Investment banks take needed long needed hit

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Poor investment banks aren't able to rip as many people's faces off

Slump in Trading Threatens a Wall Street Profit Engine - WSJ.com
Executives have warned that lackluster markets could lead to year-over-year declines in fixed-income, commodities and currency trading revenue when banks begin reporting fourth-quarter results next week. That would mark the fourth consecutive drop and the 11th in the past 16 quarters.
Commodities? WAIT, WUT?!!! Anyone remember this?:

How Goldman Cost $5 Billion Manipulating Aluminum Inventories (and Copper is Up Next) | naked capitalism
The article A Shuffle of Aluminum, but to Banks, Pure Gold by David Kocieniewski, tells us that the newly-permissive rules allowed Goldman to buy Metro International Trade Services, a concern in Detroit with 27 warehouses that handles a bit over 25% of the aluminum available for delivery.
A Shuffle of Aluminum, but to Banks, Pure Gold
 

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This makes me ashamed to be in the financial sector. Your success is largely based how much of a sociopath you can become. I work on the bond side, so it's not populated by as many pathological douche bags, but it's still pretty fucking depressing.

I've had discussions with Toro on how the DOJ needs to send a message. The CEOs and upper echelons of management of the TBTFs need to be charged under RICO. These types of business practices and fraud fit the criteria in my opinion, but our political class slavishly supports finance capital and it's truly sickening. Llyod Blankfein and Jamie Dimon are financial terrorists, make no mistake about. They have caused more harm than 10,000 OBLs or Al-Queda by orders of magnitude.
 
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This makes me ashamed to be in the financial sector. Your success is largely based how much of a sociopath you can become. I work on the bond side, so it's not populated by as many pathological douche bags, but it's still pretty fucking depressing.

I've had discussions with Toro on how the DOJ needs to send a message. The CEOs and upper echelons of management of the TBTFs need to be charged under RICO. These types of business practices and fraud fit the criteria in my opinion, but our political class slavishly supports finance capital and it's truly sickening. Llyod Blankfein and Jamie Dimon are financial terrorists, make no mistake about. They have caused more harm than 10,000 OBLs or Al-Queda by orders of magnitude.
good post.

where is [MENTION=2926]Toro[/MENTION] anyway. I wanted his "take" on this.
 

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[ame=http://www.youtube.com/watch?v=MOem3it4Js4]Bill Black: "Detecting, Investigating and Documenting Fraud" - YouTube[/ame]
 

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This makes me ashamed to be in the financial sector. Your success is largely based how much of a sociopath you can become. I work on the bond side, so it's not populated by as many pathological douche bags, but it's still pretty fucking depressing.

I've had discussions with Toro on how the DOJ needs to send a message. The CEOs and upper echelons of management of the TBTFs need to be charged under RICO. These types of business practices and fraud fit the criteria in my opinion, but our political class slavishly supports finance capital and it's truly sickening. Llyod Blankfein and Jamie Dimon are financial terrorists, make no mistake about. They have caused more harm than 10,000 OBLs or Al-Queda by orders of magnitude.
good post.

where is [MENTION=2926]Toro[/MENTION] anyway. I wanted his "take" on this.
First, I'm on the buy side, meaning I'm a buyer from Wall Street. I am responsible for people's money. I have very little trust of Wall Street. We occasionally get fucked by Wall Street, so I have little sympathy.

I do think there should be more prosecutions but I think it's very complex, and I think there's a bloodlust from a part of the public that wants someone to pay, regardless if they are guilty are not. I don't think we should string people up to satisfy people's need for revenge because their life has become more difficult.

For example, there's a lot of teeth gnashing over shitty mortgages that were put into derivative structures that were sold to investors. However, the banks that sold these securities often kept the riskiest piece of these structures. They weren't keeping the riskiest piece of the shitty structure if they genuinely believed that it was about to blow up. Banks like Merrill Lynch bought subprime mortgage originators to feed their structured products group, which eventually blew the bank up. So is it fraud or bad judgement?

