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HomeHarry Markopolos Pulls the Fire Alarm
Posted by Larry Doyle on August 12th, 2009 1:38 PM |
When Harry Markopolos speaks, I listen. Harry spoke at a recent gathering on Long Island. Why isn’t Harry’s message being widely disseminated?
Harry has unquestioned credibility and integrity given his Congressional testimony this past February 4th. While listening to Harry’s testimony, I knew he was truly special and wrote “Riveting Testimony from a Great American, Harry Markopolos”:
This morning I have been witnessing the Congressional testimony of a great American, Harry Markopolos, in regard to the specifics of the Bernie Madoff debacle and the state of the regulatory world at large. His service and commitment are truly heroic. I hold him in the highest regard. America needs more men like Harry Markopolos!! Mr. Markopolos and three of his colleagues dedicated thousands of hours to investigating the Madoff fraud over the course of more than ten years. His comments and condemnations are riveting.
What does Harry have to say now and why is it that Page Six of The New York Post seems to be the only media coverage of his comments? The Post reports Scandal Bigger Than Bernie: (more…)
Big Ben Will Leave His Credit Card So Wall Street Party Can Rock On
Posted by Larry Doyle on August 12th, 2009 11:10 AM |
It’s getting late but the party is going strong. The chaperone is growing weary and knows it is time for a graceful exit. The partygoers, however, are having so much fun; their youthful exuberance and enthusiasm is peaking after a difficult stretch. What is the next dance that will break out?
Welcome to the world of Wall Street and Washington, August 12, 2009. Today all eyes are on Ben Bernanke as the Federal Reserve wraps up their two-day meeting, with a Fed release at 2:15pm.
How will Ben thread the needle in the process of keeping the inflation hawks at bay while not spoiling the current Wall Street bash? ‘Fed-speak’ is carefully scripted and typically all encompassing. In so many words, Bernanke will highlight the progress made to date, while simultaneously invoking the need for continued support given underlying economic concerns.
From a practical standpoint, there is little doubt Bernanke will again reiterate his message of leaving the Fed Fund rates at 0-.25% for ‘an extended period.’ He will likely try to spin the expected end of the Fed’s quantitative easing program as purely a function of the ongoing economic recovery.
The concern, though, remains that Ben will let the party get overly rambunctious. Don’t think for a second that the Wall Street crowd is not already feeling ‘mighty good’ and ‘well lubricated’ looking forward to a quick return to those outsized bonuses thanks to Ben’s easy money policy.
In short, figuratively Ben will look to leave the festivities but will leave his credit card so the boys can rock on.
Where are the cops?
LD
Related Commentary:
Bernanke Promises to Keep ‘Punch Bowl’ Filled (July 21, 2009)
Fed May Recognize Faster Growth, Keep Rates ‘Exceptionally Low’
by Steve Matthews and Vivien Lou Chen
Bloomberg; August 12, 2009
Madoff Victim Makes Impassioned Plea
Posted by Larry Doyle on August 12th, 2009 6:10 AM |
I recently received an e-mail from the head of a Madoff Victims Coalition. The e-mail was in response to a post I had written about Madoff CFO Frank DiPascali. The e-mail truly moved me.
With the permission of the writer, I share it with you. There is nothing more for me to add to the message embedded in this communication. America has failed these brothers and sisters of ours. Will we allow our elected representatives to permit this failure to go unheeded or merely be glossed over? Please read, ponder, and share this post with those whom you believe love this country. These people deserve our support.
Larry,
I feel the sincerity in your email. Thank you. It’s been a tough struggle for the last 8 months. I don’t think anyone, no matter how empathetic, can fully understand what it means to have everything you ever worked for taken away in the blink of an eye. Initially, we reeled from the loss of money, but as time goes on we realize that it wasn’t just a financial loss. Many victims feel betrayed by our country, unprotected by the alleged laws that are in place, and helpless because of those in charge of executing the laws. That’s a huge loss. Then there’s the loss of homes, medical care, legacies to children and grandchildren. The list of horrors goes on and on.
There are so many aspects of our battles. We have the failure of the SEC to find the fraud. Then we have their failure to recognize it when Harry Markopolos handed them the facts. They even missed warnings from their own internal counsel. This must be addressed so that no one else will ever have to experience the devastation we are feeling.
