We have come across a bank with a very weak equity position, skirting insolvency. It is a German bank trading at an insanely high multiple. Below is a quick synopsis of the solvency situation and the subscriber notes which illustrate the situation and the potential opportunity.

Equity 5,251
Intangibles 2,368
Tangible Equity 2,883
Impaired and past due 6,274
Fair value of the collateral 3,995
Allowance for losses 1,641
Texas ratio 138.7%
Eyles Test 6,683
Shortfall from current reserve for loan loss 5,042
Shortfall as % of tangible shareholders' equity 174.9%
Published in BoomBustBlog

The Wall Street Compensation issue is being made much more complex than it needs to be. Let's take Goldman for example. - Bloomberg: Self-Evaluations Seen as New Source of Concern After Goldman Sachs Hearing

April 28 (Bloomberg) -- Wall Street employers, long concerned that their staff’s e-mails may be used against them, now have another thing to worry about: the self-evaluations employees fill out.

At a 10-hour congressional hearing yesterday, senators pointed to Goldman Sachs Group Inc. employees’ self-evaluations, which included boasts about making “extraordinary profits” by betting against the subprime market, as proof the company misled investors into a mortgage-linked investment. [If they made "extraordinary profits", then the transactions shouldn't be considered an economic hedge]

The fact that self-evaluations were used against Goldman employees could keep companies from being open in their own review process, hampering feedback that makes evaluations productive, said Gary Hayes, co-founder of management consulting firm Hayes Brunswick & Partners in New York. [Or they could just be more open with their clients, and wouldn't have to worry about being secretive in their self reviews - duhh!]

“That’s fairly chilling,” Hayes said. “It would make many senior executives very cautious, if not guarded in what they say in evaluations. You’ll hinder the kind of dialogue that’s necessary.” Such evaluations are “a standard part of corporate America,” he said. [Again, why doesn't this guy say "It would make many senior executives very cautious, if not guarded in how they treat their clients"!!!!????? It's as if it is expected that GS will screw their clients, and the hurdle is how to conduct a review without getting busted for it!]

Senators used e-mails and self-evaluations produced by Goldman, which is being sued by the U.S. Securities and Exchange Commission, to attack the firm. Goldman denies the charges.

Published in BoomBustBlog

From Banks, Brokers, & Bullsh1+ part 1:

A thorough forensic analysis of Goldman Sachs, Bear Stearns, Citigroup, Morgan Stanley, and Lehman Brothers has uncovered...

Let’s get something straight right off the bat. We all know there is a certain level of fraud sleight of hand in the financial industry. I have called many banks insolvent in the past. Some have pooh-poohed these proclamations, while others have looked in wonder, saying “How the hell did he know that?”

The list above is a small, relevant sampling of at least dozens of similar calls. Trust me, dear reader, what some may see as divine premonition is nothing of the sort. It is definitely not a sign of superior ability, insider info, or heavenly intellect. I would love to consider myself a hyper-intellectual, but alas, it just ain’t so and I’m not going to lie to you. The truth of the matter is I sniffed these incongruencies out because  2+2 never did equal 46, and it probably never will either. An objective look at each and every one of these situations shows that none of them added up. In each case, there was someone (or a lot of people) trying to get you to believe that 2=2=46.xxx. They justified it with theses that they alleged were too complicated for the average man to understand (and in business, if that is true, then it is probably just too complicated to work in the long run as well). They pronounced bold new eras, stating “This time is different”, “There is a new math” (as if there was something wrong with the old math), etc. and so on and associated bullshit.

 

So, the question remains, why is it that a lowly blogger and small time
individual investor with a skeleton staff of analysts can uncover
systemic risks, frauds and insolvencies at a level that it appears the
SEC hasn’t even gleaned as of yet? Two words, “Regulatory Capture”. You
see, and as I reluctantly admitted, it is not that I am so smart, it is
that the regulator’s goals are not the same as mine. My efforts are
designed to ferret out the truth for enlightenment, profit and gain.
Regulators’ goals are to serve a myriad constituency that does not
necessarily have the individual tax payer at the top of the heirachal
pyramid. Before we go on, let me excerpt from a piece that I wrote on
the topic at hand so we are all on the same page: How
Regulatory Capture Turns Doo Doo Deadly

First off, some definitions:

