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Wednesday, December 31, 2008

Fed to buy $500 billion MBS by mid-year?

The U.S. Federal Reserve on Tuesday moved forward aggressively with an effort to drive down mortgage costs, setting a goal of buying $500 billion in mortgage-backed securities by mid-2009.

The central bank said it would start buying the securities in early January under a program announced last month. When it announced the program, mortgage rates dropped in anticipation of the purchases.

http://www.reuters.com/article/businessNews/idUSTRE4BT55Y20081230?feedType=RSS&feedName=businessNews

The Fed will be doing the buying through PIMCO, Goldman Scahs, BlackRock and Wellington Management.

The Federal Reserve Act says:

To buy and sell in the open market, under the direction and regulations of the Federal Open Market Committee, any obligation which is a direct obligation of, or fully guaranteed as to principal and interest by, any agency of the United States.
http://federalreserve.gov/aboutthefed/section14.htm

The FBNY says it will purchase the following:

What securities are eligible for purchase under the program?

Only fixed-rate agency MBS securities guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae are eligible assets for the program. The program includes, but is not limited to, 30-year, 20-year and 15-year securities of these issuers. The program does not include CMOs, REMICs, Trust IOs/Trust POs and other mortgage derivatives or cash equivalents. Eligible assets may be purchased or sold in specified pools, in “to be announced” (TBA) transactions, and in the dollar roll market.
http://www.newyorkfed.org/markets/mbs_faq.html

Ginnie Mae securities are guaranteed by the Government. Freddie and Fannie, are not.

Look to Freddie Mac's website under question 6):

Is Freddie Mac a government agency?

No. Freddie Mac was chartered by Congress as a private company serving a public purpose.
http://www.freddiemac.com/corporate/company_profile/faqs/#BM6_

When did the "implicit" guarantee become "explicit" for Fannie and Freddie?

Tuesday, December 30, 2008

Prices cut for New Year's Eve parties

In Milwaukee, the beer capital of the US, you can easily get a limousine:

But a limo ride to the party is relatively easy to find, even at this late date, thanks to a deepening recession.

Several Milwaukee-area limousine service operators reported that bookings are down this year for New Year's Eve, traditionally a big night for their businesses.

The signs of economic distress - layoffs, foreclosures, bailouts and a stock market with a hangover to rival anything that crops up Thursday morning - have led some party-goers to cut back.

"They're not booking yet," said Samer Abulughod, owner of Crystal Limousine & Coach Inc. "Usually, people start booking three months before."

"It's the economy. It affects everything," he said. "What can you do if people have no money?"

http://www.jsonline.com/business/36863624.html

In LA, on Sunset Boulevard free hors d'oeuvres and slashed cover charges have replaced the velvet rope!

For the first time in years, clubs in this night-life mecca on Sunset Boulevard and nearby will be ringing in 2009 on Wednesday by slashing cover charges or offering special incentives, such as open bars and free hors d'oeuvres. A night out on New Year's Eve will still cost a premium, of course, but many club operators say they are purposely keeping a lid on prices even though they might be able to charge more...

Berghammer said the Viper Room considered setting New Year's Eve ticket prices around $200 but opted instead for a basic cover of $50, or $100 with drinks and other goodies included.

The less extravagant tone for New Year's reflects the big hit that nightclubs have taken in the yearlong recession.

http://www.latimes.com/business/la-fi-clubs30-2008dec30,0,3168547.story

Monday, December 29, 2008

The quote of the day

Rolling up to the meetings at around the same time was Goldman's chief, Mr. Blankfein. A Goldman aide, referring to days of meltdowns and meetings, carped to Mr. Blankfein: "I don't think I can take another day of this."

Mr. Blankfein retorted: "You're getting out of a Mercedes to go to the New York Federal Reserve -- you're not getting out of a Higgins boat on Omaha Beach," he said, referring to the World War II experience of a former Goldman head. "So keep things in perspective."

http://online.wsj.com/article/SB123051066413538349.html

Time to buy platinum at $900


Another commodity that has been crushed, because of economic fears but who has any fear buying platinum at $900? Has anyone looked at the latest graph on it?

For two months, platinum has been accumulated, and now it is ready to rip. The shortage of physical gold is giving the paper sellers on the COMEX consternation. Does anybody think that maybe a few of those buyers are going to venture into platinum, especially if they get wind that the economy may start to turn?

A few months from now, people will look at these prices and wonder why no one was buying them. That's not the point. "They" have been buying, it's just that they have been accumulating at these levels.

Now it's time to take offers!

Sunday, December 28, 2008

The next failed merger: Rohm & Haas

Say goodbye to Dow Chemical's supposedly "airtight" merger with Rohm & Hass. In July, Dow agreed to acquire Rohm & Hass in a $15.3 billion dollar buyout. $3 billion was coming from Berkshire Hathaway, and $1 billion from Kuwait, and a purchase price of $78.
http://www.iht.com/articles/2008/07/10/business/dow.php

Put this deal on the scrapheap of failed M&A.

Kuwait had previously announced a $7.5 billion joint venture with Dow Chemical that was to start January 1. Since then, however, oil prices have been crushed, and so as the Kuwait stock exchange, and there was huge political resentment against the deal.

So Kuwait backed out.

Kuwait's government Sunday pulled out of a $17.4 billion joint venture with U.S. petrochemical giant Dow Chemical Co. after criticism from lawmakers that could have led to a political crisis in this small oil-rich state.

The cabinet, in a statement carried by the state-owned Kuwait News Agency, said the venture, known as K-Dow Petrochemicals, was "very risky" in light of the global financial crisis and low oil prices. The move came just days before the Jan. 1 startup date for the joint venture.
http://online.wsj.com/article/SB123048565197437817.html?mod=testMod

The collateral damage is Rohm & Hass. That deal is now over, no matter how "air tight" the merger agreement with Dow Chemical was.

It will be just another footnote on another failed deal, in a credit squeezed recessionary environment, that will crush another arbritrage fund.

This time, it will burn Paulson & Co., who just announced they were picking up the pieces of carved up IndyMac, after the taxpayer already footed $8.9 billion of losses. They owned almost 15 million shares of ROH, which means they'll lose more than a few hundred million dollars.

Paulson & Co. went to bed Saturday night, thinking they had gotten one over on the taxpayer. They didn't know that Kuwait had a surprise in store for them today!

It looks like Paulson's arbritage fund was "yahooed" again!

Saturday, December 27, 2008

The "White House" is in foreclosure


At least the one in Atlanta! Supposedly a buyer from Dubai is interested.

Buy the White House for $9.88 million
Scaled-down replica in DeKalb County put on market

The White House is for sale.

No, not that one. The scaled-down replica on Briarcliff Road in DeKalb County.
http://www.ajc.com/homefinder/content/homefinder/stories/2008/12/18/white_house_sale.html

Insurers: Liable for mental anguish

Guess which insurance company didn't pay up for a Katrina claim? It's the same company who has this as it's motto for claims, "Deny, deny, deny and then delay." Now insurance companies can be held liable for mental anguish. And who would this noxious insurance company be? One more clue-It's the same Insurance company that never paid the claim, for the boys on the Duke Lacrosse team who were falsely accused of rape. It's none other than the taxpayer-backed criminal enterprise, AIG!

Here's the story:

In a rare win for policyholders in an appellate court, the Fifth U.S. Circuit Court of Appeals said this week that insurers can be held responsible for mental anguish damages when they show bad faith in paying claims.

The decision upheld a ruling from federal court in New Orleans in the case of Marrero homeowner Dale Dickerson, who was forced to live his bathtub refinishing shop and take showers under a cold garden hose while standing on a wooden pallet in an unheated room for a year and a half while fighting Lexington Insurance Co., a unit of AIG, for proper payment of his Hurricane Katrina claim.

A three-judge panel upheld U.S. District Court Judge Carl Barbier's finding that Lexington acted in bad faith for dragging out payment of Dickerson's claim without reason and should be held responsible for inflicting unnecessary stress on Dickerson's life. Bad faith means that an insurer was abitrary and capricious in its claims-handling, and failed to pay without probable cause.

Plaintiffs attorneys around the city immediately started incorporating the Dickerson ruling into their briefs in pressing for mental distress damages against other insurance companies...

Maniloff predicted that the Fifth Circuit's ruling would be the end of the case on mental anguish, for Lexington would be wasting its time to try appeal to the U.S. Supreme Court. "I think they're out of options," he said...

Maniloff said that the case should be a reminder to insurers to pay the portion of a claim that is settled while they work with homeowners on portions of the claim that are still in dispute.
http://blog.nola.com/tpmoney/2008/12/fifth_circuit_court_of_appeals.html

Who is sniffing around the NY Times?

