At the very least, it would be priced at a level commensurate with the "value", of a company that has no PRODUCT, who depends solely on Advertising. Advertising as a revenue source is not at all bad, but when you take into consideration that revenue growth on an ongoing basis would mean continued popularity, increased memberships and usage. Now, therein lays the rub. Allow me to offer MySpace into evidence, as how quickly a popular "hang out" can just as quickly shift into decline. MySpace, which was somewhat of a pioneer, is now valued at approximately $1 million, and struggling to stay relevant. That said, the pricing geniuses at Morgan Stanley had to be confusing FB stock with a commodity; you know... one of those limited resources that the world could not do without. How else would you explain a $38 opening price.

When a new popular issue is priced in the teens, it has no place to go but up. Sure it would fluctuate during the course of the day, but normally it would wind up quite a bit higher than the initial price. On the other hand, if you come into the market at $38, you are already at a premium, there is no place to go but down. Of course the speculation as to why the issue was priced so high, created underlying tension and uncertainty. By the end of the following day, reports of unethical matters surrounding the handling of the new issue began to surface. What a Fiasco this turned out to be! A sad, and bitter reality hit as news broke of possible insider trading. It is alleged that the lead bankers handling the FACEBOOK account at Morgan Stanley had tipped off their clients with confidential information. This information was in essence a warning not to purchase the stock at the opening price. Was this a setup, designed specifically to make million on the short sale of Facebook shares. An article in Business Insider reported that Morgan Stanley provided a select few classified information about FACEBOOK's weaker than expected forecast. Within 48 hours, news circulated of an SEC and FINRA investigation into what really happened. Whatever the case, Finance Reform obviously didn't go far enough.

Selective dissemination of "material" information concerning a cut in forecast estimates for the company would cause institutions to lose interest, which generated investor uncertainty among the small investors who weren't privy to this insider information. From the savvy individual investors, down to the average Joes jumping in to get a piece of the Facebook pie, this scandal put investors at an unfair disadvantage. The whole matter created a unprecedented IPO fiasco, leading to untold losses, and a decline of market confidence, which we could have done with out.

Adding insult to injury, Nasdaq had a fair share of technical problems which only added to the mayhem. Thousands of trades were stuck in limbo for individual investors. This may actually be a blessing, giving them the opportunity to either pick up shares at a steep discount, or back out completely. Ultimately, FB shares ended up about 30% lower than its initial price, with occasional ticks upward and downward. We're not likely to see stability in this stock price until the dark cloud of confusion is lifted, legally or otherwise.

My plans to purchase a hand full of shares immediately fizzled when I heard the price. A conversation with a few hopelessly optimistic friends convinced me that I should go ahead and pick up a couple shares just to be a part of the historic IPO. I never expected it would become the Fiasco of the decade.

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The Price of Deception: Settlement for Mortagage Underwriters Finalized

The Price of Deception: Settlement for Mortagage Underwriters Finalized
The big 5 mortgage services are forced to finally face music. In the past several months banks and underwriters were preparing to sign off on the highly anticipated settlement. As Attorney Generals nationwaide descended upon Washington to iron out the details of the settlement last month, industry analyst were left to speculate. We've reported about the widespread abuses in the mortgage industry, which culminated in thousands of forclosures being thrown out of court or temporarily halted. The housing industry which is the last of the economic indicators to show signs of a turnaround, is believed to be the catalyst for the financial callapse of 2008. As the rest of the financial markets began a massive melt-down, the foreclose rate was an an average of 45% nationwide by 2009. The Obama administration tried its best to stop the bleeding with several homeowner assistance programs, but it appeared the abuses had taken its toll on the market. It simply had to run its course.
It was later realized that many of the mortgage documents were not filled out properly, (leaving a questions as to what loan provider was attached to which property). This prompted intensified scrutiny, leading to a long over due investigation. During the investigation a freeze was placed on all foreclosures allowing homeowners to stay put for while until the matter was thoroughly reviewed. The implosion of the housing market slowly revealed a myriad of issues that involved abuse, fraud and deception, causing massive declines in property values. The term upside-down mortgages was commonly used to describe the steep depreciation property values that sank below the underlying mortagage owed. Later, the proliferation of foreclosures uncovered the ROBO signing scandal (mentioned above) involving, forged signatures and flawed paperwork which precipitated unfounded evictions. Imagine the devastation of homeowners being forced out of their homes, only to find it was due to erroneous paperwork.