  • The Doo Doo, as in the Doo
    Doo 32
    :
    A  list of 32 banks that I created on May 22, 2008 which set the stage for my investment
    thesis of shorting the regional banks. At that time, I was one of the
    very few, if not one of the only, to warn that the regional banks would
    hit the fan.
  • Regulatory capture (adopted from Wikipedia): A
    term used to refer to situations in which a government regulatory
    agency created to act in the public interest instead acts in favor of
    the commercial or special interests that dominate in the industry or
    sector it is charged with regulating. Regulatory capture is an
    explicit manifestation of government failure in that it not only
    encourages, but actively promotes the activities of large firms that
    produce negative externalities. For public
    choice theorists
    , regulatory capture occurs because groups or
    individuals with a high-stakes interest in the outcome of policy or
    regulatory decisions can be expected to focus their resources and
    energies in attempting to gain the policy outcomes they prefer, while
    members of the public, each with only a tiny individual stake in the
    outcome, will ignore it altogether. Regulatory capture is when this
    imbalance of focused resources devoted to a particular policy outcome
    is successful at “capturing” influence with the staff or commission
    members of the regulatory agency, so that the preferred policy
    outcomes of the special interest are implemented. The risk of
    regulatory capture suggests that regulatory agencies should be
    protected from outside influence as much as possible, or else not
    created at all. A captured regulatory agency that serves the interests
    of its invested patrons with the power of the government behind it is
    often worse than no regulation whatsoever.

About a year and a half ago, after sounding the alarm on the
regionals, I placed strategic bearish positions in the sector which
paid off extremely well. The only problem is, it really shouldn’t have.
Why? Because the problems of these banks were visible a mile away. I
started warning friends and family as far back as 2004, I announced it
on my blog in 2007, and I even offered a free report in early 2008.

Well, here comes another warning. One of the Doo Doo 32 looks to be
ready to collapse some time soon. Most investors and pundits won’t
realize it because a) they don’t read BoomBustblog, and b) due to
regulatory capture, the bank has been given the OK by its regulators to
hide the fact that it is getting its insides gutted out by CDOs and
losses on loans and loan derivative products. Alas, I am getting ahead
of myself. Let’s take a quick glance at regulatory capture, graphically
encapsulated, then move on to look at the recipients of the Doo Doo
Award as they stand now…

A picture is worth a thousand words…

fasb_mark_to_market_chart.png

So, how does this play into today’s big headlines in the alternative,
grass roots media? Well, on the front page of the Huffington
Post
and ZeroHedge, we have a damning expose of Lehman
Brothers
(we told you this in the first quarter of 2008, though),
detailing their use of REPO 105 financing to basically lie about their
liquidity positions and solvency. The most damning and most interesting
tidbit lies within a more obscure ZeroHedge article that details
findings from the recently released Lehman papers, though:

On September 11, JPMorgan executives met to discuss significant
valuation problems with securities that Lehman had posted as collateral
over the summer. JPMorgan concluded that the collateral was not worth
nearly what Lehman had claimed it was worth, and decided to request an
additional $5 billion in cash collateral from Lehman that day. The
request was communicated in an executive?level phone call, and Lehman
posted $5 billion in cash to JPMorgan by the afternoon of Friday,
September 12. Around the same time, JPMorgan learned that a security
known as Fenway,which
Lehman had posted to JPMorgan at a stated value of $3 billion, was actually asset?backed
commercial paper credit?enhanced by Lehman (that is, it was Lehman,
rather than a third party, that effectively guaranteed principal and
interest payments)
. JPMorgan concluded that Fenway was worth
practically nothing as collateral.

Hold up! Lehman was pledging as collateral allegedly “investment grade”,
“credit enhanced” securities that were enhanced by Lehman, who was
insolvent and in need of liquidity, itself. For anybody who is not
following me, how much is life insurance on yourself worth if it is
backed up by YOU paying out the proceeds after you die bankrupt? Lehman
was allowed to get away with such nonsense because it was allowed to
value its OWN securities. Think about this for a second. You are in big
financial trouble, you have only a $10 bill to your name, but your
favorite congressman (whom you have given $10 bills to in the past) has
given you the okay to erase that number 10 on the $bills and put
whatever number on it you feel is “reasonable”. So, when your creditors
come a callin’ , looking for $20 in collateral, what number would you
deem reasonable to put on that $10 bill.

Ladies and gentlemen, in the short paragraph above, we have just
encapsulated the majority of the mark to market argument. Let’s delve
farther into the ZH article:

 

By early August 2008, JPMorgan had learned that Lehman had pledged
self-priced CDOs as collateral over the course of the summer. By August
9, to meet JPMorgan’s margin requirements, Lehman had pledged $9.7
billion of collateral, $5.8 billion of which were CDOs priced
by Lehman
, mostly at face value. JPMorgan expressed
concern as to the quality of the assets that Lehman had pledged and,
consequently, Lehman offered to review its valuations. Although JPMorgan
remained concerned that the CDOs were not acceptable collateral, Lehman informed JPMorgan that
it had no other collateral to pledge.
The
fact that Lehman did not have other assets to pledge raised some
concerns at JPMorgan about Lehman’s liquidity

 

Hmmm!!! Three day old fish has a fresher scent, does it not? So where
was the SEC, the NY Fed, or anybody the hell else who’s supposed to
safeguard us against this malfeasance? Even bloggers picked up on this
months before it collapsed. The answer, dear readers: REGULATORY
CAPTURE!