A couple of weeks ago, this story got a little legs with Dvorak.
http://www.dvorak.org/blog/2008/12/13/will-google-buy-the-new-york-times/

Or with Splice:
http://splicetoday.com/politics-and-media/will-google-buy-i-the-new-york-times-i

And then the idea was taken up further here.
http://www.thedeal.com/dealscape/2008/12/could_the_stars_be_aligning_fo.php

In April, Google's CEO Eric Schmidt was asked about a purchase of the NY Times. He said:

I'm not aware of a proposal for us to buy the New York Times, but I'd never rule anything out.
http://www.portfolio.com/executives/features/2008/03/14/Google-CEO-Eric-Schmidt-Interview#page2

Now that the stock has been smashed to a hat size, the real question to ask is "Is the NY Times aware of any proposal?"

Now the NY Times is ready to sell the Red Sox, and The Globe. Many millions higher, and back before the NY Times cut their dividend, Jack Welch and a group were supposedly interested in The Globe. Why didn't the Times sell it then?

Now we know that the second richest man in the world, Mexican billionaire Carlos Slim, and huge NY Yankee fan, has accumulated a position the the NY Times.
http://news.muckety.com/2008/09/12/carlos-slims-buy-in-to-new-york-times-boosts-stock/4982

Now the Times is getting rid of the Boston Red Sox.

That's a move that Carlos Slim would approve!

Friday, December 26, 2008

The public turn paparazzi with Obama

Whether at the beach, golf or working out, Obama's visit to Hawaii is met with universal adulation. The mood of the country could be much more inspirational next year, and that definitely is not reflected in current stock prices.

Bank of Spain: World faces financial meltdown

The governor of the Bank of Spain on Sunday issued a bleak assessment of the economic crisis, warning that the world faced a "total" financial meltdown unseen since the Great Depression.

"The lack of confidence is total," Miguel Angel Fernandez Ordonez said in an interview with Spain's El Pais daily.

"The inter-bank (lending) market is not functioning and this is generating vicious cycles: consumers are not consuming, businessmen are not taking on workers, investors are not investing and the banks are not lending.

"There is an almost total paralysis from which no-one is escaping," he said, adding that any recovery -- pencilled in by optimists for the end of 2009 and the start of 2010 -- could be delayed if confidence is not restored.

Ordonez recognised that falling oil prices and lower taxes could kick-start a faster-than-anticipated recovery, but warned that a deepening cycle of falling consumer demand, rising unemployment and an ongoing lending squeeze could not be ruled out.

"This is the worst financial crisis since the Great Depression" of 1929, he added.

Ordonez said the European Central Bank, of which he is a governing council member, would cut interest rates in January
if inflation expectations went much below two percent.

"If, among other variables, we observe that inflation expectations go much below two percent, it's logical that we will lower rates."

Regarding the dire situation in the United States, Ordonez said he backed the decision by the US Federal Reserve to cut interest rates almost to zero in the face of profound deflation fears.

http://www.breitbart.com/article.php?id=081221154025.lrwl34xi

Part of the problem has been the ECB's reluctance to cut rates. ZIRP across the globe!

Wednesday, December 24, 2008

AIG's Christmas present

This was AIG last week, denying that they had more losses.

Lewis said the insurer normally marks the value of the assets underlying swaps to market levels since it is taking some risk in the transactions. The swaps with the European banks are different because they didn’t insure against losses, he said. Instead, they were bought to take advantage of European accounting rules that allow the banks to use the swaps to reduce the capital they’re required to set aside as loss reserves.

You have to read the whole post, to get the extent of their obfuscation.
http://aaronandmoses.blogspot.com/2008/12/more-losses-for-aig-again.html

Today we find out that the taxpayer took on another $16 of CDO's coughing up another $6.7 billion of taxpayer money.

The purchase of the additional $16 billion of multi-sector CDOs was funded by a net payment to counterparties of approximately $6.7 billion and the surrender by AIGFP of approximately $9.2 billion in collateral previously posted by AIGFP to CDS counterparties in respect of the terminated CDS.
http://biz.yahoo.com/bw/081224/20081224005064.html?.v=1

The taxpayer, or Maiden Lane III stepped up to the plate:

American International Group, Inc. (AIG) today announced that Maiden Lane III LLC (ML III), a financing entity recently created by the Federal Reserve Bank of New York (FRBNY) and AIG, has purchased an additional $16 billion in par amount of multi-sector collateralized debt obligations (Multi-Sector CDOs). As a result, the associated credit default swap contracts and similar instruments (CDS) written by AIG Financial Products Corp. (AIGFP) have been terminated.

AIG still has another $12.3 billion, that they need to work-out. So far, the taxpayer/Maiden Lane III has now taken over $62 billion from AIG.

AIG makes Madoff look like a piker!

Tuesday, December 23, 2008

More municipal bankruptcies coming?

Dec. 23 (Bloomberg) -- The accountant who predicted the nation’s largest municipal bankruptcy says as many as 10 insolvencies will roil the $2.7 trillion U.S. market for state, county and city debt next year as public finances worsen amid calls for federal aid to state and local governments.



John Moorlach said in 1994 that Orange County, California’s leveraged investing strategy could wreck its finances. The county went bankrupt about six months later after losing $1.6 billion.
As many as four cities in the Golden State and six others nationwide may seek court protection from creditors next year under Chapter 9 of the bankruptcy code, the section devoted to municipal governments, Moorlach said in an interview.
http://www.bloomberg.com/apps/news?pid=20601109&sid=adSvg08A04KI&refer=news

Madoff's accountant

Information asymmetry

Let's see what wikipedia has to say:

In economics and contract theory, information asymmetry deals with the study of decisions in transactions where one party has more or better information than the other. This creates an imbalance of power in transactions which can sometimes cause the transactions to go awry.
http://en.wikipedia.org/wiki/Information_asymmetry

Does that describe synthetic CDO's sold by Investment banks to unsuspecting investors? JPMorgan is already stating that these individuals were "sophisticated." How about Barclay's? Are they sophisticated?

Barclays PLC, stung this summer when two big hedge funds run by Bear Stearns Cos. collapsed, is suing the Wall Street firm and two of its fund managers, claiming among other things that Bear misled it about the performance of the highly leveraged funds.

In a complaint filed in U.S. District Court in Manhattan, Barclays alleges that Bear, its money-management unit Bear Stearns Asset Management and two senior BSAM executives, Ralph Cioffi and Matthew Tannin, defrauded it in borrowing and investing capital....

As the High-Grade funds faltered, the Barclays complaint alleges, their desperate state was concealed from bank officials, whose calls and emails were dodged as they sought performance information. "It is now clear that the BSAM defendants have long known that the Enhanced Fund and its underlying assets were worth far less than their stated values in the early months of 2007," asserts the complaint, referring to Messrs. Cioffi and Tannin, "and were at great risk for further losses."

http://online.wsj.com/article/SB119810284016240529.html

In the Bear case, Barclays also uses Cioffi's withdrawal of money from the fund to help bolster it's argument. In a synthetic CDO, a bank is just offloading it's risk. It's just a more clever way of withdrawing your investment, without withdrawing it!

In the SEC case against Tannin, Ms. Susan Brune attempts to point out, for the defense, that there isn't any asymmetry:

MS. BRUNE: There is no asymmetry here at all. http://online.wsj.com/public/resources/documents/beartranscript.pdf

If it's good enough for Barclay's, it's good enough for those in the Australian outback!

Fairfield's letter to Madoff investors

FAIRFIELD SENTRY LIMITED

Romasco Place, Wickhams Cay 1

Road Town, Tortola

British Virgin Islands, VG 1110

December 22, 2008


Dear Shareholder,

Suspension of the Calculation of Net Asset Value

Reference is made to the extraordinary events of last week regarding Bernard L. Madoff Investments Securities LLC ("Madoff"). As you are most likely aware, on December 11, 2008 Bernard Madoff was arrested and charged with securities fraud for operating in essence a giant Ponzi scheme. It has been alleged that Madoff's fraud involved a loss in both cash and securities of possibly US$50 billion.

As you will have read in the press, Fairfield Sentry Limited (the "Company") was significantly exposed to Madoff. At this point in time the value of the Company's investment in Madoff is not certain. There may be residual assets in Madoff to be distributed or, alternatively, there may be no assets.

