Goldman Sachs

What if 2 men phone to each other?
They talk. About business, their families or other stuff.
What if men phone 24 times to each other between September 16 and 21st.
Ther’s an urgency somewhere.
That’s exactly what former Treasury Secretary Paulson did with Blankfein.
Paulson spent 32 years at Goldman and preceded Blankfein as CEO befor becoming Treasury Secretary in 2006.
Whatever they had to discuss, it was better something important.
Lehman of course. And AIG. LEHM was allowed to fail. AIG was following it. Then GS told them that they would fail too. So they bailed AIG to ‘save the system’.

Ok, enough said.
We agree with Paul Kedrosky of Infectious Greed:

Fair enough, I suppose. But I’m soon going to need a program to keep track of who is scoring points off whom in all of this. Can’t we all just agree that Goldman has way too much influence for a firm happy to trade around that influence and leave it at that? No?

Yes.

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AIG

AIG is a scam. At least its stock price. They did a 20-1 reverse split lately and if we look to the chart of the last 18 months one can measure what the damage is. Even better: it’s already heading back down. Now the reason behind is selling is compelling: people feel better about selling at 9 USD than at 0.40 USD. Even though the value might be the same. And shorters love this move.

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Do banks ever learn their lesson

If someone thought that the game changed, think again.
This comes from Max Keiser and Stacy Herbert:

Morgan Stanley plans to repackage a downgraded collateralized debt obligation backed by leveraged loans into new securities with AAA ratings in the first transaction of its kind, said two people familiar with the sale.
Morgan Stanley is selling $87.1 million of securities that it expects to receive top AAA ratings and $42.9 million of notes graded Baa2, the second-lowest investment grade by Moody’s Investors Service, according to marketing documents obtained by Bloomberg News. The bonds were created from Greywolf CLO I Ltd., a CDO arranged in January 2007 by Goldman Sachs Group Inc. and managed by Greywolf Capital Management LP, an investment firm based in Purchase, New York.


Now, Moodys downgraded the Aaa tranche of this CDO with six notches to A3 because its default rate for loans in the Aaa tranche soared to 7 percent. No problem for Morgan Stanley. They managed to repackage this paper throwing in some credit enhancement, collateral, reducing the poorly performing assets, make the equity tranche a little larger and throw in a CDS and hop… the same loan pool gets another Aaa rating.
Everybody is repackaging again. Goldman plans to sell 200 mln USD of repackaged commercial mortgage-backed paper soon.
And attention folks: this is all approved by your local regulators.

On the other hand: somewhere there is still demand for this kind of paper. Maybe it’s your own pension fund buying...

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Goldman Sachs - again...

It starts as a Tom Clancy novel:

While most in the US were celebrating the 4th of July, a Russian immigrant living in New Jersey was being held on federal charges of stealing top-secret computer trading codes from a major New York-based financial institution—that sources say is none other than Goldman Sachs.

This is what Matthew Goldstein – Reuters- wrote yesterday.

The Russian immigrant is Sergey Aleynikov, who lives in the States for 19 years now and was arrested on the 3rd of July at Newark Liberty Airport after returning form Chicago where he recently took up a new job. He left his former firm – a Big Wall Street fish – early June. That firm was Goldman Sachs – so we learn on LinkedIn. He joined in May 2007 as a computer specialist and left 6 weeks ago as a Chicago firm offered him three time the 400.000 USD salary he earned with GS

From LinkedIn:

The bio says he was responsible for “development of a distributed real-time co-located high-frequency trading platform.” In his own words, he goes on to describe the platform as “a very low latency (microseconds) event-driven market data processing, strategy and order submission engine.”

The criminal complaint brought forward, describes the platform as:

The Financial Institution has devoted substantial resources to developing and maintaining a computer platform that allows the Financial Institution to engage in sophisticated high-speed, and high-volume trades on various stock and commodities markets. Among other things, the platform is capable of quickly obtaining and processing information regarding rapid developments in these markets.


Now, this is the golden egg in program trading these days. And PT has become the single most important feature in trading these days. More than 50% of the volume traded on the NYSE is generated by the machines. And Goldman is leading the herd in this field.

