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HomeConnecting the Dots: Our Dollar Continues Multi-Year Decline as Both Political Parties Are “On the Take”
Posted by Larry Doyle on February 15th, 2011 8:55 AM |
In the course of my regular early morning reading (thank you to the regular readers who feed me these resources), I came across some fabulous work.
1. The Dallas Federal Reserve puts forth an enlightening piece entitled Global Economic Conditions. The 43 page treatise covers a wealth of information but my attention was grabbed primarily by the graph highlighting the continued decline in the core rate of inflation on page 11, and the ~20% decline in the value of our U.S. dollar over the last decade versus other major currencies on page 38.
While skyrocketing food and energy costs globally will likely continue to foment civil unrest in selected nations, Fed chair Bernanke is assuredly singularly focused on that continued decline in the core rate of inflation. How will he respond? Many individuals whom I respect believe Bernanke will continue to flood our economy with more and more dollars via quantitative easing. What does that portend for the value of our greenback? It ain’t good. What do others think of our Federal Reserve and fiscal fiascos? Let’s navigate further. (more…)
Madoff Investors Deserve Better from Julie Jason
Posted by Larry Doyle on July 18th, 2010 7:55 AM |
America is full of financial writers who have 20-20 hindsight. While I am fully respectful of writers everywhere who legitimately try to help investors, I have limited regard for those writers who are less than thorough in their pursuit of truth and transparency in the process. I witness just such a syndicated writer, Julie Jason, this morning. I welcome sharing a letter I just wrote to her in response to her weekly commentary:
Julie,
I truly appreciate your desire to help people but I also believe you provide a false impression as to the integrity and effectiveness of the financial regulator FINRA. (more…)
Who Protects Investors from Regulators?
Posted by Larry Doyle on June 19th, 2009 2:44 PM |
Is there anything worse than being violated by an individual in a position of trust? Crimes perpetrated by regular citizens are one thing, but crimes perpetrated by individuals in a position of public trust, in my opinion, are the most heinous. I am speaking of members of the clergy, teachers, law enforcement, and public servants.
When engaged in private business, individuals typically remain on guard from fraudulent and criminal behavior. That innate defense mechanism is usually relaxed when engaged with a public or quasi-public official. Given that vulnerability, the violation is far more painful due to the emotional damage even if the actual financial costs are minimal.
As I go down this path, let me emphasize the obvious – that is, the presumption of innocence and due process.
1. Today we learn that as part of the case against Allen Stanford, an indictment has also been handed down against Antiguan financial regulator Leroy King. Bloomberg reports that King not only took bribes from Stanford but also showed Stanford information relating to the government’s developing case.
If in fact these allegations are true, King aided and abetted the fraud which is speculated to be of a magnitude of $1-7 billion dollars.
2. In regard to the Bernie Madoff Ponzi scheme, we have no evidence to indicate criminal intent or activity on behalf of anybody at the SEC. That said, the SEC – by its own admission – failed to perform its duties. For those impacted by the Madoff fraud, the lack of accountability by the SEC is no less damaging than if there were criminal activity. Why is that? The length of time over which Madoff perpetrated the scheme along with the amount of evidence provided by Harry Markopolos was so overwhelming and should have minimized the damage, both financial and emotional.
3. We do have evidence of potential culpability on behalf of FINRA in the Auction-Rate Securities fraud. FINRA was headed by Mary Schapiro, current head of the SEC. This fraud is MANY MULTIPLES the size of the fraud perpetrated by Allen Stanford. Professionals, both inside and outside of the financial industry, have estimated that there are anywhere from $80 billion to $175 billion ARS (of a $330 billion market) still outstanding.
Let’s take the midpoint of those estimates, $125 billion, as a best guess of outstanding ARS positions. These securities do not actively trade, like government bonds, but in speaking with Kevin O’Connor of Second Market, he shared that bonds trade around 75 cents on the dollar. Thus, we are looking at approximately $30 billion in losses on a mark-to-market basis.
FINRA’s potential culpability stems from the fact that they liquidated their own ARS holdings in 2007. I have asked repeatedly and will put forth once again, for the benefit of those thousands of investors and billions of dollars:
-what was the exact trade date of FINRA’s ARS liquidation?