With the view to acting in the best interests (of ourselves) of the Company and all of its shareholders and creditors, the Board of Directors of the Company (the "Board") has suspended the calculation of net asset value with a corresponding suspension of redemptions and subscriptions pursuant to Article 11(4) of the Articles of the Association of the Company, due to the fact that the Board determined (i) that circumstances exist as a result of which in their opinion it is not reasonably practicable for the Company to dispose of investments or that any such disposal would be materially prejudicial to shareholders, (ii) that a breakdown has occurred in the means normally employed in ascertaining the value of investments of the Company, (iii) that the value of the investments of the Company cannot reasonably or fairly be ascertained and (iv) that the Company is unable to repatriate funds required for the purpose of making payments due on redemption of shares. As such, pursuant to the powers contained in the Articles of Association of the Company, the Board has suspended the determination of the net asset value.

As a result of such suspension, all subscriptions (People still putting money in here? Boy is that rich) into and redemptions from the Company have been suspended. With respect to redemption requests received for the November 30, 2008 dealing date, the payment of these proceeds of redemption have been similarly suspended pursuant to the powers contained in the Articles of Association of the Company.

The Company has retained counsel in the British Virgin Islands and the United States to represent its interests. These counsel will advise as to what action should be taken to ensure the Company's interests in the remaining assets of Madoff are represented, to ensure an orderly running of the affairs of the Company and to ensure that all shareholders and creditors are treated equitably and fairly. In this regard and as advised by counsel, we are not able to respond to requests for information by individual shareholders at this time. Rather, information will be provided to all shareholders to ensure that no one shareholder is at an advantage.

We note that the manager to the Company, Fairfield Greenwich (Bermuda) Limited, has waived all fees until further notice. (Now that we've lost all your money we aren't charging you!)

We will endeavour to keep you advised of developments with respect to the Company.


Yours faithfully,

The Board of Directors

(italics mine)

Bank of America gives out a fake $100 bill

PALATKA, Fla. — A Palatka woman says a bank gave her a fake $100 bill she tried to use at a Wal-Mart.

Sonya Small, 37, says she tried to pay for her purchases with the bill but was told it was fake.

Small showed a Walmart supervisor her withdrawal receipt from a Bank of America branch, where she took out $800. Police took the fake bill as evidence and Small said after arguing with a bank employee later in the day, she received new bills and a replacement for the $100 bill that was taken.
http://www.foxnews.com/story/0,2933,471185,00.html

BofA gives out a fake $100, and it makes the national press. Too bad Ken Lewis isn't so careful with shareholders money!

Fairfield Greenwich sued

Dec. 23 (Bloomberg) -- Fairfield Greenwich Group, Walter Noel’s hedge-fund firm that had $7.5 billion invested with Bernard Madoff, was sued by investors for allegedly failing to protect their assets.

Noel’s Greenwich Sentry fund invested $220 million with Madoff and his Fairfield Sentry fund invested $7.3 billion solely in Madoff, jeopardizing investors’ interests while collecting “millions of dollars in fees,” according to a complaint filed Dec. 19 in New York State Supreme Court in Manhattan.

Fairfield Greenwich Group founding partners Noel, Andres Piedrahita and Jeffrey Tucker are accused of breach of fiduciary duty, negligence and unjust enrichment, as are Brian Francouer and Amit Vijayvergiya of FG Bermuda, a Noel affiliate. The complaint was filed as a class-action, or group, lawsuit on behalf of investors.

“FG defendants failed to perform even a minimum level of due diligence regarding the activities of Madoff,” according to the complaint.
http://www.bloomberg.com/apps/news?pid=20601087&sid=athXyvizTMBs&refer=home

Now all Madoff investors for the past six years may have to forfeit their gains:

The 53-year-old investor, who asked not to be identified to protect his stake, took out about $600,000 this year from his $1.5 million account, using some of it to pay down a mortgage. He and other Madoff clients who withdrew funds as long as six years ago may be sued on behalf of other victims to return profits and even principal, securities and bankruptcy lawyers say.

“Right now there are Madoff winners and Madoff losers,” said Lynn LoPucki, who teaches bankruptcy law at Harvard University. “Before this is over there will be nothing but Madoff losers.”
http://www.bloomberg.com/apps/news?pid=20601087&sid=a3kFmYaaw5sY&refer=home

Another case of JP Morgan stealing money

Let me editorialize this story that was in the WSJ today:

PARKES, Australia -- In this town of 10,000 in what Australians call "the bush," administrator Alan McCormack has a headache. The county council is poised to lose millions of dollars if more U.S. companies succumb to a deepening recession.

Ten thousand miles away, at New York investment firm ICP Capital, hedge-fund manager William Gahan is reaping big gains on Mr. McCormack's predicament.

The fortunes of the two men are connected through an investment known as a "synthetic collateralized debt obligation." Between 2005 and 2007, the Parkes local council put more than A$13.5 million ($9.3 million) of its savings into synthetic CDOs. The investments offered an attractive income and a gold-standard credit rating -- in return for providing a sort of insurance on the debt of hundreds of mostly U.S. companies

Now, though, if even a handful of those companies renege on their debts, Parkes will have to cough up as much as A$12 million to honor the insurance commitments it made. That's been a boon for Mr. Gahan, who used financial products to place bets against many of the same companies.

The linkage between Messrs. McCormack and Gahan demonstrates how far a vast superstructure of credit derivatives such as synthetic CDOs, built up over the past decade, has spread the risk of lending to U.S. companies -- and how far the pain is likely to reach. They're called derivatives in part because they don't entail any direct investment into companies. Instead, they're more like side bets on the companies' fortunes.

Global investors have already lost billions of dollars on derivative investments tied to U.S. subprime mortgages, but many more -- including towns, charities, school districts, pension funds, insurance companies and regional banks -- put money into synthetic CDOs that insure the equivalent of trillions of dollars in mostly U.S. corporate debt.

http://online.wsj.com/article/SB122999335538628723.html

Who was buying these synthetic CDO's anyway? Does anyone think that these investors dreamed up these securities? No it was JP Morgan. Milken at Drexel conjured up CDO's. Then JPM Morgan conjured up credit default swaps (CDS) in 2000, but they were created so they couldn't be regulated. You can read about them in the link below, but let me help you with just a couple parts:

A fundamental premise of the CDS market is that CDS are not insurance contracts. The conclusion that CDS are not insurance contracts is based upon the fact that the buyer of credit protection under a CDS need not suffer any loss nor provide any evidence of any loss with respect to the relevant reference entity or obligation to receive payment from seller....

The Commodity Futures Modernization Act of 2000 (CFMA), signed into law by President Clinton on December 21, 2000, generally excludes CDS from regulation as “futures” under the Commodity Exchange Act. Furthermore, the CFMA provides that CDS are “swap agreements” that do not constitute “securities” for purposes of the 1933 Act or the 1934 Act.
http://www.kramerlevin.com/files/Publication/8c676a8c-c444-4091-827b-008b78feaa15/Presentation/PublicationAttachment/f31d02c5-7ce3-4ea6-9fa7-02b2ac07d509/5361_Alert_CDSwaps_v7.pdf

Now merge CDO's with CDS's and you have synthetic CDO's! And you can sell something that then, isn't regulated, by sophisticated banks that craft these deals, and sell these products to unsuspected and unsophisticated investors in the outback of Australia or the farming communities of Wisconsin! But to make the scam kosher, the Investment bank would hook up with another bank in the community of which it wanted to fleece. The con needed a front man, and they needed to throw in fees to get it juiced!

As synthetic CDOs run into trouble, investors are popping up in unexpected places. In Singapore, hundreds of individuals, including retirees, who bought these notes were recently told they were unlikely to get any of their money back. In Wisconsin, five school districts that put a combined $200 million into synthetic CDOs in 2006 now face budget shortfalls due to write-downs on those investments. Belgian bank KBC recently took a €1.6 billion ($2.23 billion) write-down on synthetic-CDO investments. Australian town councils invested nearly A$600 million in synthetic CDOs, according to a government report.

And why would the banks create these synthetic CDO's? Because they needed to hedge their exposure to the companies that were going bust. Why else was Fannie Mae, Freddie Mac, Countrywide, AIG, Lehman, Bear Stearns, AIG, MBIA, PMI, the banks in Iceland that went bust, and a whole slew of homebuilders in this paper?

