Tag Archives: Goldman Sachs

Carney…..Taxi!

Government lackey and ex-Goldman Sachs director, Mark Carney, who was hired as Governor of the Bank of England by Chancellor Osborne has little choice but to resign.

He has badly compromised the Bank of England’s impartial status by clearly attempting to influence the outcome of the referendum through blatant pro-Remain and pro-Osborne rhetoric throughout the campaign.

The Old Lady of Threadneedle Street needs a Governor untainted by the referendum shenanigans of the last few months.

Halliburton, BP, Obama?

 “This is what you call milking an oil spill”

The first thing that our television companies do when there is a disaster somewhere in the world is to send a team of reporters, maybe set up a studio and pump bulletins at us. They search for human interest stories to titillate us as we “ooh and aah!” at the tragedy of it all.

The Gulf of Mexico oil spill , if the American version of events is to be believed, has affected thousands of inhabitants, ranging from fishermen  and hoteliers to whores and oil rig workers. So where are their stories? Why aren’t the BBC , ITV and all other Media outfits over there interviewing and filming? Is there a news blackout? Is there really a “no-fly” zone over the spill? Are the rumours of people with cameras being arrested really true? Why has it been assumed that BP was responsible – because for all we know, this could have been an act of sabotage which would automatically affect BP’s liability? Why does the Goldman Sachs name keep popping up?

Have  the current CEO and Chairman of BP been set-up?

Let’s rewind  to the beginning and attempt to establish some links, unusual behaviour patterns and personalities.

The Deepwater Horizon explosion and subsequent oil spill happened as oil-company and BP contractor Halliburton which is the world’s second-largest oil services company was completing the final cement work on the exploratory well beneath Deepwater Horizon. 

As we know, there was a failure, gas escape, explosion , followed by the ongoing oil spillage.

Halliburton has not had the same volume of publicity as BP, although the whole failure happened on Halliburton’ watch.

What has not been publicised is that just over one week before the Deepwater Horizon spillage, Halliburton had negotiated the purchase of Boots and Coots , which is the world’s largest oil-spill cleanup company. The company deals with fires and blow-outs on oil rigs and oil wells. You may recall that it was Boots and Coots which extinguished a large number of fires in Kuwait at the time of the first Gulf War. Currently, the Halliburton/Boots & Coots deal is under scrutiny for “possible breaches of fiduciary duty and other violations of State Law”

Coincidentally, in the week prior to Halliburton’s acquisition of Boots and Coots,  investment bank Goldman Sachs sold 44% of its BP stock. There is a strong rumour that Goldman Sachs is now heavily invested in Halliburton.

It may also be worth mentioning that former US Vice President Dick Cheney is a former CEO of Halliburton and that the company also has links to the Bush family.

It is Halliburton’s name which appears on the majority of the lawsuits filed since the Deepwater Horizon explosion and oil spill.  Many  businesses affected by the catastrophe claim that Halliburton is responsible for the disaster.

Halliburton has been awarded many “no bid” US Government contracts in the Middle East and the Balkans and has the distinction of being the only company to be referred to by Osama Bin Laden as a  a major company benefiting to the tune of  “billions of dollars” from the various Middle East conflicts.

Currently, Halliburton is under investigation after the serious oil spill in the Timor Sea off Australia in August 2009. The investigation is in respect of   “improper cementing.”

Yesterday we heard the rather clumsy statement from the current BP chairman, Carl-Henric Svanberg as to how he sympathises with the “small people”. Nothing sinister there – only a language problem. Mr Svanberg’s appointment was announced on June 25th 2009 but he did not fully take up the reins as BP chairman until 1st January 2010. His predecessor was Peter Denis Sutherland.

Peter Sutherland was chairman of BP from 1997 until 2009 and is also chairman of Goldman Sachs. He is also on the steering committee of the Bilderberg Group.

His most surprising role however is as principal financial advisor to the Vatican. He is known as the Consultor of the Extraordinary Section of the Administration of the Apostolic See. Unsurprisingly, it is investment bankers Goldman Sachs who steward the Vatican’s billions.

There are two more players in this saga, one of whom may help to explain what is effectively a media blackout in the Gulf of Mexico. 

PNFYC (the Partnership for New York City) is the the world’s leading petrochemical-pharmaceutical-biotechnology consortium. LLoyd Blankfein is co-chairman of PNFYC, together with Rupert Murdoch who is  founder, chairman and chief executive of News Corporation. 

