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Latest Articles at Phil's Favorites

So many great articles over the past few days! Here’s a list of the most recent Favorites with excerpts and links for a quick reference.  Please visit me at Phil’s Favorites for the very latest articles, and at my backup Favorites site for archives, our blogroll, and more.  - Ilene“Goldman Sachs Are Scum:” Max Keiser on Goldman Sachs From July 2009

Courtesy of JESSE’S CAFÉ AMÉRICAIN

Here is a video interview on France 24 television with Max Keiser speaking on Goldman Sachs from almost one year ago.

By the way, NO ONE who is a serious player on Wall Street is legitimately surprised by this, and probably no one in regulatory bodies are either, unless they are just showing up to collect a paycheck and obtain free Internet access.

The antics of Goldman Sachs have been getting by on a ‘wink and a nod’ from the regulators and the market for some time. Why? Because they are powerful, and because like Lehman and their off balance sheet frauds, they are almost ALL doing it on Wall Street as part of the franchise. Goldman has just been a pig about it, and probably burned some insiders and powerful investors in their fraudulent Abacus trade.

The excuses being made for Goldman by some on Bloomberg Television and CNBC are setting new lows in journalism. It was just a simple failure to disclosure Paulson’s involvement right? Almost a technicality. No one forced the customers to buy those fraudulently packaged and labeled assets or stocks (this was a favorite excuse from Joe Kernan during the Internet/tech bubble collapse). No involvement from the Ratings Agencies in the purposeful crafting of a fraudulent financial instrument. Guest Calls Cramer a ‘PR Man for Goldman Sachs’ and is ejected from the show by the resident money honey…

*****Eight Banks Fail; Canada’s Second Largest Lender Buys Three Of Them

Courtesy of Mish

It’s bank failure Friday and today was no disappointment. Today regulators stepped up to the plate with Eight Bank Seizures as the number of failures in 2010 hits 50.

U.S. regulators on Friday seized eight banks with assets totaling more than $6 billion, raising the tally this year to 51 failed banks and adding to the carnage of small institutions that is expected to peak this year.

The eight banks were the most authorities closed since nine were seized last October…

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Ratigan Deconstructs Goldman, Connecticut AG Blumental Wants Criminal Charges Filed

Courtesy of Tyler Durden

We expected Dylan to explode during today’s show. We were disappointed as he somehow managed to contain it, and did a pretty good recap of the Goldman affair (if a little too many matchbox cars on the show for our taste). The notable take home for us was that CT AG Blumenthal said that “criminal charges have to be pursued against Goldman.” We are sure Cuomo is not too far from this line of thinking…

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I’ve posted a lot on the Goldman Sachs fraud charges and hope it marks the beginning of change. Many of my favorite bloggers believe this is a mere distraction, and GS, the corporation, will get a slap on the wrist and a fine – which means essentially nothing happens to the people responsible for an ongoing parade of front-running, misrepresentations and frauds, even if the SEC is only permitted to file civil charges.  That said, here’s Mish on the subject. (My highlights) - Ilene

Rant of the Day: No Ethics, No Fiduciary Responsibility, No Separation of Duty; Complete Ethics Overhaul Needed
AFIS BILLBOARD POSTERS ETHICAL BEHAVIOR DEFENSE BILLBOARD #21

Courtesy of Mish

Goldman Sachs Shares Drop After Goldman Sachs Accused of Fraud in Mortgage Deals

Goldman Sachs, which emerged relatively unscathed from the financial crisis, was accused of securities fraud in a civil suit filed Friday by the Securities and Exchange Commission, which claims the bank created and sold a mortgage investment that was secretly devised to fail.

The move marks the first time that regulators have taken action against a Wall Street deal that helped investors capitalize on the collapse of the housing market. Goldman itself profited by betting against the very mortgage investments that it sold to its customers.

The suit also named Fabrice Tourre, a vice president at Goldman who helped create and sell the investment.

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Numerous Derivative Swap Deals Blow Sky High In Europe

Courtesy of Mish

Time bomb with lit fuseLost in the turbulence of a market focused on fraud charges against Goldman Sachs (see Rant of the Day: No Ethics, No Fiduciary Responsibility, No Separation of Duty; Complete Ethics Overhaul Needed), there are some interesting derivatives blowups in Europe to consider, similar in nature to swaps that blew up Jefferson County, Alabama.

Please consider Saint-Etienne Swaps Explode as Financial Weapons Ambush Europe

The worst global financial crisis in 70 years arrived in Saint-Etienne this month, as embedded financial obligations began to blow up.

