Masters of the Universe category archive

Phil Angelides, head of the Financial Crisis Inquiry Commission:

It appears the financial crisis was an ‘immaculate calamity’; no one was responsible.

More business quotes at the link.

This week’s digit counters are starting to fall:

Access Bank, Champlin, Minnesota

The Bank of Bonifay, Bonifay, Florida

Late night additions:

1st Pacific Bank of California, San Diego, California

Towne Bank of Arizona, Mesa, Arizona

Afterthought:

My father was, in his second career, a banker. He was throughout his career a man of integrity.

He would be mortified and embarrassed to know that the question every Friday is not, “Will a bank fail?” but “How many banks will fail?”

Bloomberg (much more at the link):

Computerized trades sent to electronic networks turned an orderly stock market decline into a rout, according to Larry Leibowitz, the chief operating officer of NYSE Euronext. Nasdaq OMX Group Inc. canceled trades in 286 securities that rose or fell 60 percent or more.

The machines did exactly what they were told to do.

It’s not the machines. It’s the persons telling them what to do.

It’s time to realize that the Masters of the Universe aren’t.

While I was upgrading my laptop to the new release of Ubuntu (more about that later), another passel of financial geniuses found themselves looking for work.

These banks are no more:

Frontier Bank, Everett, Washington

BC National Banks, Butler, Missouri

Champion Bank, Creve Coeur, Missouri

CF Bancorp, Port Huron, Michigan

Westernbank Puerto Rico, Mayaquez, Puerto Rico

R-G Premier Bank of Puerto Rico, Hato Rey, Puerto Rico

Eurobank, San Juan, Puerto Rico

As Bill Shein points out, Goldman Sachs was neither more ruthless nor less moral than anyone else on Wall Street.

It’s satisfying to know that we would never be party to such tawdry money-making schemes, right? Even if what they did was legal. That’s why it feels so good to let loose with our moral outrage, especially at a time when so many things seem out of our control.

But is Goldman Sachs or Wall Street really responsible for the long-term pickle that regular folks are in? Are they the bad guys, even in the particular transaction that the Securities and Exchange Commission has alleged was fraud?

Or, more likely, was the company just doing what our entire economic system demands they do, which is make money while, as much as possible, disguising the true impact of that money-making on people and planet?

They weren’t the only sharks trying to play with marked cards, but they were better at marking the cards.

The point of regulation is not to end the game, but to ensure that the cards aren’t marked.

The Borowitz Report:

Eleven indicted Somali pirates dropped a bombshell in a U.S. court today, revealing that their entire piracy operation is a subsidiary of banking giant Goldman Sachs.

There was an audible gasp in the courtroom when the leader of the pirates announced, “We are doing God’s work. We work for Lloyd Blankfein.”

More at the link.

Shifty answers:

Via Atrios, who points out in a subsequent post

Some day I hope more people realize that large segments of our economy don’t actually do anything (health insurance, much of finance/real estate), they simply position themselves in the middle of transactions and take their cut. That isn’t to say there are no transactions which legitimately require skilled middlemen, or that there is no legitimate function for the finance and banking industries, but to a great degree the skimmers just don’t do anything productive at all. Except take our money.

David Weidner at MarketWatch predicts that forcing banks to spin off the units that market derivatives would

strike a blow to heart of the industry that would, more than any regulation, change the way the industry does business.

They go on to say, in the same story (emphasis added),

Derivatives — contracts based on underlying securities such as commodities, mortgages, stocks and bonds — represent an estimated $500 trillion market used across Wall Street to hedge, insure and bet on the future prices of those underlying assets. It represented $20 billion in revenue last year to Wall Street.

Actually, they didn’t insure anything. We have seen how that worked. As soon as the real estate and related credit markets fell, they became (remember this phrase?) “toxic assets,” toxic because they were worthless.

What the heck kind of insurance is that? (Oh, I forgot, it’s like WellPoint heath insurance–great as long as you don’t get sick.)

MarketWatch concludes

The unintended consequences of such a move could be devastating to banks such as Bank of America Corp., Citigroup Inc., and J.P. Morgan Chase & Co. On
the other hand, the move would definitely bring much needed credit evaluation since banks would no longer be able to take insurance on their risk.