The deal was that they would sprinkle in the bad names, with a bunch of good names, but if you had 9 bad names out of a 100 go bust, then the buyer of this synthetic CDO was on the hook for the banks problem. Why 100 names? Because a bank that creates this synthetic CDO, with a Cayman Island off balance sheet Special Purpose Vehicle (SPV) needs at least that many names in it. And the fees are cheap! And investors won't understand what they are buying, but the banks know exactly what they are selling!
http://www.securitization.net/knowledge/spv/caymanveh.asp

See the bank was dealing with leveraged loans to these companies, while the bank, was hedging their same risk to these companies, by creating a synthetic CDO that looked good on paper, that would implode. And by creating this insurance product, (of which by definition it wasn't, though it was) and by having the rating agencies rate what they didn't understand, the bank offloaded the stuff they created to those that didn't know what the bank was peddling.

Bankers engineered them to provide the highest possible return while still garnering gold-standard credit ratings. But one feature made them a lot riskier than a similar portfolio of corporate bonds: If losses to defaults rose above a certain threshold -- typically between 3% and 6% of the underlying pool of debt -- investors would lose all their money.

Look at the fees in one of these deals.

Torquay was a huge success for its creators, selling some A$95 million in notes to Australian investors. J.P. Morgan's expected revenue over the life of the seven-year deal would have been worth more than A$6 million, compared with less than a million for a typical bond issue of similar size, according to people familiar with such transactions.

About A$2 million of that would go to Grange for acting as the underwriter and distributor. About A$100,000 would go to Standard & Poor's for rating the deal. Lion Capital Management, the firm appointed to manage the portfolio, would get close to A$1 million. Meanwhile, the investors, who took on almost all the risk, would receive payments worth a total of about A$7.5 million.


Who was hit in Torquay's portfolio?

Torquay was hit by five of the seven major defaults that have occurred in 2008: Lehman, Washington Mutual, Freddie Mac and Icelandic banks Kaupthing and Glitnir.

Now the world understand that these synthetic-CDO's are completely toxic.

Meanwhile, the price of default insurance on companies widely used in synthetic CDOs suggests cumulative losses to defaults could rise to more than 10% over the next five years. That would wipe out almost all of Parkes's investments in various synthetic CDOs, as well as a large portion of all the synthetic CDO deals currently outstanding globally.

Once again, it's just theft. But this time, the banks created the product, and then offloaded it unto those who didn't understand it. In the WSJ piece JP Morgan said the purchaser was a "sophisticated client that specified what it wanted in an investment product."

Yeh right. Farmers want a off balance sheet, Cayman Island SPV structured synthetic CDO's from a NY bank gnome!

The WSJ's conclusion:

As a result, synthetic-CDO deals are poised to trigger a massive transfer of wealth from investors such as Parkes to hedge funds and the trading units of big U.S. investment banks. By various estimates, the amount of money set to change hands could be anywhere from tens of billions to hundreds of billions of dollars.

Was all of Wall Street suddenly just so prescient that they could make tens and tens of billions of dollars, by farmers glamoring to buy these structured products? We have outrage from Bernie Madoff? Where's the outrage on JP Morgan?

It's just another bank putting lipstick on a pig.

And another case of Wall Street stealing money from the unsophisticated.

Until the lawyers get involved!

Charity givers becoming cautious

Ever since news reports began surfacing last week that a number of charities appeared to have lost millions of dollars invested with Bernard Madoff, Bill White has been fielding phone calls and emails from nervous donors to the two New York nonprofits he runs.

Each asked if the charities -- the Intrepid Sea, Air & Space Museum and the Intrepid Fallen Heroes Fund, a foundation that helps wounded soldiers and their families -- had invested with Mr. Madoff. One, who was considering making a gift of almost $1 million to the museum's endowment, also wanted to know if it had invested with American International Group Inc. or any automotive companies.

http://online.wsj.com/article/SB122999068109728409.html?mod=article-outset-box

Now if charity donors are being skepitical of where their money is being invested, then how much money will be yanked from hedge funds?

Or does someone assume that these hedge fund investors are just looking for a tax loss?

SEC being sued for losses in Madoff case

Finally, someone is taking on the SEC, despite the high hurdles for relief:

A New York woman who lost nearly $2 million investing with Bernard Madoff has filed a claim against the Securities and Exchange Commission alleging the agency was negligent in failing to detect an alleged decades-long fraud.

The administrative claim for relief was filed with the SEC on Monday and is believed to be the first attempt by an investor to recover lost money from regulators. Phyllis Molchatsky, a 61-year-old retiree from Valley Cottage, N.Y., is seeking $1.7 million in damages from the agency.

The SEC's "statutory purpose is to protect the public interest. We feel they fell down on the job in this instance," said Howard Elisofon, the lawyer representing Ms. Molchatsky and a former SEC enforcement attorney.

The SEC declined to comment.

An administrative claim for relief is the first step in filing a lawsuit against the government. If the SEC doesn't negotiate or respond to the claim within six months, the investor can file a lawsuit in federal court.

The doctrine of sovereign immunity limits the kind of cases in which a U.S. citizen can sue the government for damages.

"It's an uphill battle to succeed with this," said Gregory Sisk, a law professor at the University of St. Thomas School of Law in Minneapolis. He said courts are reluctant to find that government agencies should act as insurance against any losses.

"The government undoubtedly would argue that if liability is imposed here it creates a disincentive for the government to do any regulation in the future," he said.

Last week, SEC Chairman Christopher Cox admitted that the SEC's examination staff had missed red flags over the years. He said the agency had credible and specific allegations about Mr. Madoff's alleged fraud going back nine years and added he was "gravely concerned by the apparent multiple failures over at least a decade to thoroughly investigate these allegations."

An SEC enforcement investigation in 2006, prompted by complaints from a former competitor to Mr. Madoff, found that Mr. Madoff had lied to SEC examiners during a routine review of his investment advisory business. The SEC closed the investigation without any public punishment and said it found no fraud. Previous SEC examinations of the Madoff trading business also didn't detect any investment fraud.

According to Ms. Molchatsky's claim, the SEC's "failure enabled Madoff to perpetuate and expand the scheme, drawing in more and more innocent investors."

http://online.wsj.com/article/SB122999646876429063.html?mod=article-outset-box

Monday, December 22, 2008

DryShips: The scams continue!

George Economou, who had DryShips buy 9 ships from him, at the top of the market, from his company Cardiff-Marine, now says that the deal may be cancelled. Anyone wonder if his stock sales overseas will be cancelled also?

Unless of course, he covered his shenanigans!

Here's the story from Lloyd's List:

SHIPOWNER George Economou has confirmed that his Nasdaq-listed dry bulk giant DryShips is likely to cancel a controversial purchase of nine capesize bulkers from his private fleet.

“I am not saying it depends only on one person,” Mr Economou told Lloyd’s List today. “But in general under these conditions, it is good for any company to restrict capital expenditure and new debt. It is not the time to spend.”

He admitted that the matter was being discussed by the public company’s audit committee, comprising the three independent directors on DryShips’ board.

When unveiled just two-and-a-half months ago, the $1.2bn capesize acquisition drew criticism from some quarters for the near-$130m price per unit agreed against the beginnings of a fall in bulker values, despite the fact that Mr Economou’s remuneration was entirely in stock.

In addition to issuing 19.4m new shares to its chairman and chief executive, however, the company faced shouldering $216m in bank debt on the ships and $262m in remaining installments for the five newbuildings among the nine.

The fleet at stake comprises one older capesize, three 2006-built vessels and five newbuildings for delivery in 2009 and 2010.

Possible cancellation was hinted at in a December 10 announcement, which said the company would “seek to amend, wherever possible, the contracts regarding dry bulk acquisition and newbuilding commitments, potentially resulting in significant capital expenditure savings”.

However, the comment was largely overlooked as a policy statement as it was taken mainly to apply to the cancellation of four panamax newbuildings, two of which are still under construction, confirmed in the same statement.

Although analysts generally welcomed the move to ditch the acquisitions, some questioned whether the terms were punitive to the public company.

If the capesize cancellation, too, is confirmed, DryShips will almost certainly face a considerable charge for dumping the ships back in its boss’ lap.

Mr Economou said “the private side lost out by $100m” from the collapse of the panamax deal.

Asked how he could square his private interests with those of leading the public company when it came to unraveling such deals, Mr Economou said he expected to take a hit from the cancellation.

“If it’s good for one, then it is probably not so good for the other side. It is a question of compromise but I can take more losses on the private side,” Mr Economou said.

“The private side at this time did not want to have the ships. The private side is not happy – obviously – despite what people think.”

None of the newbuildings still to be delivered — two from the panamax deal and five from the capesize transaction — could be cancelled with the builders, he said.

With more than 30% of DryShips’ stock, before the capesize deal, Mr Economou is the listed company’s largest stockholder.