An effort to correct the abusive behavior illustrated by the mortgage lenders and banks has finally come to a head. The "pow wow" of federal officials and attorney generals from all 50 states resulted in an outline of the terms of the settlement. Mortgage Servicers were bracing for a multi-billion dollar hit, which was announced yesterday (February.9th). The settlement is said to be a painful $25 billion in penalties and fines. News had circulated in December that there are a few sticking points in the deal, which was met with disapproval from a few of the Attorney Generals, namely Eric Schneiderman of New York.
The Obama Aministration was pushing to have the deal signed and sealed before the State of the Union Address, but that was a long shot. Surprisingly, he made no mention of it in his speech. Industry analysts and experts correctly speculated that fines would be around $25 billion, but were unclear as to the specifics of the homeowner assistance programs. I've been anxious to see the details of the settlement doe myself. Some aspects of the settlement will include limited aid from banks to overwhelmed homeowners, by reducing their loan principle. We can expect to see structured Principle Forgiveness programs, which will apply to a small number of mortgages that are wholely-owned by the banks, while Bank refinancings will be another form of aid to home owners.
The housing market woes of the past three years have eroded bank share prices and caused immeasurable blows to their reputation and goodwill. Trust and confidence of the public in Banks may be a thing of the past.


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K Reilly
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Crimes & Misdemeanors: FBI Closes in on Large Wall St. Funds

The FBI has arrested key members of a ring woking out of several states, including New York. Similar to the Galleon Group, these guys traded information concerning publicly traded companies in an apparent conspiracy to commit insider trading fraud. This ring was so productive, they were able to generate financial gains that rival the Galleon Hedge fund, who's founder recently received an 11 year sentence for insider trading. One of the hedge funds involved, Level Global Investors, raked in over $50 million in gains alone. The court documents state that a ring of traders and analysts, who formed an insider trading club, swapped information that resulted in over $60 millions in illegal profits.

As the voices of "Occupy Wall Street" draw attention to the stark imbalances of the privileged 1%, the fraud saga continues. According to the , Wall Street Journal the government has already prosecuted 63 people on charges of insider trading, yielding 56 guilty pleas or convictions. This marks an unprecedented number of cases procsecuted concerning insider trading in a three year period. Judging by this unrelenting onslought of crimes and Misdemeanors, it would appear that the Finance Reform Act is about as valuable as wall paper. That is not to demean the efforts of law makers or the Obama Administration, its merely a commentary on the industry's commitment to an "any means necessary" approach to capitalism. The only consolation is that the Feds and the SEC seem to be paying closer attention to the activities and trade patterns of hedge funds and other financial institutions that engage in trading. There's fresh optimism about the economic forecast, as job reports and other market indicators send a strong message of recovery. Neverthless, with the reluctance traders, money managers and banks to change their habits to avoid a repeat of a financial collapse, sends another message altogether: They still don't get it, and its likely that they never will.

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Corzine's Blind Ambition: In case of Emergency, Break Glass

MF Global Files for Bankruptcy, Corzine resigns and turns down a $12 million severance pay. Wall Street analysts already knew how over-loaded the company was with Euro debt, so it was not a surprise outcome, by any means. However, as the story began to unfold and the facts surrounding the collapse started to unravel, suspicion grew about the probability of foul play. There were more questions than answers, and that's always a red flag. Once customer funds were discovered missing, and an SEC investigation revealed that a large sum of money was transferred into an account overseas, just two days before MF Global filed for bankruptcy, it was clear that something was terribly wrong here.