Although the information about this special program was uploaded already some weeks ago, it’s not clear why Goldman and the authorities waited so long to move on Aleynikov.
Apparantly the deed was done in the space of three minutes between 5.21 and 5.24 on the afternoon of June 5.
32 MB were transferred to some file hosting service based in Europe. Germany to be precise.
In the mean time we mention that one week Goldman ceased almost his PT, the NYSE tried to change the PT-reporting rules and on the 2nd the trading hours on the NYSE were extended due to a ‘glitch’.

To be continued….

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The oil-scam

Now, here is a nice one. It has to do with the contango situation in the oilmarkets. Due to the fact that there was such a huge difference in spot and forward prices some months ago, the ETF’s shadowing the futurecontracts were not picking up at the same pace as the futurecontract itself. The reason is that these ETF’s have to deal with volatility and other specific technical factors.
So the last couple of months the USO ETF could not perform in the same way as the underlying.

From Phil’s Stock World we have following comment – by the way guess who is handling all that USO cash flowing in? Right. Goldman Sachs. –

So here you are giving your money to an ETF that gives its money to the biggest shark in the ocean, who chews off your legs in transaction fees and contango spreads BEFORE they even bother to circle around for the kill by gaming the market. NOT ONLY THAT, but the idiotic rules of the fund lead them to PUBLISH THE DAYS THEY ARE ROLLING IN ADVANCE so every little shark in the sea knows exactly when and where to feast on your bloody, bobbing carcas this month - and the next and the next and the next. Don’t worry though, once you are chewed up and digested, there will be a fresh round of suckers herded back into commodities and the commodity pushing stocks and ETFs every time GS, MS or Cramer need another payday.

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Goldamn Sachs

The results of the trading activity for the NYSE were just published. No surprises here as we remember some very strange movements during last week. More than 33% of all buy and sell transactions was generated by program trading. and the leader of the pack is once more Goldman Sachs.

No, sir, they don't manipulate.

No, sir, just a coïnidence they work for their own account.

What's wrong, sir, with this kind of trading activity? Joe, the man of Main Street, you mean? You're naive, sir, because Wall street is there to part Joe from his money.

That is our job...

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Uranium

Did you know that now-defunct Lehman Brothers is still sitting on a 500.000 lb stockpile of uranium? Large enough to produce some very tricky devices. Should they dump this U3O8 on the market, it could have an influence on prices. But Lehman promised not to do this and to wind down the position over the next coming two years.
The question is: what the hell is Lehman Brothers doing with uranium? On behalf of speculating clients? Or on behalf of their own account? And a second question: what more commodities are they stockpiling?
And what with other investment banks?

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Swallow this TARP money

Yes, there they are again. De boys/girls of Goldman Sachs. Remember that they asked for 10 bln TARP money? Well, they asked for 25 bln USD in the first place and tried in a clumsy, childish way to correct this. Hat tip to the folks of clusterstock discovering this one.

But even more revealing is this document describing how Paulson, now former Treasury boss was forcing 9 bankers to take TARP money. This thing is mindblowing.

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Commercial real estate

Real Point, the commercial real estate analyst, has downgraded several hundred CMBS structures (commercial mortgage backed securities). Even better: they provided us with a comprehensive delinquency report for April. Most notable is the explosion in 90+ day delinquencies for March relative to April. Detoriation is accelerating in all categories.
This is in sharp contrast with the upbeat report REIT analysts of Merrill and BoA are producing just to facilitate placements of these outlets, the last couple of weeks.

I suggest that the steep rally of the last weeks was engineered by the Powers-That-Be in order to give way to a round of capital increases. That seems to be over now.

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Bankers...

From 2006 through 2008, the 10 largest financial companies in the US awarded their chief executives a cumulative total of more than 560 million USD in cash, stock and options.

We lean back for some seconds, close our eyes and reflect on this.

Those firms – some of which are no longer among the 10 biggest – have lost a total of nearly 1 trln USD in market value since the end of 2006.

We lean back again.
The guy who published this in the WSJ then makes a personal remark:

…something is dangerously wrong with a system that showers riches upon good and bad leaders alike.