“I stand to be more affected than anyone as far as DryShips is concerned,” he added.
http://www.lloydslist.com/ll/news/dryships-likely-to-cancel-12bn-economou-capesizes/20017602626.htm;jsessionid=7D86E3C5DF93479F7EFEB1E4442FBF9E

When is somebody going to take a look at the action in the books of Sifno Traders and Tinos Traders? George assumes that if he discloses all his double dealing, then shareholders will leave him alone. Let's take a look at his last deal, when DryShips canceled four ships, that they were going to purchase from his company, Cardiff-Marine. The penalty? A $55 million cancellation feed, and an option to purchase the ships at a bit more than their current value of $134 million for a $160 million, at the end of 2009. The cost for this option? $105 million!
http://aaronandmoses.blogspot.com/2008/12/polite-journalists-say-economou-is.html

Why the noxious penalty of $105 million. First, because that was just George stealing from DryShips. Let's look at a real life example incurred by Eagle Bulk Shipping.
http://biz.yahoo.com/pz/081219/156679.html

EGLE put down $47 million for a deposit on 8 ships. EGLE acquired the options to purchase the 8 ships at the original contract price for just $55,000 a ship. The options on the eight ships cost EGLE $440,000. DryShips, on the other had, paid $26.3 million per ship, or $105 million for the options on the four ships.

So we have $440,000 versus $105 million.

Guess which one is with a related party?

It will surely be a treat when we find out DryShip's cost for scuttling this latest deal with the shipping scoundrel George Economou!

Madoff boilerplate: He can walk with your money!

One of the biggest investors in Bernard Madoff’s alleged $50bn fraud explicitly warned its clients of the danger that his brokerage “could abscond with those assets”, but still attracted $2.75bn, according to documents sent to investors.

Kingate Global, which channelled its money to Bernard L Madoff Investment Securities to manage, highlighted the risk of giving custody of its assets to its investment manager – Mr Madoff, although he was not named in the documents – and said they would not check the accuracy of statements he provided.

The alert is the most explicit in a series of warnings put into marketing material by “feeder” funds that put almost all their cash with Mr Madoff’s firm, and highlights how he was allegedly able to pull off what could be the biggest financial fraud ever.

Few of the funds named Mr Madoff or his brokerage in their documents, while others went out of their way to claim they were monitoring the performance of their manager to ensure trades were executed as claimed.

The question of what investors were told about the feeder funds’ links to Madoff has become a key element of the first court case to be filed by an investor, and lawyers say they are examining documents of other funds to establish whom to sue.

In its action against Ascot Partners, a Madoff feeder fund run by Ezra Merkin, chairman of GMAC, the New York Law School says it would never have invested $3m if documents had disclosed that “virtually all of Ascot’s assets” were invested with Madoff.

Some funds openly boasted of their links to Madoff and many investors were keen to invest.

Fairfield Greenwich, which operated the biggest feeder fund, said in marketing documents that Madoff’s services were “essential to the continued operation of the fund”. Fairfield declined to comment.

The marketing documents for the $7.3bn Fairfield Sentry fund said it would “maintain full transparency to BLM [Madoff Securities] accounts” with “independent verification of prices and account values”.

All the funds reported similar returns – steady positive returns with an occasional monthly loss. Defender, a fund from British Virgin Islands-based Reliance, claimed the strategy had lost money only 11 times since 1992, with a maximum monthly loss of 1.64 per cent. Kingate warned in its fund prospectus “there was always the risk that the assets with the investment adviser could be misappropriated”.

“In addition, information supplied by the investment adviser may be inaccurate or even fraudulent. The co-managers [Kingate and Tremont] are entitled to rely on such information (provided they do so in good faith) and are not required to undertake any due diligence to confirm the accuracy thereof,” it said.

http://www.ft.com/cms/s/0/56537fba-d076-11dd-ae00-000077b07658.html

AIG's Liddy's little lies

AIG's Liddy was on CNBS this morning, attempting to defend the $450 million that AIG needed to pay employees to stay at AIG. "Retention" bonuses is what this is called.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aAPt6J4dALFE&refer=home

Liddy said, "If you don’t use retention bonuses, those people are some of the best in the insurance industry, they will go elsewhere and we won’t have anything to sell."

Then let them go.

Liddy said that if the people go, they wouldn't be able to pay back the government it's loan. Well they couldn't in this environment anyway. AIG got the government money, because AIG subsidized the Investment Banks that were smarter than AIG's people. They had the other side of the bets that AIG (excuse me, the taxpayer) had to make good on.

But I don't have a "black box" like AIG did, but I can do some simple math. And with this simple math, let's see what AIG can get for it's crown jewels.

AIG sold it's Hartford Steam Boiler unit today for $742 million, of which it paid $1.2 billion for 8 years ago.
http://www.portfolio.com/views/blogs/daily-brief/2008/12/22/aig-lets-out-some-steam

This was one of it's crown jewels. It was sold at 5X earnings. Now supposedly AIG used to make $10 billion a year, but we know that they were booking phantom earnings from credit default swaps that they were selling under AIGFP. AIG used to make around $4 billion a year, before they became enamored with these derivative side bets. AIG plans on selling 70% of the company. 70% of $4 billion is $2.8 billion. Round it up to $3 billion, and give it a 5 multiple, and you get $15 billion.

How then is AIG going to sell $70 billion worth of assets? And what is AIG's market cap today with the non counted but needed to be counted piece, that you the taxpayer has? It's less than $20 billion.

So why would anyone listen to Liddy's lies?

Liddy said that his organization was the only one that had a plan to pay back the Government $60 billion in 2009.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aDXR6Ayuezx4&refer=home

Where is his plan? Can we see that? Will he show it to us or do we have to do a FOIA and then find out that the plan is "confidential?"

AIG first snowed shareholders, and now Liddy wants to snow taxpayers.

Either way, it's just lies coached in the veneer of business judgement!

Fail to Deliver hits hedge funds


Remember the FTD's in the Treasury market? $2 trillion worth?

How's the repo market doing while I'm asking. For that matter, how's the TIPS market? How about the TMPG before the TSHTF? TPMG, of course, is the Treasury Market Practices Group, which was supposedly attempting to fix the fails.

How about the Fail-to-Deliver in the naked shorting that went on in the financials? The companies that went bust, were of course insolvent, but busting the stock price, helps your case. But where was the enforcement? Even the poster child, Bear Stearns had FTD's of 13.4 million shares before it cratered! But all those who played loose with the rules, and shorted Bear naked, without getting a good delivery, made millions. Who bothers with rules when you can get paid like that?

Now let's see if Madoff has helped clarify FTD's! Weren't the hedge funds supposed to deliver hedged returns in good and bad markets? It looks like they failed-to-deliver on their promises!

Let's take a look at Citadel, another wannabe Master of the Universe, who's locking up money from those who want to withdraw it. When it was down 25%, he wanted a retraction from a blogger.

Now Business Week talks how the "impregnable" Citadel is down 50%.
But that's just the tip of the iceberg. If the impregnable fall, how about those that weren't? But Madoff's ponzi collapse will cause investors to crash the hedge fund party, and demand their money back. After all, are the hedge fund "black boxes" any better than AIG's?

So the whisper campaign starts on the hedge funds. Didn't these hedge funds whisper the financials down? So those with armed with information, and competitors, will start the wisper campaign of the weaker funds. Capital will flee from these pretenders.

The hedge funds, who shorted the stocks of the financials and pocketed the money, on their FTD's, will now receive the same treatment that they dished out.

These same hedge funds, have failed to deliver returns ! So the investors in them will demand their money back. And then we'll have more FTD's.

We'll have hedge funds, that failed to deliver returns, failing to deliver their money! Which will cause more redemptions, and more hedge funds to go bust.

FTD's all over the street! We'll have so many FTD's that even http://www.deepcapture.com/ will get a buzz!

Those, who started the whisper campaign against stocks to drive them down, will now be driven out of business by the same whisper campaigns. A little whispering, and you could get depositiors to yank their money from a bank. How tough will it be to get investors panicked enough to yank their funds from these hedge funds? How about one word. "Madoff!"

And how ironic is that, that the one who will clean up the street, 10X better than our lame ass SEC, is none other, than the one the SEC couldn't nail.

Count Bernie Madoff! His failure, was the shining light on all those who hide behind proprietary algorithms, and nebulous marks. And his failure, in retrospect, will be the turning point, in the purge that was needed on Wall Street!

Now remember, there was supposedly a whole factionbof Wall Street that assumed Bernie was crooked. Why didn't then, they do anything about it? Maybe because they were crooked too?

Ooops I'd better be careful.

I might just say "Madoff!"