A bill came due for 1.18 million euros ($1.61 million) owed to Deutsche Bank AG under a contract that initially saved the French city money. The 800-year-old town refused to pay, dodging for now one of 10 derivatives so speculative no bank will buy them back, said Cedric Grail, the municipal finance director. They would cost about 100 million euros to cancel today, he said…

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SEC Formally Charges Goldman Sachs In Derivatives Fraud with Paulson and Company – another ‘Rogue Trader at Work?’

Courtesy of JESSE’S CAFÉ AMÉRICAIN

“Only fraud and falsehood dread examination. Truth invites it.”
- Dr. Samuel Johnson

The SEC is formally charging Goldman Sachs with fraud in the derivatives markets, specifically with regard to Collateralized Debt Obligations related to subprime mortgages.

Investors in Goldman’s Abacus CDO lost one billion dollars.

In addition to the company, an individual VP in Goldman’s international group is being charged, Fabrice Tourre.

Paulson and Company, a major hedge fund, paid Goldman to structure a CDO based on mortgages that Paulson selected, so that they could bet against it…

*******

Eric Sprott on the Economy, the Markets, and the PHYS Gold Trust

Courtesy of JESSE’S CAFÉ AMÉRICAIN

(Click on title to get to the video)

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Feeling good about the SEC filing charges against Goldman Sachs? Maybe there is such a thing as justice after all? Smarten up, says Joshua M Brown, here’s how it goes. - Ilene

Spare Me The Sudden Outrage

Do me a favor…spare me the faux-populism and the sudden bouts of outrage, this garbage CDO factory stuff has been very widely known for a long time. When was Zuckerman’s Greatest Trade Ever book published? Last year. When did the New York Times start telling this story?  January.

Now you’re angry?  Now you’re outraged?

Here’s how it will all end for those unfamiliar with the process:

  1. Goldman will hire the best lawyers in the history of the universe, making OJ’s Dream Team look like Ally McBeal.
  2. They will make public statements about their “vigorous defense” while negotiating a settlement that will involve a large check and quite possibly the sacrifice of ”Fabulous” Fabrice Tourre…

*****

PARTS OF THIS MARKET ARE LOOKING IRRATIONAL

Courtesy of The Pragmatic Capitalist

I haven’t thought the 75%+ rally was particularly irrational over the course of the last 12 months.  Surprised by the strength?  Absolutely.  But irrational, no.  As of late, we’ve begun to see signs that the consumer is back, but the equity action implies that the consumer is not only back, but ready to break records…

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Cramer Needs To Shut The Hell Up

Courtesy of The Market Ticker, Karl Denninger

Seriously.

Cramer came on CNBS this afternoon saying that he “heard on good authority” that Goldman was actually long Abacus.

(Note – this is not my capture, and there’s good odds that CNBC will have this video removed – so if you want to watch, do so soon!)

Well, duh!  They structured the deal!

Again, back to The Audacity of Synthetics:

synthetic CDO is, as the name implies, not made up of actual bonds.  Instead, the issuer writes a naked credit-default swap on the underlying reference(s) they use.

Goldman had to be long the credit, since they wrote the initial credit-default swaps which formed the CDO!

When you write a credit-default swap you are long the underlying credit…

*****

What Will Buffett’s Response Be Now That Goldman’s “Ethics” Are Exposed For All To See?

Courtesy of Tyler Durden

Bloomberg Television’s Betty Liu does a great job deconstructing the hypocrisy behind Warren Buffett’s Goldman investment – she quotes Alice Schroder author of Snowball, who says, “I’ve always wondered why Buffett would trade his skepticism for an investment in Goldman Sachs. It looks it was a mistake, it was a mistake for Buffett to invest this money in Goldman and to compromise his philosophy on Wall Street.” What philosophy? That of the benevolent old uncle who is happy to rip the entire silver market apart and demand physical when he knows full well (as does the CFTC) that it is an impossible request? Or that of the guy who pretends to have principles when he is fully aware the government will always bail him and his investments out at the expense of the middle class? We eagerly await to see Berkshire’s press release on its Goldman investment after this development.

(Click on title for the video)

*****For whatever articles I don’t pick up on the GS fraud charges, The Reformed Broker Joshua M Brown is compiling a helpful list. - Ilene

SEC v Goldman Links Roundup

From the WSJ:

Goldman Sachs tumbled 14% after the SEC charged the company and one of its vice presidents for defrauding investors “by misstating and omitting key facts about a financial product tied to subprime mortgages,” the SEC said in a press release. The commission said Goldman Sachs failed to disclose vital information about a synthetic collateralized debt obligation, including the role that a major hedge fund played in selecting the portfolio, despite the fact that the investor had taken a short position against the mortgage market.