Again, from ZH:

 

The SEC was not aware of any significant issues with Lehman’s liquidity
pool until September 12, 2008, when officials learned that a large
portion of Lehman’s liquidity pool had been allocated to its clearing
banks to induce them to continue providing essential clearing services.
In a September 12, 2008 e?mail, one SEC analyst
wrote: Key point: Lehman’s
liquidity pool is almost totally locked up with clearing banks to cover
intraday credit ($15bnjpm, $10bn with others like citi and bofa).
withThis is a really big
problem.

 

BoomBustBlog featured several warnings starting January of 2008!

One would think that after all of this, the problem would have been
rectified. To the contrary, it has been made worse. Congress has
pressured FASB to institutionalize and make acceptable the lies that
Lehman told its investors, counterparties and regulators. That’s right,
not only will no one get in trouble for this blatant lying, the practice
is now actually endorsed by the government – that is until somebody
blows up again. At that point there will be a bunch of finger pointing
and allegations and claims such as “But who could have seen this
coming”.

Do you not believe me, dear reader. Reference

About the Politically Malleable FASB, Paid for Politicians,
and Mark to Myth Accounting Rules
: the nonsense is unfolding and
collapsing right now, even as I type this sentence.

The next place to look??? Who knows? Maybe someone should take an An
Independent Look into JP Morgan
.. or maybe even an unbiased
gander at Wells Fargo (see

The Wells Fargo 4th Quarter Review is Available, and Its a
Doozy!)
. After all, If
a Bubble Bubble Bursts Off Balance Sheet, Will Anyone Be There to Hear
It?

More on Lehman Brothers Dies While Getting Away with Murder: Introducing Regulatory Capture:

 

Published in BoomBustBlog

A recent ZeroHedge article (Bank Of America Can Not Deny It Used Repo 105, Response From PricewaterhouseCoopers Pending; The BofA QSPE's ) probes the possibility of BofA engaging in Repo 105-like activities in regards to their QSPEs (off balance sheet vehicles). ZH does seem to uncover a lot of dirt these days. After reading the article, I think it is worth blog fans time to delve deeper into the off balance sheet world of BofA. Here are some older blog posts that ask the hard questions and raises some additional ones.

And the next AIG is... (Public Edition, and yes, I know there is a typo in Mr. Tizzio's name) Free registration required to access the naked swap note.

Published in BoomBustBlog

There are broad indications hinting that Italy and Greece are not the
only countries that have used SWAP agreements to manipulate its budget
and deficit figures. France and Portugal may be two other European
economies which have resorted to similar manipulations in the past in
order to qualify as part of single currency member nations (Euro Zone).
Below is a small subset of the research that I have been gathering as I
construct a global sovereign default model. This model is very
comprehensive and thus far has indicated that quite a few (as in more
than two or three) nations of significance have an 90% probability of
defaulting on their debt in the near to medium term. More on this later,
now let's dig into what we have found that looks like gross
manipulation of the numbers in order to hide debt in several European
countries. Here's a quick quiz. What well known (in name only) Italian
American has a significant chunk of the European Union Sovereign nations
apparently modeled their financial engineering from?

Charles Ponzi (March 3, 1882 - January 18, 1949) was
an Italian swindler, who is
considered one of the greatest swindlers in American history. His
aliases include Charles Ponei, Charles P. Bianchi, Carl and Carlo.
The term "Ponzi scheme"
is a widely known description of any scam that pays early investors
returns from the investments of later investors. He promised clients a
50% profit within 45 days, or 100% profit within 90 days, by buying
discounted postal
reply coupons
in other countries and redeeming them at face value in
the United States as a form ofarbitrage.[1][2] Ponzi
was probably inspired by the scheme of William F. Miller, a Brooklyn
bookkeeper who in 1899 used the same scheme to take in $1
million.[3]

I
think I'll call it the Pan-European Ponzi. Conspiracy theorists are
going to love this post.

Published in BoomBustBlog

There are broad indications hinting that Italy and Greece are not the only countries that have used SWAP agreements to manipulate its budget and deficit figures. France and Portugal may be two other European economies which have resorted to similar manipulations in the past in order to qualify as part of single currency member nations (Euro Zone). Below is a small subset of the research that I have been gathering as I construct a global sovereign default model. This model is very comprehensive and thus far has indicated that quite a few (as in more than two or three) nations of significance have an 90% probability of defaulting on their debt in the near to medium term. More on this later, now let's dig into what we have found that looks like gross manipulation of the numbers in order to hide debt in several European countries. Here's a quick quiz. What well known (in name only) Italian American has a significant chunk of the European Union Sovereign nations apparently modeled their financial engineering from?