For the second time in December, Jon Corzine, former head of the now defunct MF Global, met with the senate to further explain his involvement with the missing customer funds. This time, he was accompanied by two MF Global executives, COO, Bradley Abelow and CFO, Henri Steenkamp, who also claimed to know nothing about the money. I find this very curious, since most brokerage firms have policies in place that limit check writing and transfer-of-money authority to upper management, with additional authorization from the CFO, or Treasurer in his or her absence. The Senate hearing did not turn up anything that would satisfy investigators or investors. Nevertheless frustrated Farmers (primary investors in land commodities) were able to voice their disdain for MF Global, and one in particular was quoted as saying "What they call 'unlawful comingling' on Wall Street is called 'stealing' back on Main Street,"

Jon Corzine admitted that there was a "break glass" contingency plan in place, but did not disclose the details of the emergency plan. After questions intensified, he denied that raiding the customer funds was one of the recommendations in the emergency plan. According to Corzine, he did not know what happened to the money, and proclaims that he did not direct anyone to misuse customer funds. Corzine tried his best to convince the Senate Agricultural Committee that he did not "intend" to break any rules concerning the handling of customer funds, with respect to keeping customer funds segregated from the firm's money. This is reference to the requirement of all commodities and futures trading firms to segregate customer funds from company money. According to the CMEgroup.com, (Watchdog for Commodities and Futures Industry) segregating the funds protects investors in the event of defaults or bankruptcy. This regulation has a major advantage for investors, because when a company files for bankruptcy (as in the case of MF Global) , investors are last on the list, behind creditors, to see any of their money - particularly because it's next to impossible to identify how much of the company's assets belongs to the customers. Segregated funds facilitate the process of identifying which accounts belong to investors, thus investors will be able to recoup their funds without much delay. Apparently the "Segregation of Funds" regulation was not practiced at MF Global. Corzine went so far as to explain that perhaps an employee misinterpreted his instructions in an effort to try to save the company. The former CEO conveyed to the Senate subcommittee that he was not aware of any problem with segregated funds until October 30th, the day before they filed for bankruptcy.

In a new twist to this already redundant story of fraud, greed and entitlement, the Federal Authorities investigating the collapse of MF Global are now turning their attention toward one of the Wall Street watchdogs. Since MF Global was a Commodities brokerage firm, their primary regulator should have been the CME Group. The Commodities Futures and Exchange Commission is leading the investigation to examine CME's conduct before MF Global filed for bankruptcy protection. If the CME Group is the commodities regulator safeguarding customer’s money, what were they doing instead?

The downfall of MF Global (and Corzine’s career) is yet another display of Wall Street greed and deception. The bottom line is, Corzine should be held accountable regardless of whether or not he "directed" anyone to move funds. In his effort to exonerate an employee, he painted a vivid picture of the company culture. The firm's inattention to compliance, without regard for their customers" protection is inexcusable. As I've stated previously in an article concerning Corzine and MF Global, the fact that he turned down the severance pay is almost an admission of guilt for some aspect of the company's downfall. I’ll continue watching this case closely to see where the investigation of the CME Group and the search for the missing $1.2 billion leads. Fortunately, the Wall Street Journal reported that the judge overseeing the bankruptcy case has approved $4.1 billion to be returned to the customers, of which $2.2 billion in frozen customer accounts will be released.

Cohn-Reilly Report posted an article about the obvious under story of misguided ambitions of Jon Corzine, prior to the reports of mission funds. Corzine’s blind Ambition

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K. Reilly
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$700 Million Bank Heist: SEC Investigates Citibank

Did Citbank swipe $700 million from investors? Well according to an SEC filing, which alleges that Citibank sold securitized housing bonds, which they knew were sub-standard, and bet against them, something is definitely amiss. It’s easy to see why Banks are no longer seen as a safe place to invest your money, as a depositor or shareholder.

