RSS Feed
Twitter
Facebook
Email
HomeWill TARP Screw ARPS Even Tighter?
Posted by Larry Doyle on March 25th, 2009 1:37 PM |
I have written extensively how Wall Street perpetrated a multi-billion dollar scam in the name of Auction Rate Preferred Securities (ARPS). For our newer readers, ARPS are securities funded by longer maturity underlying loans or preferred shares but marketed as short term cash or money market surrogates. How would that work? Wall Street ran very regular (weekly, monthly) auctions to provide liquidity for ARPS holders. The scam worked well until the overall market hit the skids and the Wall Street dealers backed away from providing liquidity to these supposed short term cash/money market instruments.
In the process of reviewing the underlying loans backing these deals, investors became aware of the long term nature of that collateral and thus their investment. While there is overwhelming evidence supporting the gross mismarketing of these securities, the SEC and FINRA have dragged their feet in rectifying this situation. Why? Great question.
I have highlighted that FINRA actually owned $647 million of ARPS as of year end 2006. That news is shocking to whomever I inform. Did FINRA sell their bonds? If so, to whom? When? What price? Did they front run an imploding market?
Could taxpayers via the TARP (Troubled Asset Recovery Program) actually get stuck making investors whole for a scam perpetrated by Wall Street? This fraud gets more bizarre at every turn. Welcome to the world of finance 2009.
I thank PT for sharing with me a story that broke yesterday: (more…)
Dr. Edwin Vieira’s Amazing Crystal Ball, 2006
Posted by Larry Doyle on March 24th, 2009 9:52 PM |
I will admit that I am not a student of the Great Depression, but I have started reviewing that period. Obviously I, like every American, hope our economy stabilizes and we regain our footing and return to prosperity. While the pragmatic optimist in me believes that can happen, the trader and risk manager in me tells me to review the Depression, understand the dynamics, assess the risks of our current period, and prepare accordingly.
I hope and believe people who have been reading my work for a while appreciate that I am not an alarmist. Whether working on Wall Street as a trader and salesman or now writing for Sense on Cents, a measured, analytical approach has always generated the best results. In that vein, I discount speculators and salesmen who attempt to make a buck from heightened levels of anxiety. That said, the elevated levels of risk in our economy, markets, and global finance require an equally elevated sense of risk analysis and historical analysis.
Given some of the economic saber rattling emanating from China and the lessened fiscal support emanating from Europe, the threats of global protectionism are clearly growing. That scenario also occurred during the Depression. (more…)
Tune in to No Quarter Radio’s “Sense on Cents with Larry Doyle”
Posted by Larry Doyle on March 22nd, 2009 9:35 AM |
Please join us this evening from 8-9 p.m. ET for No Quarter Radio’s Sense on Cents with Larry Doyle. With the stock market near 12 year lows, what is driving 
the flows? What is truly going on in the economy? Where are markets headed? Given the Washington political circus, how will new legislation impact the future of Wall Street? So much to cover.
Additionally, I will talk with Chuck Doyle of Business Capital in San Francisco. Chuck is one of the leading professionals in the field of debt restructuring and recapitalization, and he has been highlighted regularly in major media outlets including The Wall Street Journal and CNN. In the midst of our current economic turmoil, this conversation will be both timely and enlightening.
These are truly historic times in the global economy. Let’s “navigate the economic landscape” without the pandering or nonsense found elsewhere! What is on your mind? What would you like to address? Please share your questions and thoughts by calling in to (347) 677-0792, and also join our live chat room, which I’ll start up about 10 minutes before the show begins!
As a reminder, all NO QUARTER RADIO programming is archived and can be played back at any time. Just go to the NO QUARTER RADIO site and look for previous episodes. In addition, each program is available as a podcast on iTunes.
Many thanks to Larry Johnson and the rest of the team at No Quarter USA blog for providing such a vibrant vehicle as NO QUARTER RADIO. I look forward to having you join me Sunday evening as we collectively navigate the economic landscape!!
AIG: Ain’t It Great!!!
Posted by Larry Doyle on March 18th, 2009 8:54 AM |
Where can one generate billions in losses and still walk out the door with millions in compensation? Welcome to AIG, now known here at Sense on Cents as “Ain’t It Great!!”
As details leak out of Congress as to who knew what and when did they know it, the level of political posturing is soaring. Senator Charles Schumer (D-NY), who has fed at the Wall Street trough for years, offers us these pearls of wisdom: “We intend to do everything in our power to prevent the payments from being made and to recoup the payments that have already been made. We will take this back and return it to its rightful owners, the American taxpayers.” Chuck, where were you six months ago when the initial AIG loan was negotiated? (more…)
AIG “Robs the Bank”
Posted by Larry Doyle on March 15th, 2009 9:07 AM |
When an entity has an 80% equity stake in a company, one may think that nothing of substance could happen there without that majority shareholder’s consent. Well, how is it that the black hole known as AIG to Pay $450 Million in Bonuses.