Another aspect, and one I think is more applicable now is the fact that one man (Irving Picard) has unilaterally opted to change the SIPC protection by arbitrarily changing the basis for payment of claims. I’ve researched past SIPC cases, and am in contact with my counterpart in the Stanford case and see the SIPC pattern-their rules are so vague (intentionally?) that they can be interpreted any way that suits SIPC’s needs. This is also a complaint issued by the GAO in an report they issued. Picard Is literally robbing people of money they are owed. The travesty continues with the fact that the SEC has oversight over SIPC and is standing by an letting this happen. Where is the justice? Where is the trust? How can an investor have confidence? (more…)
Is the Securities Investor Protection Corporation (SIPC) a Mere Facade?
Posted by Larry Doyle on August 11th, 2009 4:55 PM |
What good is insurance if after the storm you do not get paid? What good is insurance if the premiums charged are so badly mispriced that they misrepresent and do not cover the embedded risks? Welcome to the world of the Securities Investor Protection Corporation.
Is SIPC a mere facade presented by the Wall Street titans?
Let’s get the take of those who recently relied upon SIPC to fulfill its obligations. To whom do I refer? The victims of the Madoff scam.
If these investors were not protected, then how are we to believe that other investors will be protected on a going forward basis?
Why do I make that statement? None other than current head of the SEC Mary Schapiro addressed this topic in recent Congressional testimony. In a press release put out by Madoff victims, Schapiro admitted that SIPC did not have sufficient funds to pay all of the Madoff claims.
Who funds SIPC? The Wall Street banks. Yes, those banks that have been printing massive revenues and believe that they are back to ‘business as usual.’ Why aren’t the premiums immediately increased on these institutions to properly compensate Madoff victims?
To the extent that certain Madoff investors were aware of the Ponzi scam, obviously they should not receive restitution. I have to believe that number is in the distinct minority.
Given the general lack of confidence in our financial regulators,(the SEC and FINRA) would Congress have the heart and courage to take on the financial behemoths on Wall Street in an attempt to protect the investing public?
These questions and issues lie at the core of badly needed financial regulatory reform. Yes, that reform which seems to be on the back burner now that the markets have rebounded and Wall Street is printing money once again.
Make no mistake, though, that pot is still boiling and these questions need to be fully addressed and answered to the public’s satisfaction.
For a deeper understanding of these questions from the perspectives of the victims of the Madoff scam, please read this recent press release from the Bernard Madoff Victims Coalition. Click on the image below to access a PDF of the full 2-page press release. Let me know what you think.
LD
U.S. Mortgage/Housing Market Has Split Personality
Posted by Larry Doyle on August 11th, 2009 11:52 AM |
To speak of the United States housing market in singular terms would be a huge mistake. The different regions of the country have their own housing dynamics. The strengths and weaknesses within the local economies have a huge impact on the strength or weakness of housing.
All this said, there is no doubt that the number 417 has the greatest impact on housing in the United States. Why and how? 417k is the cutoff for individuals looking to receive a conforming mortgage. Above that level, individuals enter the realm of the Jumbo market where rates are appreciably higher and credit standards are significantly tighter. Additionally, Jumbo product is not typically eligible to be underwritten or purchased by Freddie Mac or Fannie Mae. That restriction was waived and Freddie and Fannie have purchased some Jumbo product, but it has had no meaningful impact on the dynamics within the Jumbo space. Overall, the 417k level remains an enormous line of demarcation.
That line of demarcation is further defined by the ability to modify loans. Loan modifications for Jumbo mortgages are significantly more challenging to accomplish. On top of that, mortgage servicers are now under ENORMOUS pressure by Uncle Sam to produce increased numbers of mortgage modifications. Where is Uncle Sam targeting? Conforming mortgages.
While market analysts may believe housing is turning, they are not looking at the total picture. The Jumbo market remains under real pressure while the conforming market is showing signs of stability. Under the heading of ‘a picture speaks a thousand words,’ high five to our friends at 12th St. Capital (the leading mortgage broker-dealer on Wall Street) for providing an overview of the housing market in Los Angeles. One can see the ‘split personality’ based on sales volumes between the downtown neighborhoods and those in the upper incomes. Please click on the map to view year over year sales volumes in respective Los Angeles neighborhoods. A few miles makes a world of difference.