-through whom did they liquidate their ARS position?
-what price were they paid for their ARS position?
-did they possess material non-public information about the ARS market failing and act upon it?
The U.S. attorney and SEC are investigating executives from Lehman (Gia Rys, Alex Kirk) for potentially front running the ARS market in 2007. Will we ever find out if FINRA did the same? FINRA is charged with protecting investors. They certainly failed to protect investors in Auction-Rate Securities.
4. Given the fraud involved in the marketing and distribution of ARS, I am blown away by the fact that the SEC, now headed by Ms. Schapiro, blessed the marketing and distribution of the new version of municipal ARS, known as x-Tender, or henceforth called Porky Pig here at Sense on ¢ents. Please see my post earlier today, An Auction-Rate Pig by Any Other Name Is Still a Pig.
Sad but true, as we enter the Brave New World of the Uncle Sam economy, investors need to remain diligent and should not assume that regulators are necessarily protecting them.
LD
Low Tide Will Reveal Rats Scurrying Amidst The Garbage
Posted by Larry Doyle on April 28th, 2009 9:09 AM |
Every exterminator will tell you that he never finds just one rat. Bernie Madoff has been exposed as an enormous rodent. Is Allen Stanford also a rat? Who else may be in the pack? Mary Schapiro, head of the SEC, revealed yesterday that the SEC is reviewing 150 other hedge funds to determine whether they also operated Ponzi schemes. Reuters reports, U.S. SEC Has About 150 Hedge Fund Probes.
Hedge funds are currently unregulated. How could the SEC have found potentially another 150 “rats” in the space of a mere three months since Ms. Schapiro has been on the job? My instincts lead me to believe the following:
1. Ms. Schapiro is trying to convey a sense of leadership and progress on fraud investigations after the abysmal performance on the Madoff scheme. The SEC needs to burnish its image and Ms. Schapiro is trying to address that with this news release.
2. I have no doubt that many other hedge funds did operate as Ponzi schemes and likely had money invested in Madoff knowing he was the largest rat. As investigators from the SEC have reviewed the list of Madoff investors, the info there has likely led to other hedge fund frauds.
Additionally, do not forget that many hedge funds suspended redemptions in the latter half of 2008. Ponzi schemes, like rats, only thrive given a steady source of food and water in the form new investments. Suspending redemptions is akin to a rat rationing its food supply. While plenty of those suspensions could be legitimate, it would be naive to think that all of them are.
3. We know that FINRA, the self-regulatory organization overseeing Wall Street, had investments in hedge funds, fund of funds, and private equity. That info was provided in the FINRA 2007 Annual Report. We are STILL waiting for the release of the FINRA 2008 Annual Report. Could FINRA have invested in Madoff? Could FINRA have invested in other hedge fund Ponzi schemes? Why by April 28th has FINRA still not released their Annual Report? (more…)
A Fraud By Any Other Name
Posted by Larry Doyle on April 6th, 2009 4:30 PM |
A few loyal readers have graciously shared video clips of interviews with former banking regulator, William K. Black. These interviews address the fact that a tremendous amount of mortgage originations at the core of our current economic turmoil were fraudulently underwritten. The borrowers were never qualified only then to fall upon hard times. The loans were often NINJA (No income check, No job check or asset check) and the fraud was more often committed by the lender than the borrower.
Why and how did this happen? Let’s briefly revisit my writing from November 12th:
At the turn of the century, the Wall Street model was a pure “originate to distribute” model with little to no residual risk on behalf of the originators or underwriters. When there is no residual risk, those who “WIN” are the players that can purely process the most volume. Well, how does one get volume? Lower the credit standards, put fewer restrictions on borrowers, little to no covenants (NINA Loans … no income, no asset check). WOW!!! What were we thinking?? Well Wall St. felt, “let’s worry about it tomorrow or maybe not at all because we are making too much money today.”
That money SUPPOSEDLY being made left tremendous risks on the books of the banks. The pursuit of ever greater SUPPOSED profits incorporated the use of CDS (credit default swaps) as synthetic collateral for structured deals. These CDS allowed for an enormous increase in volume and SUPPOSED profits. Don’t forget, though, at the core of the process a large percentage of the underlying loans were fraudulently underwritten. (more…)
Bigger Than Madoff?