Scraps from Russell's Investment Manager Outlook

A majority of managers expressed bullishness in eight of the survey’s 13 asset classes. The previous high for a bullish majority was four asset classes. Record highs for bullishness were set in four asset classes—corporate bonds, U.S. small cap value, U.S. mid cap value and high-yield bonds. Value investing also increased in bullish sentiment. Bearishness slightly outweighed bullishness regarding equities in emerging markets and non-U.S. (developed) markets.

Managers see the equities market as oversold, resulting in part by forced selling by leveraged shareholders. With poor liquidity in the bond and cash markets, equities remain the only assets that can easily be sold.

The market, according to managers, seems to have overshot the damage done by the ongoing recession. Seventy-two percent of those surveyed described the market as undervalued—a survey record—compared with 45% last quarter and 34% a year ago. “If the U.S. avoids a calamity,” says Dick Gould, chief investment officer at Gould Investment Partners, “stocks are very cheap.” Managers are also bullish on bonds—corporate and high-yield. While the majority of the managers surveyed believe the market to be undervalued, 20% of the managers declared the market to be “fairly valued.” They cite the risks that define the current economic and financial environment. Seventeen managers (8%) see the market as still “overvalued.” They believe we have not yet established a bottom and forecast a bearish direction well into next year....


The greater appeal of bonds—corporate and high-yield—in this quarter’s survey reflects a major development. Bullishness for corporate bonds reached a historic high of 60%, up from 37% last quarter and a survey low of 4% in the first quarter of 2005. The level of bullishness for high-yieldbonds also rose sharply to 53% from 39% last quarter. This trend suggests that managers see credit spreads as unusually attractive. Again, as with equities, the managers believe that the bond market has overshot the mark and has priced bonds at levels below their likely economic value....

While the managers believe that the market has more than sufficiently discounted the pain in earnings and stock prices caused by the recession, we would advise the reader to be cautious. The bar may be set low and the managers may expect a considerable early bounce, but the volatility of the markets is massive. The managers see equity markets recovering from an oversold position and stock prices ending higher in December 2009, but there is still a great deal of uncertainty.

All of it at the link below:
http://www.russell.com/US/education_center/Article_Library/market_analysis/IMO/default.asp

Commercial real estate wants bailout money

The biggest property developers now want bailout money-hotels, shopping centers, and shopping centers are looking for money, because no one wants to roll over their debt.

Why should they? Unemployment will force vacancies, rents will come down, and the leverage in real estate will make these loans non-performing.

Maybe the should just learn from Trump-declare a Force Majeur and say it's an act of God!

They're warning policymakers that thousands of office complexes, hotels, shopping centers and other commercial buildings are headed into defaults, foreclosures and bankruptcies. The reason: according to research firm Foresight Analytics LCC, $530 billion of commercial mortgages will be coming due for refinancing in the next three years -- with about $160 billion maturing in the next year. Credit, meanwhile, is practically nonexistent and cash flows from commercial property are siphoning off.

Unlike home loans, which borrowers repay after a set period of time, commercial mortgages usually are underwritten for five, seven or 10 years with big payments due at the end. At that point, they typically need to be refinanced. A borrower's inability to refinance could force it to give up the property to the lender.

A recent letter sent to Treasury Secretary Henry Paulson, and signed by a dozen real-estate trade groups, painted a bleak scenario: "Right now, we believe there is insufficient systemic capacity to refinance expiring, performing commercial real-estate loans," said the letter. "For many borrowers, [credit] simply is not available," the letter noted.

http://online.wsj.com/article/SB122991429181825709.html?mod=testMod

The play on commercial real estate heading south is the ultra short real estate ETF (SRS 58.76), which can be bought under 55.

Customers flock to small banks

At least, they feel they can trust them!

But as the top tier of the financial services industry faltered, small and regional banks, as well as credit unions, started seeing their cash deposits rise dramatically as nervous Americans shied away from big banks. Some of these smaller financial firms saw an increase in small businesses knocking on their doors. And despite rampant headlines about a credit freeze and plunging housing market, they have even been writing more home loans this year than last year.

In her 18 years as a banker, Sebrina Verburgt hasn't seen anything like this: new customers with cash in hand, streaming in through the doors of the 11 branches of the United Heritage Credit Union, where Verburgt is senior vice president of operations. Many of them had the same story to tell: They were moving cash from larger banks, afraid that they would fail.

http://www.usatoday.com/money/industries/banking/2008-12-21-small-community-banks_N.htm

Sunday, December 21, 2008

Oprah's new digs

At least not yet, but she might be measuring the drapes. Looks like Oprah wants to have some parties in Georgetown at the "Evermay Estate." A bargain at $49 million!http://www.washingtonian.com/blogarticles/homegarden/openhouse/9500.html

Take the virtual tour here.
http://www.evermaydc.com/

MassMutual getting defensive

MassMutual, which owns Oppenheimer founds, which brought Tremont funds, (after Goldman Sachs and Weil Gotches gave it is blessing) which sold Madoff's ponzi scheme, are now crying the blues, as if the executives who lost money inthe scam, were not culpable.

The CEO of Tremont said, "We were duped by a scheme that effectively fooled some of the most significant and smartest organizations in the world."
http://online.wsj.com/article/SB122990812087125457.html?mod=testMod

I suppose it's easy to fool somebody when no-one checks on the fox guarding the henhouse! Of course, Oppenheimer is mum on the due diligence they did.

And Mr. Madoff's name wasn't even in the feeder funds marketing material!

Bailed out bank executives get $1.6 billion

The best line in the whole story is this:

Rep. Barney Frank, chairman of the House Financial Services committee and a long-standing critic of executive largesse, said the bonuses tallied by the AP review amount to a bribe "to get them to do the jobs for which they are well paid in the first place.

"Most of us sign on to do jobs and we do them best we can," said Frank, a Massachusetts Democrat. "We're told that some of the most highly paid people in executive positions are different. They need extra money to be motivated!"
http://news.yahoo.com/s/ap/20081221/ap_on_bi_ge/executive_bailouts

Problems emerge in Dubai financing

HSBC said that mortgage holders in Dubai are struggling, and we had this bit in tonight's WSJ:

DUBAI -- Banks that once financed Dubai's six-year real-estate boom are facing the unprecedented challenge of mortgage defaults by overstretched borrowers who had hoped to cash in on soaring property prices in the tax-free Persian Gulf enclave.

Officials at HSBC Holdings PLC, the largest international bank offering mortgages in Dubai, told Zawya Dow Jones last week that the lender has been contacted by a growing number of customers in the emirate struggling to pay their home finance.

Mortgage brokers and others involved in the property market said banks that fail to respond effectively may face problems. "The possibility of mortgage defaults and property foreclosures is a very serious problem for banks here and one that they need to address very quickly," said Chris Dommett, chief executive of mortgage broker John Charcol Dubai. "Many banks will face a steep learning curve, and some won't be able to cope with it."
http://online.wsj.com/article/SB122989061553224671.html?mod=testMod

But never fear, Citigroup is here, ready for more losses in Dubai, finaced by the consumer in the States with higher credit card rates. Just a few days ago, Citigroup's Win Bischoff was bragging about their "billions of exposure" to Dubai.

MANAMA, Bahrain -- With questions about Dubai's looming debt obligations swirling, Citigroup Inc. said it had raised $8 billion for the Persian Gulf city-state over the course of the past year and still had a positive outlook on its economy.

Citigroup Chairman Win Bischoff was quoted in the bank's statement Monday as saying Citigroup continues to see Dubai as among its "most significant markets."

"This is in line with our commitment to the [United Arab Emirates] market in general, and reflects our positive outlook on Dubai in particular," the statement quoted Mr. Bischoff as saying....


Mr. Bischoff, who visited Dubai in November, said at the time that the bank had "lots of billions" of dollars of exposure to Dubai debt.
http://online.wsj.com/article/SB122938868288709017.html?mod=googlenews_wsj

At least Timothy Geithner, who was Citi's primary Federal regulator, will be able to oversee Citi's losses that will have to be born by the taxpayer!

Social Security


China to launch deposit insurance


China plans to launch a deposit insurance scheme next year, a move to prevent growing potential risks triggered by the global financial tsunami, a central bank official said.

"Relevant departments have submitted a draft plan of the deposit insurance scheme to the State Council. The plan is expected to be passed by next year at the latest," Zhang Jianhua, director of the central bank's research bureau, was quoted by today's Southern Metropolitan News as saying.

According to a survey by the People's Bank of China, the central bank, over 98 percent of deposit accounts are lower than 200,000 yuan ($29,197), indicating the ceiling for the deposit insurance could be no more than 200,000 yuan.