Are bankers on in the US or in Europe so much different? Yes, in terms of the amounts they are rewarded. No, in terms of earning much more than John Doe for no reason. These people are not more intelligent or more capable neither do they work much harder or are they more creative or innovative. On the contrary, they have to rely heavily on other people to know and/or recognize what’s going on in their own bank. Most of the time they don’t have a clue what their alchemists in the dealing room are brewing.

And when it start to storm they are not capable to guide their company for more than five minutes.

For starters: look to the Irish bankers…

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The Goldman boys are doing it again

Suddenly all Americans banks – amongst others – start posting good first quarter figures. After Wells Fargo pre-announced last week, it’s now up to Goldman Sachs to drum good news: a 1.7 bln USD profit, 4.7 bln USD set aside for salaries and bonuses and a 5 bln USD equity offering to free itself from the TARP. With 12 trln handouts fro the US government there cannot be a problem to finds money for this placement in order to let the bonuses flow again.
I suppose that’s the reason why GS prefers to pay back the government first instead of Warren Buffet.

You have to love these Goldman Sachs boys
On those quarterly results – this is the press release from Well Fargo:

“Business momentum in the quarter reflected strength in our traditional banking businesses, strong capital markets activities, and exceptionally strong mortgage banking results — $100 billion in mortgage originations, with a 41 percent increase in the unclosed application pipeline to $100 billion at quarter end, an indication of strong second quarter mortgage originations,” said Chief Financial Officer Howard Atkins.

Mortgage originations… thank you, US government.
But there is more. Since January 1, 2009 new accounting rules are in force. This is rule FAS 160 which allows certain liabilities to shift to the asset side of the balance as non-cash transactions via paid-in capital, thereby going into the earnings accounts and boosting reported equity.

There you have it: the government is handing out capital injections and changes the fair value accounting rules and suddenly the visibility on the bank books is reduced to something close to zero.

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Missin' some fun

Protests in London.
And that’s the most important financial news everybody is concentrating on.
The First Human Resources Head, who is also CFO of the US, is in London too. Drives around in an Opel Corsa.
The only absent drop-out is me.
But not to worry. My local will broadcast the event all night, so time enough to look around for any old acquaintances.
Hold on, what do we read?
Belgium’s Solvay was in focus on Tuesday amid talk that a large European drugmaker was eyeing a possible bid for the chemicals and pharmaceuticals group. One suggestion was that a larger peer might try to prise away Solvay’s drug business. Any deal would hinge on Solvac, a holding company which owns 30% of Solvay’s shares and mostly acts on behalf of relatives of Ernest Solvay, the company’s founder. It is thought that Solvac would oppose any takeover.
Love those Belgians
They have to play the Serbs tonight.

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No evidence - part 1

Consider this headline:
GERMAN FINANCIAL WATCHDOG BAFIN SAYS HAS ENDED SHORT-SQUEEZE PROBE INTO VOLKSWAGEN SHARES NO EVIDENCE OF WRONG DOING.

They are all the same, now aren’t they, those watchdogs.
Porsche made a 6.8 bln EUR profit from its options in Volkswagen, lifting its pretax profit to more than twice its revenue. As long no Germans were screwed in this process, Bafin can not discover anything irregular in one of the most amazing trades of the last decennium.

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No evidence - part 2

More amazing stories are popping.
This one is about Semgroup.
We go back in time. To 21st July 2008.
From Reuters:

NEW YORK (Reuters) - Semgroup LP declared bankruptcy on Tuesday after $3.2 billion in oil trading losses torpedoed the formerly 12th-largest private U.S. company.
The Tulsa-based company racked up the massive losses as oil prices ran up record gains, undercutting short crude futures positions Semgroup bought to hedge against its 500,000 barrel-per-day trading business.

And

Semgroup took a $2.4 billion loss on July 16 after it transferred its New York Mercantile Exchange oil futures trading account to Barclays Plc, converting what they called "loss contingencies" into an actual loss.

Included in the NYMEX loss was $290 million owed to Semgroup by a trading company owned by co-founder and former chief executive Thomas Kivisto, who was placed on administrative leave on July 17.