Would welcome insights and perspectives from people in other regions of the country on the split personality of their local housing markets as well.
LD
The Ponzi Scheme Run by Angelo Haligiannis
Posted by Larry Doyle on August 11th, 2009 8:44 AM |
Angelo Haligiannis
Who is Angelo Haligiannis? Aside from being another crook on Wall Street, his is a fascinating story. I had personal interaction with Mr. Haligiannis in late 2003 and for a very fleeting moment considered allocating some money to his fund Sterling Watters. I passed on the opportunity. It was a great miss. That said, let me share my interaction with him as there are lessons here for all of us.
While working at JP Morgan Chase, I was assigned a private banker within the firm to address my own banking and financial affairs. This individual, Michael Capul, was unnecessarily aggressive but I understood that he was a producer and trying to generate business.
Mr. Capul left JP Morgan in 2003, but contacted me to apprise me that he was working in a capital raising role for a hedge fund, Sterling Watters. I let him know I had no interest. He pressed me and told me that Mr. Haligiannis was an outstanding trader and that I should at least take the time to meet him. Prior to that, I informed Mr. Capul that I wanted to see Sterling Watters’ returns.
Capul shared with me a glossy brochure which highlighted some unbelievable returns, especially during the meltdown of the Nasdaq in 2001. My trading instincts wondered how Haligiannis made his money, so I agreed to a meeting.
I was more intrigued, if not somewhat amazed, when Capul informed me that Sterling Watters was housed on the top floor of the Citicorp Tower, not exactly inexpensive space. I met them on a Thursday afternoon at 5pm.
Upon entering the office, I was struck by the fact that Capul and Haligiannis were the only individuals in the office. Where was everybody? I asked Haligiannis that very question. He dismissed it as being a Thursday evening in midtown Manahattan and his analysts and trading staff had gone out for cocktails.
I inquired about Mr. Haligiannis’ background. He shared that he was a junior trader for a few years at Merrill Lynch in the mid- 90s prior to launching his fund. I was intrigued by how quickly he developed his career.
I asked him how he made his money and generated these unbelievable returns. He talked about the proprietary nature of his models along with how many mediocre traders there were in the market. He played very much the soft sell, while Capul was the hard sell.
I will admit that for a fleeting moment I seriously considered making the minimum investment in his fund. Why didn’t I? I could not come to grips with how and why his trading operation was literally empty at 5:15pm on a Thursday. I also wondered how an individual with limited experience could grow so quickly.
Fast forward 2 years and I read on my Bloomberg terminal how Mr. Haligiannis had been arrested for operating a Ponzi scheme. I tried to contact Capul but had no success. His scheme, not unlike Mr. Madoff’s, preyed upon a host of family, friends, and close personal relationships. I immediately thought of my train ride home after my meeting when I considered allocating money to Sterling Watters.
This New York magazine article from October 2006, Take the Hedge Fund Money and Run, is a fascinating read about the life story and Ponzi scheme run by Angelo Haligiannis.
I think you will find it most interesting.
This story did have an appropriate ending as Mr. Haligiannis was apprehended in Greece in August 2007.
LD
Board Accountability
Posted by Larry Doyle on August 10th, 2009 6:00 PM |
With a few recent exceptions (Citigroup and BofA), it strikes me that we have witnessed very few questions of accountability directed at the boards of many companies in our country.
Board positions are not supposed to be purely cushy, figurehead type positions for friends of executives; serious corporate governance at the board level is a critically important role in a robust capitalistic system.
Where are the checks and balances at this level?
I am reminded of the neglect, if not malfeasance, of corporate boards in reviewing The SEC Robbed Shareholders, written by Michael Maiello of Forbes.
Maiello addresses recent fines imposed by the SEC against Bank of America and General Electric. He writes:
The Securities and Exchange Commission is supposed to see to it that corporate managers don’t take advantage of the shareholders they’re supposed to represent.