“Devastating,” I reckon, because they would have to stop the three-card monte and pay attention to fiduciary responsibility and sound business practices–things they may have forgotten how to do.

That should be an intended consequence.

Simon Johnson on Goldman’s creating bad investments so others could turn around and bet against them while Goldman collects fees from both sides. Remember, these guys are making money from primarily from fees and sales, not from growth in the value of investment.

They have no incentive to care about value when fees and sales pay for their mansions in Greenwich (emphasis added):

The SEC lawsuit and associated discussion make clear three points:

First, Goldman Sachs had great difficulties managing its operational and reputational risks during the boom. In testimony before the Senate Banking Committee in February, Gerald Corrigan, former head of the New York Federal Reserve Bank and a longtime Goldman Sachs executive, argued that the firm’s risk- management systems are world class. That may be the case, but “world class” looks much less than perfect when Goldman Sachs treats so many of its customers in the fashion described in the SEC’s suit.

This reinforces the widely held — and correct — notion that our largest banks have become too big and too complex to manage properly.

Second, whether the SEC prevails in court, to mainstream opinion the case confirms — in excruciating detail — what Sen. Ted Kaufman, D-Del., has been arguing for a considerable time: There is fraud at the heart of Wall Street.

Third, the great myth of finance has been exploded. In its heyday, leading policy makers such as former Treasury Secretary Robert Rubin, another one-time Goldman Sachs banker, were proud to preside over ever-more unregulated financial markets. In the aftermath of the Goldman Sachs case, and much else since September 2008, even Rubin now is at pains to claim — implausibly — that he has always favored regulating derivatives. The question now isn’t whether to regulate, but rather how to make regulation much more effective.

Meanwhile, Paul Krugman looks at the ratings agencies. Guess what? They also make their money from fees:

The Senate subcommittee has focused its investigations on the two biggest credit rating agencies, Moody’s and Standard & Poor’s; what it has found confirms our worst suspicions. In one e-mail message, an S.& P. employee explains that a meeting is necessary to “discuss adjusting criteria” for assessing housing-backed securities “because of the ongoing threat of losing deals.” Another message complains of having to use resources “to massage the sub-prime and alt-A numbers to preserve market share.” Clearly, the rating agencies skewed their assessments to please their clients.

These skewed assessments, in turn, helped the financial system take on far more risk than it could safely handle. Paul McCulley of Pimco, the bond investor (who coined the term “shadow banks” for the unregulated institutions at the heart of the crisis), recently described it this way: “explosive growth of shadow banking was about the invisible hand having a party, a non-regulated drinking party, with rating agencies handing out fake IDs.”

Time for your regularly scheduled Friday evening roundup of financial geniuses.

It appears to be Illinois’s time in the barrel tonight:

Wheatland Bank, Naperville, Illinois

Peotone Bank and Trust Company, Peotone, Illinois

Lincoln Park Savings Bank, Chicago, Illinois

New Century Bank, Chicago, Illinois

Citizens Bank&Trust Company of Chicago, Chicago, Illinois

Broadway Bank, Chicago, Illinois

Amcore Bank, N.A., Rockford, Illinois

They haven’t even gotten to Mountain Time yet.

My father was a big fan of Wall Street Week as hosted by Louis Rukeyser. It helped him understand the market, where he pursued a sideline as a moderately successful investor.

Here’s an updated version for today’s investors:

Even Ben Stein, who’s not known as particularly progressive (he’s still wondering whether the Iron Horse is such a good idea) is fed up:

If these allegations (about Goldman Sachs–ed.) are true, and maybe they aren’t, this is simply the worst behavior in finance by a large firm I have ever seen. I taught securities law for six years. I wrote about financial fraud for Barron’s and the New York Times for many years.

I have never seen such a blatant disregard for ethics, and possibly the law, by a large Wall Street firm as is alleged in this case.