We all remember that right at that time oil peaked at 147 USD/oz. Then this peak momentum turned rather quickly. Is this a coincidence?
SemGroup got themselves in trouble because they sold NYMEX furtures beginning round 70/80 USD as a hedge. Now, these guys were professionals. How come oil went higher to 140 USD/barrel?
Should it be possible that the steep hike of the oil price was orchestrated to bring down Semgroup?
At least that’s what Forbes writes:

But now some of the people involved in cleaning up the financial mess are suggesting that Semgroup’s collapse was more than just bad judgment and worse timing. There is evidence of a malevolent hand at work: oil price manipulation by traders orchestrating a short squeeze to push up the price of West Texas Intermediate crude to the point that it would generate fatal losses in Semgroup’s accounts.

“What transpired at Semgroup was no less than a $500 billion fraud on the people of the world,” says John Catsimatidis, the billionaire grocer turned oil refiner who is attempting to reorganize Semgroup in bankruptcy court. The $500 billion is how much the world would have overpaid for crude had a successful scam pushed up oil prices by $50 a barrel for 100 days.

This article mentions that Citi, Merrill Lynch and especially Goldman Sachs knew the trading book of Semgroup. The biggest counterparty of Semgroup was J. Aron & Co, the commodities trading arm of Goldman.

Forbes continues:

When crude oil peaked in July, Semgroup ran out of cash to meet margin requirements on options contracts it had with Aron, contracts on which it had paper losses of $350 million. Desperate to survive, Semgroup asked Aron to pony up $430 million it owed on physical oil. Aron said no, declared Semgroup in default on its contracts and demanded immediate payment of losses.

Semgroup went out because they couldn’t come up with the margin anymore. A classic if you want to take out somebody.
Then came Barclays:

Shortly before it filed for bankruptcy, Semgroup sold its trading book to Barclays Capital. Barclays’ bold bet was that the price of crude would fall, erasing the losses. It is believed that 30 days later Barclays was sitting on a $1 billion gain as oil indeed fell, to $114 a barrel. Barclays wouldn’t comment other than to confirm it still owns the book. That prices plunged after Semgroup failed is more evidence of manipulation, says Catsimatidis: “With the portfolio in Barclays’ hands they could not squeeze the shorts anymore. The jig was up, and oil collapsed.”

Of course all conspiracy theories are flatly denied.
But how much the world has paid for this game?
And now we pay up again to save these guys…

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I don't like Mondays

A sell-off in Asia this morning is causing ripples in the European markets as we are closing down the first quarter of 2009. Profit taking before month end.
Reuters reported that GM and Chrysler would not receive more aid, resulting in the ousting of the CEO Rick Wagoner of GM and the warning that Chrysler has to form a partnership with Fiat within 30 days.
UBS has more writedowns and the G20 jamboree motivates some activities in the streets of London not seen for a while.
Part of the leaked G20 communiqué is that the IMF is urged to accelerate their gold sales.
From FT: "Hundreds of Russian banks are likely to go under by the end of the year as the amount of bad loans surges, potentially hitting as much as 20 per cent of credit portfolios, a senior Russian banker has warned. Pyotr Aven, president of Alfa Bank, one of Russia’s largest private banks, called on the government to move swiftly to recapitalize the top 30 banks and name the institutions that will receive assistance to help kick-start the flow of credit, which has almost dried up amid growing fears over bad loans."
A spiral of fear caused by diminished expectations is bringing the economies down. After a full year of a serious banking crisis, the economy is still waiting to experience the full consequences of the shock real estate combined with a financial crisis caused.
It is Paul Kedrosky using the term ‘The New Normal’. And it’s not normal. It’s an economic recalibration which is not going to restore our consumption economy, but bring us down to a new level of more savings, less debt and less spending.
There is an article in the NY Post that Citigroup and Bank of America have been buying toxic securities, paying more than the market price. Could it be possible they gonna sell this stuff in the new PPIP program.
Wait a second: the taxpayer is going to subsidize this plan for hedge funds and bank and these guys are once more screwing up the system.
Was this the intention of Tim Geithner in order to deal with the banks’ toxic debt?
It gets even better: there are plans that banks could take equity stakes in the public-private partnership funds. The banks would pay for these stakes with the loans they are selling to the partnerships. The difference between the market price of this toxic waste and the price these funds are going to pay for is subsidized by the government.

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