Citibank, being charged with fraud, is fighting the charges, but Recommended settlement of $285 million is likely going to stick. The SEC asked a federal judge to approve the amount, citing that $285 million would not unfairly punish the shareholders, who were essentially victims of the bank's unethical acts. Of the $285 million, the settlement breaks down as follows: $95 million is the fine, $160 million in for ill-gotten profits and $30 million in interest. We're about 18 months post signing of the Finance Reform Bill, and we're still unraveling the spoils of unbridled greed.

The national Occupy Wall Street Protest was founded on just this type of offensive conduct. I had a feeling that the near collapse of our financial markets in 2008 was the tip of the iceberg, and so far it has proven to be true.

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K.Reilly
The Cohn-Reilly Report

Job Stability & Economic Recovery May be a Long Way Away

The economic uncertainly is beginning to take root, and override any hope we may have had for a full economic recovery. Consumer confidence is at its lowest levels in two years, while corporations sit on their cash. The global financial discord is helping to fuel the fluctuating uncertainly. For the most part, the fiscal and monetary policies implemented to stimulate the economy have been lack luster. The high priced stimulus packages have fizzled out, amounting to inadequate results. What the average American doesn’t know is that these same programs would have worked famously under different economic circumstances.

The Financial crisis in the US and around the world, is far deeper than first realized. Neither the Bush Administration nor the Obama Administration were prepared for what we are facing today. The republicans can use the market fears and crawling economy for their political gain, but I dare say that NO Chief Executive in the white house, Democrat, or Republican, Black or White, would have gotten the U.S. economy moving any faster. What’s worse is that none of the world leaders appear to be willing to admit to their constituents or the world how bad finances are in their country. If the world leaders are not being completely transparent about the extent of their country’s fiscal troubles, we may never really know the depth of the financial crisis, or the optimal approach to repairing it.

Many of the economic indicators appear to be slightly off kilter, and the market seems disconnected to what's going on - particularly when you consider that corporations are reporting historically high profits for this year. All the while, Capitalism is struggling to save face, with an obscene number of fraud investigations and trading scandals coming out of the woodwork. It makes one wonder if capitalism and greed come as a two-for-one package deal, or if it's actually possible to have the presence of capitalism in a low percentage of fraud. The good news is we're not the only continent on the planet threatened with financial discord. The bad news is, we’re not the only continent on the planet threatened with financial discord. This is a complex, unprecedented situation we’re have here. In essence we have a global recession on steroids, so it’s going to take a combination of high octane, super powered fiscal and monetary programs to get the U.S. economy off life support.

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K. Reilly
The Cohn-Reilly Report

Justice is Served: Hedge Fund Titan is Slammed

Like a woman scorned, Lady Justice took the ultimate revenge; A Guilty Verdict. The Manhattan U.S. Attorney, Preet Bharara, made good on his promise to crack down on illegal trading on Wall Street. After a week of deliberations, the verdict is in and Galleon Group Founder, Rajaratnam, was found guilty on 14 counts of securities fraud and conspiracy. The co-founder and former head of the Galleon Group is officially a convicted Felon, facing 15-19 years in prison. Three cheers for Justice and the fight against unbridled greed in corporate America.

During the trial the Jurors listened hours of testimony and dozens of secretly recorded calls that clearly revealed that Rajaratnam was trafficking in illicit information. An interview of the jurors revealed their efforts not to rush to judgment. Ms. Gorman, one of the jurors, explained that they painstakingly comb through the stock charts, trading records and witness photos. Adding that they went through the evidence deal by deal. When questioned, jurors admitted to being very impressed by the Sri Lankan defendant and referred to him as a “smart man”. Nevertheless, the prosecutor provided hard evidence that was very persuasive in the end.

In my view, insider trading is a directly related to greed, and the prevalence of it in the finance industry is rampant. These hedge fund managers and traders feel privileged, above the law, and think that they’re so much smarter than the rest of us. They’re so blinded by their own narcissism and conceit, that they are convinced no one will ever see through their scheme. Rajaratnam was ever so clever, but obviously not clever enough. This case is a tragedy on many levels, particularly that which concerns humanity. I think of how this brilliant Sri Lankan could have been a celebrated hero to poor, young men and women in his country and to struggling immigrants here in America, but instead he opted to worship money and disgrace his family and his country.