Wall Street is a snake pit IMO, and we in finance get paid astronomically more than what we are worth. But we live in a society of laws. And we must abide by those laws. If we don't like the laws, change them.

[MENTION=28132]Dot Com[/MENTION]
 
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As a note, for the most part, I have very little sympathy for those who bought those structures that blew up. They were sold to people who a.) often demanded them, and b.) should have known what they were doing.

My background is in equities, and before the financial crisis, we were shown swaps from Wall Street where the underlying was subprime mortgages. I told my boss at the time that he was absolutely fucking crazy - and I did say "fucking" to him - if he bought it because it was backed by shit. We didn't. We had several groups come in and do that.

The world had lost it's mind. People couldn't see it.
 
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Wall Street is a snake pit IMO, and we in finance get paid astronomically more than what we are worth. But we live in a society of laws. And we must abide by those laws. If we don't like the laws, change them.
Good insight in your post. I take issue w/ this one part though:

thing is, lobbyists write those laws for both of the corrupt parties, whomever happens to be in power at any given moment. Wall St lobbyists are the most powerful as well. When JPMorgan & Joe Sixpack come knocking on a congresscritters door, guess which one gets the time?

The game is rigged.

Thinking real estate was an iron clad, profit-producing, investment was a myth that needed to go the way of the buggy whip. Sadly, we learned that the hard way
 
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This makes me ashamed to be in the financial sector. Your success is largely based how much of a sociopath you can become. I work on the bond side, so it's not populated by as many pathological douche bags, but it's still pretty fucking depressing.

I've had discussions with Toro on how the DOJ needs to send a message. The CEOs and upper echelons of management of the TBTFs need to be charged under RICO. These types of business practices and fraud fit the criteria in my opinion, but our political class slavishly supports finance capital and it's truly sickening. Llyod Blankfein and Jamie Dimon are financial terrorists, make no mistake about. They have caused more harm than 10,000 OBLs or Al-Queda by orders of magnitude.
good post.

where is [MENTION=2926]Toro[/MENTION] anyway. I wanted his "take" on this.
First, I'm on the buy side, meaning I'm a buyer from Wall Street. I am responsible for people's money. I have very little trust of Wall Street. We occasionally get fucked by Wall Street, so I have little sympathy.

I do think there should be more prosecutions but I think it's very complex, and I think there's a bloodlust from a part of the public that wants someone to pay, regardless if they are guilty are not. I don't think we should string people up to satisfy people's need for revenge because their life has become more difficult.
I agree with you in principle, but I have a few caveats. First, there are some very big players who obviously have broken laws and get away with it. Dimon leads the pack. Their immunity to anything except fines on the firm is obscene. Corrupt organizations under RICO should be totally liquidated as well as lengthy jail sentences for individuals and total disgorgement of personal profits.

RICO should be broadened to include attempts at regulatory capture. Hiring former staffers at the regulators should be illegal and grounds for RICO prosecution. The same rules should apply to Congressional staffers and elected officials. Build the Chinese Wall and scorch the earth for a mile on each side.

And when the feeling that the public has too much bloodlust come over you, just replay the tapes of the Enron traders joking about the Californians freezing in the dark because of their power supply manipulations. How many of the traders ended up doing jail time anyway?

For example, there's a lot of teeth gnashing over shitty mortgages that were put into derivative structures that were sold to investors. However, the banks that sold these securities often kept the riskiest piece of these structures. They weren't keeping the riskiest piece of the shitty structure if they genuinely believed that it was about to blow up. Banks like Merrill Lynch bought subprime mortgage originators to feed their structured products group, which eventually blew the bank up. So is it fraud or bad judgement?
You should read Sheia Bair's memoir. It pretty well documents the level of understanding at the top of what the sellers of the mezzanine tranches knew. The dispute is really about the difference between criminal conspiracy and criminal negligence. I'm sure that the operations were segmented so that some individuals in the middle management levels could have been unaware of the overall monster they were creating, but too many at the top frankly confessed that they knew the collapse was inevitable, but either did not time their exit right, or more often felt they could not get off because there was "too much money still on the table".

