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Keep Pressuring the Wall Street-Washington Incest

Posted by Larry Doyle on April 20, 2010 9:17 AM |

Incestuous relationships can last a long time. When two willing consorts are engaged in incest without it being exposed, the incest can grow and ultimately become cancerous. Incestuous partners may believe they are pleasing each other at little expense to other family members. What a lie. Make no mistake, there is always a third party involved in incest. Who is that? Collectively, the family. In the case of our financial crisis circa 2010, the incestuous relationship between Wall Street and Washington has badly damaged the American family. Let us not allow either of these incestuous partners to define our current turmoil by asking family members to pick sides.

Why am I writing this?

It is plainly evident to me that in light of the fraud charges brought by the SEC against Goldman Sachs, differing camps have developed amongst the American family. The range of comments left on my post yesterday, “Why I Think Goldman Is Guilty,” provides a good cross-section of feelings in America today. To be perfectly frank, I strongly agree with the main points in the bulk of the comments.

Do not allow either of the Wall Street or Washington incestuous partners to vilify the other in an attempt to curry favor with the American family. If we allow ourselves to be split, then the incest itself will gain victory and the needed transparency will not occur.

The simple fact is that in consorting with each other, both Wall Street and Washington have truly f#@%ed the American family. Let’s not lose sight of that reality. Let’s pressure both incestuous partners. Then and only then will our collective American family have a chance to move forward.

To that end, rest assured I will continue to call out fraud on Wall Street when and how I see it. Simultaneously, I will look to bring pressure on our regulators and legislators for having failed us. Without getting into specifics, readers here can rest assured I am currently engaged in doing just that (think FINRA and auction-rate securities front running).

While some may think our collective pressure may not bring the desired results of transparency and integrity, our kids deserve nothing less.

Incestuous liasions lack character and wilt under pressure . . . let’s give them just that. In this spirit, I ask you to join me as I once again repeat my call: Sense on Cents Calls for Independent Investigation of FINRA.

Thoughts, comments, color encouraged and appreciated.


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  • Juice

    So true. The crowd on Wall Street has had their hands in one pocket while the crowd in Washington has their hands in the other.

    A pox on both their houses. Let’s take back our country!!

  • divvytrader

    sorry Larry but nothing is changing . Look at this ‘ repo 105 ‘ madness that continues . Sure enough , the banking system shrank its balance sheet for end of Q1 2010 and then immediately ramped it all back up and went even morte levered by end of first week into Q2 .

    You and I both know throughout our careers in the bond biz that every quarter end , you were pressured to get your positions down in size to try and fool investors in yoru bank stock into believing that was the leverage you operated at all quarter .

    Nothing changing . The systemic lying to investors continues , SEC ignores it , favoring instead a trumped up fight that is purely political as we now have confirmed by the SEC split vote purely on party affiliation .

    ” The Latest Reincarnation Of Repo 105 – With End Of Quarter “Deleveraging” Over, Primary Dealer Repoable Assets Surge

    Submitted by Tyler Durden on 04/20/2010 00:16 -0500

    One of the take home lessons from the Lehman Repo 105 scam is that Primary Dealers will do everything in their power to dispose of assets in any way possible at end of quarter time in order to make their leverage ratios palatable to investors and rating agencies. A week ago, taking a hint from the WSJ, we observed how for the week ended March 31, total Primary Dealer assets plunged by $34 billion in just one week: from March 24 to March 31. For this EOQ asset window dressing hypothesis to be confirmed, we needed to see a corresponding spike in asset in the week immediately following March 31. Sure enough, using Treasury data of Primary Dealer holdings, we observe precisely that, and then some. In the week ended April 7, total Primary Dealer assets exploded by $53 billion to the highest level seen in 2010, or $300 billion, a stunning 21% increase in total assets in just one week! This is also the highest total level of PD asset holdings since June 10, 2009. What do primary dealers do with these assets? They either repo them out back to the Fed directly, or via the Tri-Party Repo System, or via some other off balance sheet conduit, using the cash proceeds to go elbow deep in risky assets and purchase every stock imaginable (having given the impression the week before that they are all prudent fiduciaries who don’t “gamble” with other people’s money). If you were wondering where the surge in buying interest came from in the first few days of April, wonder no more. Furthermore, as PDs would be careful about negative carry on the repo rates, it would be expected that the one security they would buy the most of, would be T-Bills with their next to nothing interest rates… Which is exactly what happened: PD T-Bill holdings surged from a mere $12.6 billion at March 31 to $44.4 billion on April 7. PDs no longer need Repo 105 – they do all their EOQ window dressing directly in the open market. ”

    ” It is high time the SEC expanded its inquiry into Goldman to all Primary Dealers and to actively investigate just how and why the PDs enjoy fooling their investors in such a crude way. Then again, with the market response to the Goldman news indicating that any honest action by the regulators is now seen as an outlier event, we sure ain’t holding our breath that the SEC is anything more than fluffer material for Rahm’s PR games. “

    • LD

      I have to chuckle. The fact is I firmly believe the banks have increased their overall leverage at the behest of the Fed and Treasury. Why? The need to generate capital to improve their balance sheets.

      The SEC charges against GS could be a front but by the same token if investors continue to tell Wall Street and Washington to both stick it, then they both risk losing their franchises.

      Some may dismiss that possibility but other companies and industries have taken hits when their products and process have been shown to abuse the public. Those situations (Tylenol, faulty tires) were bad but they do not compare to this.

      Your points are well taken but this buildup took a good ten years if not more and it will not be turned around overnight.

      What we really need are some honest judges.

  • Patrick Henry

    Similar take in the WSJ today, An Economy of Liars,

    Public choice theory has identified the root causes of regulatory failure as the capture of regulators by the industry being regulated. Regulatory agencies begin to identify with the interests of the regulated rather than the public they are charged to protect. In a paper for the Federal Reserve’s Jackson Hole Conference in 2008, economist Willem Buiter described “cognitive capture,” by which regulators become incapable of thinking in terms other than that of the industry. On April 5 of this year, The Wall Street Journal chronicled the revolving door between industry and regulator in “Staffer One Day, Opponent the Next.”

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