This is not the last we will hear about this vast insider trading case, there are aparently 12 more traders that have been lassoed into this case, so I am sure they are beginning to realize the severity of their predicament.

Back to Home Page K. Reilly
Cohn-Reilly Report

Goldman: Polishing Off the Tarnish

After over 140 years in business, the prestigious investment bank that has long been the envy of many companies that have come and gone. Goldman continues to make all kinds of money irrespective of the scandal launched by the SEC investigation this past Spring, which precipitated a hearing on Capital Hill. This was to be only the beginning of a bad year for the gold plated maverick, at least where their reputation is concerned.

Not long after the SEC investigation ended in a $500 million settlement, a German bank; Landesbank Baden-Wurttemberg (LBBW), filed a suit claiming the firm knowingly sold $660 million of subprime mortgage-backed securities to a subsidiary of LBBW.
As to be expected, Goldman began to take action to buff off the tarnish derived from the unbecoming headlines of greed and deception. To this end the company formed a Business Standards committee, which is headed by Goldman’s chairman and vice chairman, Jerry Corrigan and Michael Evans, respectively. The Business Standards committee will review strategies to rebuild its once stellar reputation.

A series of surveys conducted by Goldman’s Business Standards Committee revealed that their clients believe that Goldman will make them money, but do not feel that they are trustworthy. If the Goldman committee approaches this “perception” issue the way it aggressively approaches its other business strategies, this will soon be a vague memory.

K. Reilly
The Cohn-Reilly Report


___________Comments

Kirsten said...

Goldman has been able to escape criticism for a century. I saw a documentary about GS that talked about how many of the good old boys from the firm went on to work for presidents, so they have been essentially "untouchable" until now. It makes you wonder if they have been doing transactions like this all along
OCTOBER 28, 2010 7:03 AM

Organized Crime: Countrywide Swindled Homeowners.

According to the Federal Trade Commission, Countrywide financial Corp, now owned by Bank of America, cheated hundreds of thousands of customers facing foreclosure. The FTC contends that Countrywide took advantage of homeowners by inflating the cost of services for property inspections and foreclosure services by as much as 400 percent. Sadly, I'm not surprised, given the avalanche of fraudulent activities by U.S. corporations these days. To add insult to injury, Countrywide went so far as to overstate the amounts borrowers owed when they were in bankruptcy, and covertly added fees and bogus charges to homeowners’ accounts. For taking advantage of homeowners at their most vulnerable point - when they are facing possible homelessness - these guys should be forced to shut down their operation altogether. These charges demonstrate an egregious act of greed, illustrating how callous some of the mortgage lenders were, which contributed to the breakdown of the housing industry, that nearly brought the country to a standstill. I have heard many arguments that place 50% of the blame for the millions of foreclosures on the borrowers. Meanwhile, when you really put in perspective the impact of this kind of organized crime that was sweeping mortgage industry, borrowers didn’t stand a chance against this tidal wave of predatory practices that escalated to fraud in some cases.

Although the charges against Countywide involved activities which took place prior to Bank of America’s acquisition, it has agreed to pay the $108 million judgment against Countrywide as a settlement. This just another reason why the congressional leaders must remain committed to finalizing the Financial Regulations overhaul. It is long over due.

K. Reilly
Cohn-Reilly Report

Will History Be Kind to Wall Street?