We may see some arm waving and loud pronouncements from Congress about investigations, but the question still begs as to how this happened. The government took this majority stake in AIG last September. Are we to believe government representatives were both unaware of potential contractual payments and that they did not approve them? How could the government approve payments within a division that brought the global markets to its knees?
Perhaps we should revisit the theme of my piece, How Wall Street Bought Washington. Embedded in that piece, we can see the insurance industry lavished $220 million in campaign contributions and $1.1 billion in lobbying dollars on Washington over the last decade. AIG was one of the primary sources of that money.
Follow the money!!
LD
Is Your Broker Working For You?
Posted by Larry Doyle on March 13th, 2009 3:01 PM |
The biggest secret in the money game is the manner in which people are compensated. Why is this compensation process such a secret? Very simply, if the general public understood the compensation process they could then understand the motivations of those managing their money.
At the institutional level, Wall Street typically pays people on a salary plus bonus format. The salary often would represent only 20% of the overall compensation. The bonus would be tied to individual, group, division, and company performance. The bonus would typically be paid 2/3rds in cash and 1/3rd in stock. That stock component would typically be paid out over a three to five year time frame, thus tying the individual to the firm. That lockup is known as “the golden handcuffs.”
Under this format, people are motivated to maximize profits in order to maximize compensation. In maximizing profits, however, inordinate residual risks have often been left on the banks’ books. Thus, the risk/reward model has been skewed. Expect the Wall Street compensation model to change to address this issue going forward. (more…)
How Do We Track Housing?
Posted by Larry Doyle on March 12th, 2009 7:07 AM |
At the core of most, if not all, of our economic problems lies housing. I do not need to replay the tape of low rates, shoddy underwriting, and Wall Street securitizations that all played a dramatic role in creating a bubble the likes of which we have never seen and hopefully never will again. All that said, housing is an enormous market with a wide array of factors impacting it. How does one track it? Are we supposed to rely on our local brokers telling us things feel better? Should we ask contractors if they are bidding on jobs? Dare we rely on our local or national media outlets to provide their expertise and pandering? If we did, housing may have bottomed 14 different times in the last 10 months. In all seriousness, how can we track housing? Welcome to Sense on Cents.
There are two indexes that have developed over the last few years and are enormously respected by market participants. One index, the S&P/Case-Shiller Home Price Indexes, is released on a monthly basis. This index tracks a variety of regions in the country but not every region. Still, all things considered, this index is widely watched as a reliable indicator of health in housing. The index is typically released toward the end of each month. The most recently released report was on February 24th, A Look at Case-Shiller Numbers, by Metro Area. In this report, all indications are that housing has yet to see any support. (more…)
Turn That Screw a Little Tighter
Posted by Larry Doyle on March 10th, 2009 6:30 PM |
The screwing that Americans have taken on the development and marketing of the scam known as Auction Rate Preferred Securities (ARPS) continues. I have written at length on how the regulatory body, FINRA, actually owned $650 million in these 
securities at calendar year end 2006. I have persistently questioned how a regulatory body could possibly own a security which was knowingly mismarketed. Was FINRA negligent, complicit, or both? Did FINRA liquidate its position prior to the market imploding on all other owners? While many institutional owners of ARPS have been made whole, many retail clients are still left holding the bag.
Well, the screw that is ARPS just got turned another notch tighter. It turns out that the issuers of ARPS (municipalities, hospitals, colleges and universities, et al) are contractually obligated to pay an ongoing underwriting fee to the Wall Street banks despite the fact that these regularly scheduled auctions no longer occur. (more…)
Fibonacci Retracements
Posted by Larry Doyle on March 6th, 2009 12:40 PM |
I am going to assume that for the general public, the term Fibonacci Retracements is not part of the normal vocabulary. In helping people navigate the economic landscape, allow me to introduce you to a basic Wall Street practice utilized by many traders. Every investor can benefit from a basic understanding of this concept.
Major market indices trade based on fundamental analysis (cash flow, asset/liability, earnings ), technical analysis (price regressions), and psychology (measure of bullishness vs bearishness). Our friend Fibonacci falls into the technical analysis camp. I do not want to get overly involved in the arcane aspects of this concept, but it can be very useful in assessing market levels and market directions. (more…)