Charles Ponzi (March 3, 1882 - January 18, 1949) was an Italian swindler, who is considered one of the greatest swindlers in American history. His aliases include Charles PoneiCharles P. BianchiCarl and Carlo. The term "Ponzi scheme" is a widely known description of any scam that pays early investors returns from the investments of later investors. He promised clients a 50% profit within 45 days, or 100% profit within 90 days, by buying discounted postal reply coupons in other countries and redeeming them at face value in the United States as a form ofarbitrage.[1][2] Ponzi was probably inspired by the scheme of William F. Miller, a Brooklyn bookkeeper who in 1899 used the same scheme to take in $1 million.[3]

I think I'll call it the Pan-European Ponzi. Conspiracy theorists are going to love this post.

 

There are broad indications hinting that Italy and Greece are not the only countries that have used SWAP agreements to manipulate its budget and deficit figures. France and Portugal may be two other European economies which have resorted to similar manipulations in the past in order to qualify as part of single currency member nations (Euro Zone). Below is a small subset of the research that I have been gathering as I construct a global sovereign default model. This model is very comprehensive and thus far has indicated that quite a few (as in more than two or three) nations of significance have an 90% probability of defaulting on their debt in the near to medium term. More on this later, now let's dig into what we have found that looks like gross manipulation of the numbers in order to hide debt in several European countries. Here's a quick quiz. What well known (in name only) Italian American has a significant chunk of the European Union Sovereign nations apparently modeled their financial engineering from?

Charles Ponzi (March 3, 1882 - January 18, 1949) was an Italian swindler, who is considered one of the greatest swindlers in American history. His aliases include Charles PoneiCharles P. BianchiCarl and Carlo. The term "Ponzi scheme" is a widely known description of any scam that pays early investors returns from the investments of later investors. He promised clients a 50% profit within 45 days, or 100% profit within 90 days, by buying discounted postal reply coupons in other countries and redeeming them at face value in the United States as a form ofarbitrage.[1][2] Ponzi was probably inspired by the scheme of William F. Miller, a Brooklyn bookkeeper who in 1899 used the same scheme to take in $1 million.[3]

I think I'll call it the Pan-European Ponzi. Conspiracy theorists are going to love this post.

 

Some of the top secret AIG bailout info is out. Guess who's at the heart of it, making money by creating straight trash, selling it to its clients then buying insurance to benefit from its inevitable crash?
I have been warning about Goldman's ability to sell trash to its clients
for some time now.

This is not a short post, for it is packed with a lot of supporting information, analysis and data. If you are looking for quippy paragraph, soundbyte or quick headline to get an overview of,,, well whatever, click here, or better yet, click here. For everyone else who may be looking for deeper investigative analysis and the unbridled TRUTH for a change, please continue on.

First a little background info. Goldman is supremely overvalued in my opinion. It is even more so considering much of its profit is generated solely from the raping of its clients. I say this holding absolutely no ill will towards Goldman. This is strictly factual. Let's walk through the evidence, of profit potential, valuation, and the stuff behind some of the value drivers in their business model, like brokerage and investment banking...


Published in BoomBustBlog

sen._corker.jpgSenator Corker challenged Mr. Volcker's stance in today's congressional hearings on the Volker Rule by saying that no financial holding company that had a commercial bank failed while performing proprietary trading. It appears as if Mr. Cofker may have received his information from the banking lobby, and did not do his own homework.
Let's reference the largest commercial bank/thrift failure of the all. First off, a little historical reference courtesy of WSJ.com:

WaMu Is Seized, Sold Off to J.P. Morgan, In Largest Failure in the History of the US!!!

In what is by far the largest bank failure in U.S. history, federal regulators seized Washington Mutual Inc. and struck a deal to sell the bulk of its operations to J.P. Morgan Chase & Co...

The collapse of the Seattle thrift, which was triggered by a wave of deposit withdrawals, marks a new low point in the country's financial crisis...

Published in BoomBustBlog
Thursday, 07 January 2010 00:00

Methinks It May Be Time for Mr. Geithner to Go

It's going to be pretty hard extracting your metatarsus from your anus this time around. I mean, everyone makes mistakes with taxes, but the multi-billion dollar back door bailout that you tried to hide via EMAIL???!!! Come on, guys. If you're not smarter than that then you definitely won't be able to solve this financial situation thingy... Unless he knew absolutely nothing about the biggest bailout in the history of his country - under his watch, that is...

Jan. 7 (Bloomberg) -- The Federal Reserve Bank of New York, then led by Timothy Geithner, told American International Group Inc. to withhold details from the public about the bailed-out insurer’s payments to banks during the depths of the financial crisis, e-mails between the company and its regulator show. And I must ask, Why???!!! If it was to be secret, why use email. If it wasn't to be a secret, why'd you do it anyway! Did you assume that there would be de minimus blowback in the form of repercussions?
Published in BoomBustBlog