China learned that deposit insurance, is more valuable if it is limted. Exclusivity is deemed worthwhile for investors, even in a ponzi scheme!

Madoff's Armageddon


Let's check the transparency between the Fed and Madoff:

Madoff said his trading system was "proprietary, and he couldn't get into that."

Bloomberg filed a lawsuit against the Fed and their secret bailouts:

Bloomberg News has sought records of the Fed lending under the U.S. Freedom of Information Act and filed a federal lawsuit Nov. 7 seeking to force disclosure.
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=adS_SnA8CLKg

So did Fox Business network:

FOX Business Network (FBN) has filed a lawsuit against the United States Treasury Department over failure to provide information on the bailout funds or respond to FBN’s expedited requests filed under the Freedom of Information Act (FOIA).
http://news.moneycentral.msn.com/provider/providerarticle.aspx?feed=BW&date=20081218&id=9463335

The Fed's response? The information is "confidential." What's the difference between Madoff and Treasury? What's the difference between "proprietary" and "confidential?"

Non-disclosure by the FOIA means..."it must show why the information is a trade secret or commercial or financial information that is privileged or confidential."
http://edocket.access.gpo.gov/cfr_2008/julqtr/28cfr16.8.htm

Madoff's ponzi scheme ended when he couldn't get any more money to pay previous investors. Our government tells us that we have a social security "lockbox" and $44 billion of FDIC money. Where is this money?

Whoops, just like Madoff, it has already been paid out. We put money in a safety deposit box at a bank. That's our definition of a lockbox. The government's definition of a lockbox is the conversion of private property to public property. So where is the lockbox?

The bill went to committee, and never passed. Just like the SEC who looked at Madoff and said his business was fine.
http://www.govtrack.us/congress/billtext.xpd?bill=s110-302

So we have the same transparency, and we have the same actors looking over your money. Unlike Madoff, our government has a stream of taxpayers willing to perpetuate the ponzi scheme. And China, didn't come in and bail Madoff out! Wouldn't that of been ironic? Bernie got $400 million from Dubai, but then they took some of the money back. Bernie just couldn't get the money from the Chinese. Maybe Bernie, wanted to pay everybody back with Chines dollars! They should send a good tort lawyer over to Abu Dhabi. They supposedly have 3/4 of a trillion dollars in their sovereign wealth fund. Let's see how much they respect the rule of law regarding fraudaulent conveyance!
http://zawya.com/story.cfm/sidZAWYA20081221052137/Abu%20Dhabi%20Fund%20Hit%20By%20Madoff%20Scam

What would happen if our Government couldn't sell our debt to foreigners? Just like Madoff, the ponzi scheme would fail!

Madoff supposedly earned 8-15% returns. Didn't we earn that on houses that were securitized by Wall Street? Now that rug has been pulled out, and just like Madoff, the smaller investor in his fund, (except for those that get SIPC insurance up to 500K) will bear the brunt of the losses. Just like the homeowner who bought these over-priced homes. The banks that sold him the loans are given money back by you-the taxpayer. Those who have invested in Madoff, with these banking institutions, will probably most of their money back, except for lawyer fees. These banks need to rebuild trust, or their entire ponzi scheme will collapse. So they will pay!

Now our Fed Friday announced that the TALF program will now lend to hedge funds.
http://aaronandmoses.blogspot.com/2008/12/fed-will-now-led-to-hedge-funds.html

Why not? Otherwise we'll have this: TSHTF (The sh*t hits the fan for those not in tune with Government alphabet soup programs!)

So in that vain, here is FallStreet's spin on Bernie:

With the financial markets already in a state of panic and the global recession expected to worsen in 2009, we can ill afford to allow the financial institutions, charities, and rich idiots that entrusted Bernard Madoff with their money to go bust. As for the widespread contention that since Mr. Madoff committed fraud he deserves to go to jail, do not think of Madoff as operating a ponzi scheme so much as a Strong Armed Perception Fund (SAP Fund), and don't think of him as breaking the law so much breaking new ground in the arena of fictitious returns.

In short, there needs to be a new bailout effort entitled the Criminal Reprieve Assistance Program (CRAP) to provide ingenious criminals like Madoff the tools required to help kick start the faltering U.S. economy. By investing $100 billion with Madoff so that he can start-up a new and improved SAP Fund and make current clients whole, the CRAP would immediately help restore confidence in the marketplace. Concurrent with the Madoff bailout pieces of CRAP could also be used to expedite the release of jailed mortgage brokers so that they can help stabilize the collapsing U.S. housing market by doing what they do best - underwriting crappy mortgages.

What we have failed to learn time and time again is that the Madoffs' of this world take risks that ordinary investors do not, and only when these criminals amass enough capital and clout does the average investor stand to benefit. If adopted the CRAP can effectively flush out the safety-crazed attitudes of investors now taking root and allow unlawful innovation and the temporary perception of wealth to flourish once again. It goes without saying that the only alternative if the CRAP sinks and Madoff doesn't get bailed out is financial Armageddon, millions of jobs losses, and another Great Depression.

http://www.marketoracle.co.uk/Article7817.html

At least Armageddon isn't going to happen anytime soon. For those not versed in eschatology, that is the Battle at the End of the World, which follows the 7 year Great Tribulation.

The moon has to turn blood red which means you need a total lunar eclispe. "The sun shall be turned into darkness, and the moon into blood, before the great and terrible day of the LORD shall come." Joel 2:31, and the 3:35 minute blood red lunar eclipse that happens on April 15, 2014
http://eclipse.gsfc.nasa.gov/LEcat/LEdecade2011.html

on Passover
http://world.std.com/~reinhold/jewishholidays.txt

is less than 7 years away, so we'll miss Armageddon, since we're not in the 7 year Great Tribulation, and as of yet, we're not fighting over bird sh*t! (Just like in AD 70, when Titus overthrew Jerusalem and men fought over bird poop to eat. The menorah, on the coat of arms from Israel, comes from the Arch of Titus. This time, the fighting over bird poop ushers in the Messianic reign. So we're not at the doorstep of Armageddon!)
http://en.wikipedia.org/wiki/Siege_of_Jerusalem_(70)

And just to tie this in with current events, remember the movie Forrest Gump? The screenwriter of that movie, Eric Roth, lost all his retirement money with Madoff.
http://www.latimes.com/business/la-fi-hollywood-madoff17-2008dec17,0,4508336.story

So here's a clip of the movie "Forrest Gump" that ties this story together! The scene is appropriately inserted at 3:35 and appropriately, put on YouTube by "outhaus." If you blink, you may miss it!

Just because sh*t happens, it doesn't mean it's Armageddon!

UBS trying to stiff the $1.4 billion lost by clients in Madoff

UBS loses $40 billion in mortgages, then gets back-stopped by the Swiss Government, and now it has the audacity to attempt to shift the responsibility for the money it invested into Madoff on behalf of clients?

UBS seeks to absolve itself from need to safeguard Madoff funds.

UBS sought to absolve itself from any duty to safeguard investor assets in a $1.4bn fund that channelled money into Bernard Madoff's alleged $50bn Ponzi scheme.

The Swiss bank used an agreement that denied it was responsible for the assets - even though its marketing documents claimed it would be.

The move came as a US judge changed the terms of Mr Madoff's $10m bail, confining him to his New York apartment.

UBS's wording of subscription documents for the Luxalpha Sicav, a Luxembourg mutual fund registered for sale across Europe, may set it in conflict with the Luxembourg financial regulator. The Commission de Surveillance du Secteur Financer said: "The provisions of the sales prospectus are binding."

So-called feeder funds which invested their money with Mr Madoff are coming under increasing scrutiny.

As well as the Luxalpha fund, at least one other Madoff feeder fund was registered for sale in Europe. The Irish-domiciled $1.1bn Thema International Fund had HSBC as custodian.

Subscription documents for the Luxalpha Sicav explicitly remove UBS's liability if the fund's assets are lost. Under European rules, custodians such as UBS must take responsibility for "safekeeping" of a regulated mutual fund's assets. But the Luxalpha subscription form states that UBS "is not the safekeeping agent of the assets of the fund as the assets are safekept by the US registered broker-dealer".

UBS acted as manager, custodian and administrator of Luxalpha until this year, when Access Management - thought to be part of New York's Access International Advisors - took over. Four of the six directors of the fund still work for UBS, according to the latest prospectus.

UBS said it could not comment on Luxembourg law, but said: "We established fund of fund structures on clients' request. Bernard Madoff was not on the bank's wealth management recommended list as a direct investment option." Mr Madoff not only acted as manager of assets - never mentioned in the Luxalpha documents - but also insisted on being custodian and broker.