While I have limited confidence in corporate managers, I would only hope that those overseeing these managers, that being the boards of directors, may be more accountable. When will shareholders truly be able to get a fair say in the election of board members? When will our regulatory bodies truly hold these individuals accountable? When will the media expose the closed, if not incestuous, nature of the relationship between senior management and the board?
Maiello does yeoman work in highlighting the travesty imposed upon the shareholders of BofA and GE. He asserts:
The SEC has made a real mess of things. In both cases, the commission settled for amounts so small that they can’t be said to deter executives from using SEC filings to mislead investors.
The other problem is that small as the fines are relative to the violations that the SEC alleged, they are also borne by the wrong people. Corporate executives, not shareholders, are responsible for the content of SEC filings and they should be the ones who pay for lapses, inaccuracies and omissions.
While the SEC is remiss in these specific cases, the fact is before situations such as these get to the SEC, they should be addressed at the board level. The board should be fully aware of potential legal issues and address them forthwith. In the process, board members will have to extract themselves from the pocket of management and represent the rights and interests of shareholders. If they don’t, then they should be exposed for neglect of duty.
LD
‘Cash for Clunkers’ Misrepresentations Lay Groundwork for Fraud
Posted by Larry Doyle on August 10th, 2009 3:12 PM |
Fraud begins with intentional misrepresentation. From there, revenues generated become captivating, the fraud grows, and society suffers.
The potential for fraud is my greatest concern with the ‘Cash for Clunkers’ program. Why?
With the economic tide having gone out, no surprise that more frauds have been exposed. Additionally, given the challenging economic times, we should not be surprised to see intentional misrepresentations laying the groundwork for more frauds in the future. Against this backdrop, I am not surprised by a Bloomberg report, Cuomo Tells Dealers to Stop Deceptive Clunkers Ads:
New York Attorney General Andrew Cuomo today told 40 auto dealers across the state to stop issuing misleading advertisements for the Federal Car Allowance Rebate System, known as “cash for clunkers.”
The government-funded clunkers program, which seeks to boost the economy, allows dealers to credit $3,500 or $4,500 for trade-ins that may be worth less. Dealers’ ads mislead consumers into believing that their trade-in vehicle qualifies for the program when it does not or that they are eligible for a several-thousand-dollar rebate, Cuomo said in a statement today.
Letters by Cuomo order the dealers “to immediately modify promotions and advertisements to clearly explain how the program works,” he said. Included on his list were dealers for General Motors Co., Chrysler Group LLC, and Ford Motor Co., as well as foreign car companies.
In metropolitan New York, Cuomo named Plaza Hyundai Ltd., City World Toyota and City World Hyundai, while in Westchester he cited Smith Cairns Ford Inc. of White Plains and Central Avenue Chrysler Jeep Dodge.
One would have to be quite naive to think intentionally deceptive ads are not widespread in our country. Are car dealerships hoping to target these ads to those who may be less financially savvy? If so, these misrepresentations are particularly heinous.
I would encourage AG Cuomo and other attorneys general to be intentionally aggressive in meting out penalties and punishments for those involved. As word of mouth is the best form of advertising and publicity, I only hope that this post is widely disseminated.
The need for honesty and integrity never takes a vacation.
Please share all thoughts and comments.
LD
FYI: Addendum to my August 5th post “Fair and Fraudulent Mortgage Lending.” Bloomberg is now reporting Freddie Mac Says Its Loss from Taylor Bean May Be ‘Significant.’
There is a reason why it smells so bad at low tide!!
Be Careful of Fraud with Reverse Mortgages
Posted by Larry Doyle on August 10th, 2009 12:35 PM |
Given the current state of our economy, opportunities to access credit are diminishing. Where are more and more people going to gain credit? Their homes. What? With home values down so much and banks tightening credit standards, how are people utilizing their homes to get money? Welcome to the arcane world of reverse mortgages. In this world, people need to be EXTREMELY careful to avoid being taken. Let’s navigate.
From the website of The U.S. Department of Housing and Urban Development, we learn the Top Ten Things to Know if You’re Interested in a Reverse Mortgage. I will provide an overview and point out potential pitfalls where fraudulent activity may develop. That said, for anybody interested in a reverse mortgage, I strongly encourage you to fully review all of the details provided at the HUD site and work with a highly qualified and recommended lender. Additionally, a further resource can be found via Reverse Mortgage Alert. Let’s continue.