In hindsight, will this period in history become known as “the decade of greed”? It will likely be known as the decade when corporate America and Wall St demonstrated the worst of capitalism. We still have scar tissue from the downfall of corporate giants like Enron - being the first of the titans to implode in 2001, followed by WorldCom in 2002. There were countless others to follow suit. In fact, there were over 430 securities fraud cases in 2000 and 500 such cases in 2002. Just when the ills of capitalism was beginning to fade from the public psyche, the financial crisis ripped through the economy like a tornado. Bear Stearns’ near collapse, and the Lehman Brothers meltdown were monumental events that represented a serious underlying problem in the system. We all know what eventually transpired, amounting to historic losses, a disastrous housing market and a broken economy. Although Wall Street fraud cases dropped 87 percent by 2008, the cloud of distrust remains thick. Quite frankly, a drastic drop in securities fraud cases may simply mean reduced effort to investigate financial firms, as in the case with ponzi King, Bernie Madoff and Allen Sanford. Public perception is unfavorable to say the least. Numerous ponzi schemes have come out of the woodwork since Madoff, only to further taint the image of the financial industry.
The fall out of deregulation and securities fraud, sparked a call for Wall Street reform and tougher regulations from the White House and Capital Hill. The trouble is, the members of the sub-committee responsible for writing new legislation for Wall Street don’t seem to have strong enough knowledge of the inner workings of sales and trading. This was painfully apparent as I watched the senators grill Goldman’s CEO, Lloyd Blankfein. Anyone working as a trader, analyst, fund manager, or even sales clerk knows that detailed information and credit ratings for securities are fully disclosed in the official statements, but this point seems to have escaped the senators interogating the Goldman CEO.

There’s a negative perception of Wall Street and an overall feeling of distrust on Main Street. This is certainly justified, given a decade of seemingly endless instances of fraud and deception. I can only imagine how this period will be perceived in the history books in years to come. Hopefully, the national and global lessons derived from the past 10 years will serve to keep us from repeating our mistakes. With the swift actions of the White House and the Treasury Secretary, the Country managed to avert the worst case scenario - and we are actually starting to see an economic turnaround. We may not be so lucky the next time around.

For details on the Goldman Sachs probe click Here

K. Reilly
Cohn-Reilly Report

Goldman On Trial

The Securities and Exchange Commission filed a civil suit against Goldman Sachs accusing Goldman of “defrauding investors by misstating and omitting key facts" about a financial product based on subprime mortgage-backed securities. As everyone knows by now, this type of security was a major contributor to the financial crisis of 2008.

The charges are believed to be the first brought against a Wall Street firm for speculating on the collapse of the housing market, which is still struggling to emerge from one of the steepest declines in history. The SEC is accusing Goldman of failing to tell investors that a major hedge fund, Paulson & Co, had helped put together the controversial financial product known as collateralized debt obligation (CDO), and was at the same time betting against it.The transaction occurred in 2007. CDO's are sophisticated financial tools that repackage loans into a product that can be sold on the secondary market. They are called mortgage-backed securities if the loans are mortgages. If the mortgages are made to those with a less than prime credit history, they are called subprime mortgages.

Goldman claimed it lost 90 Million dollars for its own investment in the security and said it would "vigorously contest them (the SEC) and defend the firm and its reputation." The lawsuit also named Fabrice Tourre, then a vice-president at Goldman who allegedly knew of Paulson & Co.'s undisclosed short interest and role in the collateral selection process, according to the SEC. He was said to be the creator and salesman of the product, which caused investors to lose about one billion dollars. Analysts said a long courtroom battle could now be expected.

Goldman is also facing a potential backlash in Europe; Britain's Prime Minister Gordon Brown called for authorities there to investigate and accuse the investment bank of "moral bankruptcy." In Germany, the Welt am Sonntag newspaper quoted Chancellor Angela Merkel's spokesman, UIrich Wilhelm, as saying that German regulator BaFin will ask the U.S. Securities and Exchange Commission for detailed information.

Although Goldman reported strong earnings this week, nearly double from the same period a year ago, investors focused on the charges, and sold off the stock by two percent, with a decline of $13 billion over a three day period.

Goldman’s gain from the alleged fraud was $15 Million - not a huge figure for this financial giant. However, SEC fines could be $70 Million plus $1.20 for each share, which could bring the total penalty to near $700 Million, a significant dent into Goldman’s capital. Furthermore, many large institutions, as we know, were involved with transactions of this type, and this could just be the tip of the iceberg.

C. Cohn
Cohn-Reilly Report