HSBC confirmed it acted as custodian to several Madoff funds but said it "does not believe that these custodial arrangements should be a source of exposure to the group".

http://www.ft.com/home/us

Bernie's list

http://www.nypost.com/seven/12212008/photos/biz035a.jpg

Goldman Sachs signed off on Madoff?

Supposedly. When Tremont advisers was acquired by Oppenheimer, Goldman Sachs and Weil Gotschal, spent three days at Madoff's office, and signed off on the books.

Oppenheimer, represented by Goldman and Weil Gotschal, spent three days at Made-off's office running through the books before, it would seem, signing off.
http://www.dealbreaker.com/

"We are pleased to be joining forces with a leader in the alternative investment business," said John V. Murphy, Chairman and CEO of OppenheimerFunds. "We believe Tremont's multi-manager, funds-of-funds approach to hedge fund investing will appeal to many of our high-net-worth shareholders. Tremont's unique product offerings in combination with our distribution network will open up the world of alternative investing to a new segment of investors."
http://www.secinfo.com/dsvr4.4FCEa.c.htm

So Oppenheimer, has Weil Gotschal and Goldman Sachs in it's corner. Goldman says that a decade ago, they thought Madoff was a scam:

More than a decade ago bankers from Goldman Sachs' asset management division were despatched to Bernard Madoff Investment Securities to discover how the legendary fund manager maintained such consistently good returns.

The American banking giant prided itself on managing funds in-house but if it could get a better deal for its clients at Madoff, Goldman would gracefully admit it and allocate some funds.

One former Goldman partner said: "I remember the guys came back baffled. Madoff refused to let them do any due diligence on the funds and when they asked about the firm's investment strategy they couldn't understand it. Goldman not only black-listed Madoff in the asset management division but banned the brokering side from trading with the firm too.

http://www.telegraph.co.uk/finance/financetopics/bernard-madoff/3868896/Bernard-Madoff-fraud-Increased-scrutiny-in-hedge-fund-industry.html

But in 2001 Goldman Sachs helped facilitate this transaction?

I guess it's only a scam, of course, if you aren't getting any fees!

Norman Levy's paid death notice

Norman F. Levy (who had the initials NFL should be allowed to RIP). But the Madoff scandal is engulfing even his paid death notice.

It was over four years ago, but Bernie Madoff, who stole his money, had kind things to say:

"Your spirit and love of life have touched and changed all who knew you," one friend of 40 years wrote in a paid death notice for Levy that ran in The New York Times. "You taught me so much. I'll cherish our relationship forever."

Madoff, has now changed all who knew him.
http://hosted.ap.org/dynamic/stories/R/RIPPLES_OF_A_FRAUD?SITE=FLPAP&SECTION=HOME&TEMPLATE=DEFAULT&CTIME=2008-12-20-18-03-30

The week that was


Saturday, December 20, 2008

Arpad Busson loses $230 million with Madoff


Remember Arpad Busson, who is dating Urma Thurman? He's been so busy dating models, that he can't seem to manage his hedge fund business.

Now it seems he has lost $230 million with Madoff in his fund of funds strategy. He said his mentor his Warren Buffett.

I didn't know Warren had any money with Madoff!

Paulson wants the next $350 billion

Secretary Paulson wants the next $350 billion of the TARP program. Only in the United States, would somebody allow the Treasury to screw the taxpayer, and do it by the name of the program.

Would "investors" have been deceived by Madoff if he would have named his program "The Bernie Madoff Money Stealing Ponzi Scheme?"

Now look at Treasury. What is the program called? The TARP program. The Troubled Assets Relief Program.

Where is all the money going too?

The banks.

Then aren't the banks the "Troubled Assets" in this country?

Is it any wonder why Secrtary Paulson said just a few days ago, that there would be no more big bank failures?

The "fundamentally sound" banking program is our country's "troubled assets!"

And only in America, can we have a Secretary of the Treasury "wing it" with $700 billion.

Can you imagine flying on a plane, with a pilot that was just "winging" it?

So why do we allow this Joker to adminster these funds.

That's just plain wrong!

Versace's idea of "Frozen Tundra"

I can see putting heating coils under Lambeau stadium's grass, but Versace's plans to put a coolant network under the beach to keep the sand cool, just shows the level of absurdity of the folks living in Dubai who haven't understood or grasped the new economic reality.

Versace, the renowned fashion house, is to create the world’s first refrigerated beach so that hotel guests can walk comfortably across the sand on scorching days.

The beach will be next to the the new Palazzo Versace hotel which is being built in Dubai where summer temperatures average 40C and can reach 50C.

The beach will have a network of pipes beneath the sand containing a coolant that will absorb heat from the surface.
http://www.timesonline.co.uk/tol/news/environment/article5338099.ece

In the mail today, I got a gift certificate from Cartier, offering me $1000 off any purchase over $5,000 and a $500 donation to the charity of my choice. Now that the Picower Foundation in Florida is bust, maybe Cartier feels they can recoup some donations by selling some over-priced merchandise.

Gold sales in Dubai have fallen 80% the last couple of weeks, since Dubai relies on tourists as much as Disneyland.
http://www.khaleejtimes.com/darticlen.asp?xfile=data/business/2008/December/business_December525.xml&section=business

Maybe someone should alert Donatella Versace about conditions in the real world!

Football is more recession proof than Dubai!

Madoff bags the Picower Foundation

The second largest foundation in Florida, the Picower Foundation, which gave out $270 million over the last two decades was wiped out with the Madoff scandal. It's supposed $1 billion dollars is now gone.
http://www.palmbeachpost.com/localnews/content/local_news/epaper/2008/12/20/picower20.html?imw=Y

Jeffrey Picower has been self dealing, and involving himself with shady dealing for the better part of two decades.
http://www.forbes.com/forbes/2002/1014/068_print.html

How ironic is it then, that he was taken by Madoff?

The Fed will now led to hedge funds

Give me a break! These over-leveraged funds, exaggerated prices on the upside, and excaberated prices on the downside. Now the FED is going to allow hedge funds to borrow money under the TALF (Term-Asset Backed Security Loan Facility) so they can leverage their purchases of credit cards, auto loans and student loans under the guise of "arbitrage."

Hedge funds will be allowed to borrow from the Federal Reserve for the first time under a landmark $200bn programme intended to support consumer credit.

The Fed said on Friday it would offer low-cost three-year funding to any US company investing in securitised consumer loans under the Term Asset-backed Securities Loan Facility (TALF). This includes hedge funds, which have never been able to borrow from the US central bank before, although the Fed may not permit hedge funds to use offshore vehicles to conduct the transactions.
http://www.ft.com/cms/s/0/989db158-ce30-11dd-8b30-000077b07658.html

Who knew Bernanke would be the hedge funds prime broker?

The banks rate jacked credit card rates to the taxpayer that bailed them out under the TARP.

Now the Fed lends to the hedge funds to buy the credit card receivables, with a backstop from the taxpayer!

Barrons: Expect the S&P to close 2009 at 1045

1045 in the S&P by the end of 2009?

That's not to say there won't be violent rallies and sharp pullbacks along the way. An urgent scramble to dump risky assets and hoard capital this year triggered a crisis of credit -- and confidence -- that wiped out more than half of the stock market's value. And while stocks quickly rebounded 18% from their late-November low, the dozen strategists and chief investment officers surveyed by Barron'sexpect the Standard & Poor's 500 index to finish 2009 near an average of 1045, or 18% above today's level of 888.
http://online.barrons.com/article/SB122973304853123077.html?mod=9_0001_b_this_weeks_magazine_home_top

How about by the end of January! The last capitulation downward in this market was savage selling that in normal times, would of taken another 9 months in time. Instead it was done and finished in two months.

I advertised 10,400 and 1040, as my next targets. After that, who knows. But look for these numbers in 40 days. Maybe this link should be re-read!
http://aaronandmoses.blogspot.com/2008/12/next-stop-10400-dow-and-1040-s.html

Anyone that thinks it will take until the end of 2009 to hit these targets, does not understand these markets.

Just look at the moves we have had in currencies and in bonds just the last two weeks. The only chance that we have of moving up unabated is between now and the end of January. Markets don't allow these pension funds and bureaucratic stewards of money time to have a committee meeting to reallocate their funds. Instead you get vicious moves. A sharp vicious move up will be the move that will frustrate the greatest number of players.

All those that have already puked up their stocks won't have the mindset to buy, and those that are forced to puke up more stock by redemptions won't have to make that decision in January.

So we ramp.

And Friday, was the last of the selling, before we take the next leg up!