1. Definition: “A reverse mortgage is a special type of home loan that lets you convert a portion of the equity in your home into cash. The equity that built up over years of home mortgage payments can be paid to you. But unlike a traditional home equity loan or second mortgage, no repayment is required until the borrower(s) no longer use the home as their principal residence.”
2. Qualifications: “To be eligible for a FHA HECM (Home Equity Conversion Mortgage otherwise known as a reverse mortgage), the FHA (Federal Housing Administration) requires that you be a homeowner 62 years of age or older, own your home outright, or have a low mortgage balance that can be paid off at closing with proceeds from the reverse loan, and you must live in the home.”
3. Eligibility: “your home must be a single family home or a 1-4 unit home with one unit occupied by the borrower. HUD-approved condominiums and manufactured homes that meet FHA requirements are also eligible.”
4. Difference between a Reverse Mortgage and Home Equity Loan: “With a traditional second mortgage, or a home equity line of credit, you must have sufficient income versus debt ratio to qualify for the loan, and you are required to make monthly mortgage payments. The reverse mortgage is different in that it pays you, and is available regardless of your current income. The amount you can borrow depends on your age, the current interest rate, and the appraised value of your home or FHA’s mortgage limits for your area, whichever is less. Generally, the more valuable your home is, the older you are, the lower the interest, the more you can borrow.”
Sense on Cents RED FLAG: within these details lie the potential for true abusive, if not fraudulent, lending practices. How do you keep a mortgage lender honest? How do you make sure he is quoting competitive terms across all these variables (age, the effective interest rate of the reverse mortgage, the home appraisal, FHA-limits)? Never make a deal without getting a few competitive proposals. From there, check with a HUD-approved mortgage counselor. How? Contact the Housing Counseling Clearinghouse.
Other important information regarding the life of the loan, impact on your estate, total mortgage proceeds, and how to receive payments are also available at the HUD site.
Rest assured, there are plenty of quality mortgage brokers willing to help you with reverse mortgages. There are also plenty of unscrupulous mortgage brokers. Like who? The crowd at Taylor, Bean, and Whitaker.
Be careful and good luck!!
LD
Related Sense on Cents Commentary:
Fair and Fraudulent Mortgage Lending (August 5, 2009)
Robert Reich Assails Obama Deal with Big Pharma as ‘Assault on Democracy’
Posted by Larry Doyle on August 10th, 2009 7:54 AM |
Likened to extortion. Assault on democracy.
Strong charges put forth by Clinton Labor Secretary Robert Reich in regard to a deal cut by the Obama administration with Big Pharma (major pharmaceutical companies) to support his proposed health-care reform.
If you start to see a major advertising blitz by the pharmaceutical companies in support of Obamacare (and you will) and wonder how it happened, I strongly recommend How the White House’s Deal with Big Pharma Undermines Democracy, recently posted at Wall Street Pit.
Reich weighs in:
I want universal health insurance. And having had a front-row seat in 1994 when Big Pharma and the rest of the health-industry complex went to battle against it, I can tell you first hand how big and effective the onslaught can be. So I appreciate Big Pharma’s support this time around, and I like it that the industry is doing the reverse of what it did last time, and airing ads to persuade the public of the rightness of the White House’s effort.
But I also care about democracy, and the deal between Big Pharma and the White House frankly worries me. It’s bad enough when industry lobbyists extract concessions from members of Congress, which happens all the time. But when an industry gets secret concessions out of the White House in return for a promise to lend the industry’s support to a key piece of legislation, we’re in big trouble. That’s called extortion: An industry is using its capacity to threaten or prevent legislation as a means of altering that legislation for its own benefit. And it’s doing so at the highest reaches of our government, in the office of the President.
When the industry support comes with an industry-sponsored ad campaign in favor of that legislation, the threat to democracy is even greater.
We’re on a precarious road — and wherever it leads, it’s not toward democracy.
Do yourself the favor and read this entire piece by Reich and then share it with friends and colleagues. I know that Washington is bought and sold many times over, but this deal strikes more deeply at the heart of the democratic process.
Those aren’t my words, but those of Robert Reich!! I concur.
What do you think?
LD