Remember that this was other peoples' money. There was a fiduciary duty. These decisions were made with firm's proprietary investments when the firms were lobbying for insane levels of capitalization under Basel II, making them all insolvent in a crisis. What made Bear Stearns and Lehman Brothers less capable than Citigroup?

Wall Street is a snake pit IMO, and we in finance get paid astronomically more than what we are worth. But we live in a society of laws. And we must abide by those laws. If we don't like the laws, change them.
Well it's refreshing to see agreement that Wall Street is incapable of "self-regulation". It was an impossible idea from the start. Yes, we need to change the laws. I just hope we can do it without blowing up the world economy again.
 

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Until the leaders of those organizations are in prison for manipulating the market and Goldman Sachs is shut down and their people put in prison, they will not have taken any long needed "hit".

They are still laughing at us.
 
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Until the leaders of those organizations are in prison for manipulating the market and Goldman Sachs is shut down and their people put in prison, they will not have taken any long needed "hit".

They are still laughing at us.
not until campaign finance is cleaned up & most don't seem to willing to take the chance because they know that if they even bring it up for discussion, they'll be targeted in the next election.
 

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And when the feeling that the public has too much bloodlust come over you, just replay the tapes of the Enron traders joking about the Californians freezing in the dark because of their power supply manipulations. How many of the traders ended up doing jail time anyway?
I testified at the Enron hearings. :)

Again, zero sympathy for the Enron traders, it was appalling. But was it illegal? I don't know. Being an asshole and a shark isn't illegal. There was no reason not to go after the Enron traders if there was illegal activity.

FTR, a guy with whom I went to undergrad was a high executive at Enron and did go to jail.

You should read Sheia Bair's memoir. It pretty well documents the level of understanding at the top of what the sellers of the mezzanine tranches knew. The dispute is really about the difference between criminal conspiracy and criminal negligence. I'm sure that the operations were segmented so that some individuals in the middle management levels could have been unaware of the overall monster they were creating, but too many at the top frankly confessed that they knew the collapse was inevitable, but either did not time their exit right, or more often felt they could not get off because there was "too much money still on the table".
I was at the 2007 Berkshire Hathaway AGM in Omaha. Warren Buffett was asked if he thought there would be a collapse in the financial markets. He said that he thought housing was over-valued and there would be a subprime collapse, but the financial system wouldn't come down. That's Warren Buffett. I talked to a LOT of people during that time who thought the same thing.

I thought it was crazy. I was short commercial real estate going into the financial crisis. I was up 20% YTD going into Lehman, then covered, went long, lost all my gains and would up being down a bit for 2008. So I fucked up. But it was obvious to me that "something bad" was going to happen, though I had no idea just how far reaching it would be. But few people whom I talked to believed it. And I don't believe that the executives did either, at least until the end. Merrill Lynch bought a mortgage originator a year before the end. When the board of Merrill was told several months later subprime defaults were 10x higher than they modeled, Stan O'Neil turned white, and he was gone within several weeks. People simply don't drive a car 200 mph towards a cliff hoping they'll either stop on time or jump out before they go over.

Where you may have a case is near the end. In 2008, defaults started to rise yet the price of the structured products didn't move. Nor did the stock price of some of the originators, i.e. Countrywide. The stock price of Countrywide went sideways for 7-8 months, though defaults started to accelerate. (So much for markets being efficient!) Were the banks dumping their prop inventory and lying about it? Maybe. It wouldn't be the first time. But that happened at the end. In all due respect to Ms. Blair, I doubt it was obvious to those people until the end. From everything I have heard, almost everyone drank the kool-aid. That doesn't excuse anyone if there was fraudulent misrepresention, but we still would have collapsed even if everyone was 100% honest.