Posted by Larry Doyle on March 30th, 2009 7:56 PM |
Each and every time I read a review of the Auction Rate Preferred Securities market, I come away thinking it was one enormous Ponzi scheme. Let’s review the facts as reported from a just published Bloomberg story of a $4.7 BILLION Settlement by Citigroup and Wachovia with California Auction Rate Investors:
States, student-loan agencies and closed-end mutual funds were the primary issuers of the securities, long-term bonds with interest rates set at weekly or monthly auctions.
1. Issuers have long term projects funded by long term loans or preferred shares. Those loans or shares are the underlying collateral in an auction rate preferred transaction. While people investing in a pure Ponzi scheme believed they were investing in a legitimate money manager’s business, investors in ARPS believed they were investing in a money market fund. The key here is MISREPRESENTATION.
The debt, marketed by bankers as cash equivalents, offered investors yields of a quarter-percentage point or more above conventional money-market funds, indexes show.
2. In both a Ponzi scheme and ARPS, the allure of regular liquidity with solid returns draws new money into the game. With a Ponzi scheme, the returns are better than a benchmark index. With ARPS, the returns were better than other cash alternatives or money market funds. (more…)
FROM THE ARCHIVES: How Bernie “Madoff” with $50 Billion
Posted by Larry Doyle on March 12th, 2009 10:44 AM |
Bernie Madoff pleaded guilty to his Ponzi scheme today. I thought it would be timely to post my piece from December 14, 2008:
The neighborhood of Far Rockaway in Queens, NY epitomizes the essence of middle income urban life. To say that the kids from this neighborhood develop “street smarts” at a very early age is a huge understatement.
Hustlers of every strain, predominantly positive in nature, grow up early in Rockaway. The movie, “Flamingo Kid,” starring Matt Dillon is set in Rockaway Beach. From the beaches in Rockaway one could see the Twin Towers off in the distance. Dreams of fortunes and fame earned on Wall St. drove many with real ambition. Bernie Madoff was one of those boys filled with ambition. However, while ambition can be an amazingly powerful force, if left unchecked it can be fatal.
When the tide is high and the surf is pounding in Rockaway, the kids frolic and never want to come out of the water. However, when the tide goes out, the ocean can leave a few gems. Often times, though, the waves leave a mix of driftwood and waste and a very unpleasant, if not putrid, odor.
Bernie Madoff
In similar fashion, in 2008 the tide on Wall St. has gone out. While there will be some gems amidst the rubble, it is also mostly a mix of driftwood and waste left upon the shore. Just as at times large fish are trapped and die as the tide recedes, this past Thursday, the unchecked ambition from one of Rockaway’s boys finally caught up with him and in so doing left the biggest “carcass” in the person of Bernard Madoff on the shore for all to observe.
How is it that this “fish” which appeared to be the marvel that created wonderment in the form of outsized financial returns for so many for so long was actually a shark that enveloped and ultimately devoured his followers? Let’s enter the world of this “shark.”
No Justice!! No Confidence!!
Posted by Larry Doyle on March 9th, 2009 10:38 AM |
All indications point to a plea deal this week with Bernie Madoff. In my opinion, Bernie Madoff seems to have been treated with kid gloves to this point. House arrest for a purported crime of this magnitude defies logic. One can only assume the government
Bernie Madoff
utilized this approach, even after Bernie shipped jewels and assets overseas, as they were trying to extract as much information as possible. This week’s news will give the public the first hint as to what kind of information the government has extracted.
My father was an assistant district attorney in Suffolk County, MA and has often made the point that white collar crime never received the degree of justice it deserved. The crime that Bernie and team propagated not only directly impacted his investors but also massively impacted the public at large. How is that? Bernie’s Ponzi scheme, perpetrated over such an extended period of time, has caused a crisis of confidence in our markets, our regulatory system, and ultimately our country.
It defies logic that this Ponzi scheme was not executed without enormous cooperation and involvement by a number of individuals both inside and outside the Madoff organization. There is no doubt in my mind that many of those individuals have information, that if revealed, can and will be extremely embarrassing for some high profile people within our regulatory bodies and our government. (more…)