Richard Adams at the Guardian:

As my colleague Nils Pratley put it: “Let’s sidestep the question of whether Goldman Sachs committed fraud – that’s one for the courts – and ask instead whether it behaved ethically.” The answer to that question is that it did not. Even on the most generous interpretation of the SEC’s facts, the bank failed to disclose a conflict of interest to investors. In an ideal world, Goldman Sachs will be punished in the marketplace. Counterparties to possible deals may want to think twice before getting into bed with it in the future. The blogger Bond Girl gets it right: “Seriously, why the hell would anyone want to be a client of Goldman Sachs after reading this?”

Knock down, drag out.

“Empty boxes.” Heh. Sounds like “boxes of air” to me.

See the comments at Rising Hegemon.

Via Eschaton, which wonders when a US television network would air a discussion like this one.

Where is the sheep’s clothing kept?

In the sacks of Goldman.

Bloomberg (emphasis added):

Such securitization enabled debt with the lowest investment-grade ratings to be transformed, in part, into AAA securities that turned out to not be as safe as that ranking suggested. At least $5 billion of Abacus slices now carry junk ratings, below BBB-, from Standard & Poor’s, or have defaulted, Bloomberg data show.

Follow the link to see the shell game explained.

As I’ve been saying, Wall Street called them bags of gold, but they were bags of air.

All label, no gold.

Six banks blanked:

Tamalpais Bank, San Rafael, California

Innovative Bank, Oakland, California

Butler Bank, Lowell, Massachusetts

Riverside National Bank of Florida, Fort Pierce, Florida

AmericanFirst Bank, Clermont, Florida

First Federal Bank of North Florida, Palatka, Florida

Lakeside Community Bank, Sterling Michigan

For a complete list of failed banks since the turn of the century, go here. There are 20 from 2000 through 2007. I didn’t bother to count the ones from 2008 on.

One (the top one in the list above) appeared as I was writing this.

Yes, this is an industry to whom we should clearly turn for guidance in crafting financial policy and consumer protections.

Now, pardon me, I think I saw a winged pig.

Bloomberg (emphasis added):

Continued legal appeals will delay or block the first public look at details of the central bank’s $2 trillion in emergency lending during the 2008 financial crisis. The Clearing House Association LLC, a group that includes Bank of America Corp. and JPMorgan Chase & Co., joined the Fed in defense of a lawsuit brought by Bloomberg LP, the parent company of Bloomberg News, seeking release of records related to four Fed lending programs.

The U.S. Court of Appeals in Manhattan ruled March 19 that the central bank must release the documents. A three-judge panel of the appellate court rejected the Fed’s argument that disclosure would stigmatize borrowers and discourage banks from seeking emergency help.

“Our member banks are very concerned about real-time disclosure of information that could cause a run on the banks,” said Paul Saltzman, the group’s general counsel, in an interview yesterday. “We’re not going to let the Second Circuit opinion stand without seeking a review.”

Mr. Saltzman’s fear is horse-hockey. The information in question is from 2008. That is hardly real time. Indeed, it was an unreal time.

The banksters naturally wish not to reveal the true reasons behind their fight against releasing the information, which I believe is this: It will make them look bad.

It will reveal that they screwed things up far more than they or the government is willing to admit, that they disdain fiduciary responsibility, and that, behind all the Wall Street double-talk and the looking good in meetings, their role model is Good Old Reliable Nathan, Nathan, Nathan, Nathan Detroit.

The BBC:

US insurance giant AIG, which was rescued by the US taxpayer, is to sell 53 aircraft to Australian investment bank Macquarie for about $2bn (£1.3bn).

The passenger jets are owned by AIG’s aircraft leasing operation, ILFC, and the cash saved will help repay the $182.3bn cost of bailing out AIG.

When I saw the headline in my RSS feed, I jumped to the conclusion that these were private aircraft for ferrying fat cats about. Not an illogical jump, and I was mildly surprised to see that it referred to real planes that carried fare-paying passengers (wonder how may company jets AIG does/did have?)

I understand that the planes’ bulkheads were stuffed with inflated assets that helped keep the planes aloft, sort of like flubber. When the assets deflated, AIG could no longer keep the planes in the air.