A major story, I’m just going to add links below throughout the day…

Bill Singer: SEC Depicts Defendants as Financial Suicide Bombers (BrokeAndBroker)

Paul La Monica: 3 Cheers for the SEC (CNN Money)

David Weidner Weighs In On The ‘Faulty Brakes’ Argument (Market Watch)

Yves Smith: Obama Wall Street Reform E-Mail Coincides With SEC Charge Announcement (Naked Capitalism)

Goldman’s Abacus Lies (Felix Salmon)

SEC Charges Goldman Sachs With Fraud  (Zero Hedge)

SEC Sues Goldman Sachs (TBP)

*****Note:  James Kwak writes in TV Doubleheader: “Simon [Johnson] and I are both on Bill Moyers (first half) tonight [4/16]. Then Simon is on Real Time with Bill Maher. Enjoy.”  Simon and James are authors of the newly released book “13 Bankers: The Wall Street Takeover and the Next Financial Meltdown.” (Scroll down for more.)  - Ilene

SEC Charges Goldman with Fraud

Courtesy of James Kwak at Baseline Scenario

Press release hereComplaint here. The allegation is that Goldman failed to disclose the role that John Paulson’s hedge fund played in selecting residential mortgage-backed securities that went into a CDO created by Goldman. Here’s paragraph 3 of the complaint:

“In sum, GS&Co arranged a transaction at Paulson’s request in which Paulson heavily influenced the selection of the portfolio to suit its economic interests, but failed to disclose to investors, as part of the description of the portfolio selection process contained in the marketing materials used to promote the transaction, Paulson’s role in the portfolio selection process or its adverse economic interests.”

******

Consumer Sentiment Sinks in April

Courtesy of Econompic Data

Bloomberg details:

Confidence among U.S. consumers unexpectedly fell in April to the lowest level in five months, indicating Americans are discouraged about the labor market….

consumer confidence

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Goldman’s Stock Crushed… All the Way to Last Month’s Level

Courtesy of Econompic Data

By now, most of you have heard that Goldman Sachs was charged with fraud. So has Goldman’s stock taken a hit?…

goldman sachs

*****

WE DEMAND BANK REGULATION

Courtesy of The Pragmatic Capitalist

With the news of the SEC’s civil fraud lawsuit against Goldman Sachs it’s now plain as day that we need to pass a bank regulatory bill.  I challenge anyone to read these emails from Goldman Sachs and explain to me or the rest of the American public why we should not demand that these banks be reigned in.  The emails are truly vomit inducing.  This is a fraud perpetrated on the entire American public.  We bailed this company out and then they went on a PR campaign saying they did nothing wrong.  The SEC claims to have evidence that Goldman knew the housing market was going to crash and still sold billions in CDO’s to their clients. Goldman is denying the charges, but the accusations look pretty cut and dry.  In an email Goldman employee Fabrice “The Fabulous Fab” Tourre warned about the coming collapse of the market:

“More and more leverage in the system. The whole building is about to collapse anytime now… Only potential survivor, the fabulous Fab[rice Tourre]… standing in the middle of all these complex, highly leveraged exotic trades he created without necessarily understanding all of the implications of those monstrosities!!!”

George Soros says we should break up the banking oligopoly.  I couldn’t agree more…

Read the full complaint with emails herein.

*****

GOLDMAN SACHS ACCUSED OF CIVIL FRAUD BY SEC

Courtesy of The Pragmatic Capitalist

Big development for the financials and the White House crackdown on the banks:

Washington, D.C., April 16, 2010 — The Securities and Exchange Commission today charged Goldman, Sachs & Co. and one of its vice presidents for defrauding investors by misstating and omitting key facts about a financial product tied to subprime mortgages as the U.S. housing market was beginning to falter….

*****

SEC Charges Goldman Sachs With Fraud On Subprime Mortgages, Paulson & Co. Implicated

Courtesy of Zero Hedge

Washington, D.C., April 16, 2010 — The Securities and Exchange Commission today charged Goldman, Sachs & Co. and one of its vice presidents for defrauding investors by misstating and omitting key facts about a financial product tied to subprime mortgages as the U.S. housing market was beginning to falter.