Remember that this was other peoples' money. There was a fiduciary duty. These decisions were made with firm's proprietary investments when the firms were lobbying for insane levels of capitalization under Basel II, making them all insolvent in a crisis. What made Bear Stearns and Lehman Brothers less capable than Citigroup?
They have a fiduciary duty to the shareholders, not to guys like me. They are performing their fiduciary duty by dumping their shit on me.

You lobby for less stringent capital requirements if you drink the kool-aid and think housing prices can't appreciably fall. That's what most people thought. They thought that the housing market would either keep going up or would move sideways. There was an IMF study that looked at several dozen overvalued housing markets over many decades and concluded that 2/3s of the time, prices corrected by moving sideways for an extended period of time. Home prices hadn't fallen in 70 years in this country. If you don't think home prices will go down, you can take on as much mortgage debt as you want.

As for managing other people's money, Bear Stearns managed a leveraged structured products fund that went to zero. The principals, Ralph Cioffa and Matt Tannin, were found not guilty by a jury in a court of law. I agreed with the jury from what I followed in the trial. Bad decisions are not criminal.
 
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You should read Sheia Bair's memoir. It pretty well documents the level of understanding at the top of what the sellers of the mezzanine tranches knew. The dispute is really about the difference between criminal conspiracy and criminal negligence. I'm sure that the operations were segmented so that some individuals in the middle management levels could have been unaware of the overall monster they were creating, but too many at the top frankly confessed that they knew the collapse was inevitable, but either did not time their exit right, or more often felt they could not get off because there was "too much money still on the table".
She doesn't get any respect from either side for her noticing that the real estate ponzi scheme was unsustainable.
 

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[MENTION=2926]Toro[/MENTION]

Let's not forget about the rating agencies, they're also equally as culpable.
 

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[MENTION=2926]Toro[/MENTION]

Let's not forget about the rating agencies, they're also equally as culpable.
Yeah, I'm not so sure about that one, either.
These are the morons who assured everyone under the sun that the toxic subprime fecal matter was AAA.
Yes. They were spectacularly wrong. The assumptions that they made were garbage.

But was it criminal? I don't think so.

Civil, maybe.

It's incumbent upon the buyer to know what they are buying. If they rely heavily on the ratings agencies, that's on the buyer IMHO.

Again, not to come across as an apologist for Wall Street, but investors demanded this stuff. Salesmen were saying that when they went to Europe, all their clients wanted to talk about was AAA-rated structured products because they could earn an extra 20-30 bps above Treasuries. And demand was so overwhelming because interest rates were so low.

So I'd put the ratings agencies high on the blame list, somewhere after 1. The Fed, 2. Wall Street, and 3. Deregulation.

But it's complex.
 

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Yeah, I'm not so sure about that one, either.
These are the morons who assured everyone under the sun that the toxic subprime fecal matter was AAA.
Yes. They were spectacularly wrong. The assumptions that they made were garbage.

But was it criminal? I don't think so.

Civil, maybe.

It's incumbent upon the buyer to know what they are buying. If they rely heavily on the ratings agencies, that's on the buyer IMHO.

Again, not to come across as an apologist for Wall Street, but investors demanded this stuff. Salesmen were saying that when they went to Europe, all their clients wanted to talk about was AAA-rated structured products because they could earn an extra 20-30 bps above Treasuries. And demand was so overwhelming because interest rates were so low.

So I'd put the ratings agencies high on the blame list, somewhere after 1. The Fed, 2. Wall Street, and 3. Deregulation.

But it's complex.
Here's an idea: shut them down.

They were one of the key enablers of the financial meltdown. Their AAA stamp of approval on absolute shit was a massive contributing factor.

The Financial Crisis Inquiry Commission of 2009 pretty much said that none of this could have happened without their actions. These securities were designed to implode and they knew it. As a result, not just here, but globally millions lost their jobs and homes.

Don't worry, they're off to bigger and better things, like dicking around with sovereign ratings, as if they have any credibility left or have any idea what they're talking about.
 
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