The SEC alleges that Goldman Sachs structured and marketed a synthetic collateralized debt obligation (CDO) that hinged on the performance of subprime residential mortgage-backed securities (NASDAQ:RMBS). Goldman Sachs failed to disclose to investors vital information about the CDO, in particular the role that a major hedge fund played in the portfolio selection process and the fact that the hedge fund had taken a short position against the CDO.

“The product was new and complex but the deception and conflicts are old and simple,” said Robert Khuzami, Director of the Division of Enforcement. “Goldman wrongly permitted a client that was betting against the mortgage market to heavily influence which mortgage securities to include in an investment portfolio, while telling other investors that the securities were selected by an independent, objective third party.” …

*****So, GS is down 13% – Mark wonders the obvious, did the GS traders get short in time? (See also Zero Hedge’s Did Goldman Short Itself, Reuters Reports Goldman Was Told In Advance It Faced SEC Action) - Ilene

Goldman Sachs (NYSE:GS) Charged with Fraud by SEC; Firm Immediately Lashes Out at Stock Market Sending it down 1.5%

Courtesy of Trader Mark

Well since 70% of the trades nowadays are controlled by a handful of firms, the last thing you want to do is upset Goldman Sachs “the market”.  I am selling my SPY calls for a loss because the last thing I want to do is get in front of the most powerful firm on Earth when they are throwing a temper tantrum.  How dare the SEC!…

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Goldman Sachs (GS) VP Email Jan 2007: “The whole building is about to collapse anytime now.”

Courtesy of Trader Mark at Fund My Mutual Fund

I have no idea the implication but for those of you around a decade ago you know what this parallels… Eliot Spitzer made his career on almost the same exact thing a decade ago.  Investment banks bringing product (IPOs) public, their analysts cheerleading the stocks to the public while writing internal emails about how the companies were complete trash.

Well this London based VP looks like the sacrificial lamb…

******

High Frequency Friday – The WSJ Finally Catches On!

Has the World gone sane?

I was amazed this morning to see both the usual contrarian indicator of a bullish cover on Newsweek (mission accomplished market pumpers) and a good piece of reporting in the Journal on a topic ZeroHedge and I have been pounding the table on for a year.  Our readers will find nothing new in the article “This Market Has Its Freq On” but to see it finally summarized in the MSM (giving us no credit at all, of course) is at least a little bit satisfying.

The Journal highlights the following facts (and they are now MSM FACTS, not “conspiracy theories” Tyler and I were making up):

  • The recent gains have come with only marginal support from traditional long investors. Wall Street trading desks and the relatively new breed of high-frequency traders have been fueling the rest.
  • Investors pumped only $396 million into domestic stock funds in March. Since the start of the year, they’ve only added only $1.8 billion, according to the Investment Company Institute.  Compare those inflows with some other recent rallies. Between April and July 2009, investors poured $28.76 billion into U.S. stock funds and in the first three months of 2007 they moved $19.1 billion into such funds.
  • Insiders are dumping stock at an alarming pace, $15 billion so far this year, more than six times the $2.5 billion they’ve bought, according to Trim Tabs. Moreover, they’ve been dumping their stock more in recent weeks. Insiders sold $6.9 billion in March and bought just $831 million.
  • Six stocks represented 27.51% of the overall stock market volumeAmerican International GroupInc., Ambac Financial Group Inc., Bank of America Corp.,Popular Inc., Fannie Mae and Citigroup Inc. Since the start of the year they’ve represented 16.55% of the composite volume on the New York Stock Exchange, and more than 22% on each of this week’s first three trading days, reaching as high as 30.62% Tuesday..
  • The rise in these stocks has mirrored, or perhaps driven, the recent broader gains. Through Wednesday, Bank of America was up 28.8%, Citigroup was up 48.9%, Ambac shares have doubled, Popular shares are up 74.3% since the start of the year.  AIG shares are up 32.5% for the year through Wednesday.
  • Program trading represented 27.9% of NYSE volume for the week ended April 2.Morgan StanleyGoldman Sachs Group Inc. and Deutsche Bank AG were the three biggest program traders, according to the Big Board.

******

How strategic defaults are boosting consumer spending

Courtesy of Edward Harrison at Credit Writedowns

Carefree woman with shopping bags

At the end of last month I proffered three potential explanations for the continued fall in the US savings rate.   The first explanation was that the economy was in a cyclical recovery predicated on asset price inflation and this gave enough troubled debtors breathing space to spend more freely. The second explanation was the opposite, that distress amongst those troubled debtors was leading them to spend a larger percentage of income. The third explanation was that strategic defaults were giving a lot of people money in their pockets that would have otherwise gone to servicing debt and this had increased consumption.

(Note: Because savings is not actually measured in the national income and product accounts as it is a residual calculated by subtracting consumption from output, I focus more on why consumption is increasing.)

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STOCK MARKET OPTIMISM CONTINUES TO SURGE

Courtesy of The Pragmatic Capitalist

Sentiment data is surging this week.   The Investor’s Intelligence poll is showing a new high in bullishness and a new low in bearishness.  18.9% of advisers tracked in the polling are bearish on stocks.  Bullishness has now surged to 51.1%.   Bullish sentiment is surging versus last week’s reading of 48.9%

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Sentiment Levels OBSCENE: Caution

Courtesy of Karl Denninger of The Market Ticker

I know, I know, the market only goes one way.

Those numbers have never been seen before in my recollection – and as far as I can tell (by looking back at the stats), never by anyone else either.  In fact that opening print is more than double the previous all-time high.

These are retail CALL buyers folks – not institutions…

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They Shoot Houses, Don’t They?
Sports News - January 12, 2010

Courtesy of Joshua M BrownThe Reformed Broker

Another day, another mind-numbingly horrid data point from the Un-Recovery, this one courtesy of the bull market in foreclosures that rages right alongside the bull market in stocks…

From Calculated Risk:

RealtyTrac® … today released its U.S. Foreclosure Market Report™ for Q1 2010, which shows that foreclosure filings — default notices, scheduled auctions and bank repossessions — were reported on 932,234 properties in the first quarter, a 7 percent increase from the previous quarter and a 16 percent increase from the first quarter of 2009. One in every 138 U.S. housing units received a foreclosure filing during the quarter…

******

Sell Now, Buy Later – the ABCs of Short Selling

By Jake Weber, Editor, The Casey Report

The catch phrases “Buy low, sell high” and “The market fluctuates” are probably the two most frequently used clichés of the investment world. The latter statement is hardly astute, and the former far easier said than done. What both of these simplistic ideas overlook is a third concept largely ignored by the investing public, “Sell now, buy later.”…

*****

George Soros Warns Of Biggest Market Crash To Come, As “We Are Facing A Yet Larger Bubble” Than During Credit Crisis
Stock prices luring goldfish

Courtesy of Tyler Durden at Zero Hedge

George Soros, speaking at a meeting organized by The Economist, warns all those who are throwing their money into the equity pit, that “the financial world is on the wrong track and that we may be hurtling towards an even bigger boom and bust than in the credit crisis.” Advice from Soros or from CNBC. You decide. Reuters reports that Soros said “the same strategy of borrowing and spending that had got us out of the Asian crisis could shunt us towards another crisis unless tough lessons are learned.” We hope all those who are buying stocks have very tight stop loss triggers…

Albert Edwards: “We Are Now Only One Cyclical Downturn Away From Outright Deflation”

Inflatable rubber ring floating in the sea

Courtesy of Tyler Durden

Albert Edwards is out with an interesting twist on inflation/deflation. In his latest letter he notes “I have stated openly that I expect the UK 1970s experience of almost 30% inflation to be repeated in my lifetime. I also expect this to be reached in countries that got nowhere near this 30% rate in the 1970s (e.g. the US and Europe, which both peaked around 15% ? somewhat surprisingly Japan also hit almost 30% in the 1970s).” Yet he counters: “But despite my belief that we will see a paradigm change over the next decade or so, I continue to retain our heavy overweight for government bonds. Recent inflation and monetary data continues to make me feel we are now only one cyclical failure from falling into outright deflation.” So for the time being, Edwards is long bonds. The question is when will the secular inflation thesis become dominant and when will “rapid nominal GDP growth [appear] dragging bond yields higher.”..

*****

Major Iceland Eruption Disrupts All Of Europe

Courtesy of Elaine Supkis at Culture of Life News

The earth has been quite active lately.  As I figured when the Boxing Day Great Quake occurred in Indonesia, this was a huge event that would force the rest of the planet to readjust itself.  And certainly, a cluster of Great Quakes have now occurred and more are in store for us and of course, the volcanoes awaken during times of rearrangements of the local landscapes.  For over a year, we had a lot of volcanic dust in the stratosphere.  Most of it filtered out via snow and rainstorms.  Now, a new group of volcanoes are shuddering awake and spewing out volcanic dust.



Disclosure: none