Oh yes, Loyd Blankfein is CEO at Goldman Sachs and holds shares in both BP and Halliburton. President Barack Obama’s 2008 presidential campaign received $994,795 in donations from Goldman’s political action committee and Blankfein has been a regular visitor at the White House.

The rather over-zealous attacks on BP by Obama appear to mirror a degree of panic among the movers and shakers in the global oil village and in financial circles close to the American government.

There is blame to be apportioned for the Deepwater Horizon spill but currently it looks as if  mysterious and powerful people are pulling the politicians’ strings and are simply using the American President as a mouthpiece for the unacceptable, shady faces of politico-capitalism and the  American establishment.

Obama compared the Gulf of Mexico spill to 9/11 – and he was right.  Too many unanswered questions and early talk of some kind of conspiracy.

 

 

 

 

 

Goldman Sachs on the run

“Hey wise guy! Wanna buy any synthetic collateralised debt obligations?”

Over the last few years, I have written a great deal about Goldman Sachs and  its Svengali-like hold over successive U.S Governments.  Some of what I’ve written remains on this site. Hopefully, President Obama’s current  initiative, in tandem with the SEC is the dawn of a new relationship between Government and the banking industry.

It seems that the “minders”  Goldman Sachs used to have at U.S. Government level have disappeared.  Obama has, quite rightly finally set his dogs on them.

A few days ago the company was accused of fraud. What at first appeared to be slight financial naughtiness turns out to have been very bad indeed. Goldman Sachs is accused of eliciting investments from clients into financial ” instruments”  which had been designed (by them) to fail. The very same  family of products which precipitated last year’s banking crisis.

Not only that but they knew that yet another client of theirs , a hedge fund manager was “betting” on those products to fail and thus make a profit. The hedge fund manager had even helped Goldman Sachs to design that particular product.

John Paulson (no relation to Henry Paulson, former Treasury Secretary Henry Paulson and former Goldman CEO) is the owner of Paulson & Co, the hedge fund which was betting on the American Housing market to collapse. “

During the American sub-prime lending orgy, “exotic” mortgage-backed products had been designed with only one purpose – to generate a profit not-only for hedge-funds such as Paulson & Co but also for investment houses like Goldman Sachs.

The so-called “exotic trades” were no more than pooled mortgages worth billions. These mortgages had been granted to the so-called American Ninjas (No Income, No Job or Assets).  It was generally accepted that because these people had absolutely no chance of keeping up with any mortgage repayments, any product based on their mortgages would “tank” – and so it proved.

These mortgages were then “securitised”, that is to say, they were lumped together into what can only be described as a quasi-fund. Then, both private and corporate investors were encouraged to invest.

For instance, imagine  1000 Ninjas with  1000 mortgages worth £100,000 each. Lump them all together and you have a fund totalling £100,000,000. This should produce an income (mortgage repayments ) totalling say £5,000,000 per annum (at 5%). On the face of it, that’s quite a good investment – but only if you omit to mention that within a few months none of the mortgagors will have made any payments.

So, whoever “securitised” these  useless mortgages was able to pull-in yet more money which, believe it or not was subsequently  lent to other “Ninjas” and the cycle repeated.

Many investors found these potentially worthless investments very attractive – especially our banks. The rest, as they say is history. The only mildly interesting thing is that the banks didn’t understand what they were investing in and neither did the Financial Services Authority here in the UK or the US  Securities and Exchange Commission.

The Golman Sachs employee (I hesitate to use the word “banker”) at the centre of this potential scandal is Fabrice Tourre. He boasted that he had created the products “without necessarily understanding all of the implications of those monstrosities.”

 He obviously did a good selling job because he managed to lose Goldman Sachs clients who invested in these mortgage-based products over £645 million.  At the time, Mr Tourre was himself earning £1.5 million per year.

He has been accused of lying to investors – among the most gullible being our own Royal Bank of Scotland.

Meanwhile, the hedge fund owner John Paulson,  with whom the investments were placed, made himself a cool £2 billion.

Not so long ago, someone said that  if you put lipstick on a pig, it is still a pig. Mr Tourre and Goldman Sachs put so much lipstick on this pig that it looked like a glamorous dead-cert.

Mr Tourre is no doubt hoping that the Icelandic volcano continues to spew toxic fumes for ever – the last thing that he wants is to fly back to the USA to face the music. The Securities and Exchange Commission is just about to make a formal request to the British Authorities for Tourre to return to the USA to help the authorities with their inquiries and possibly face charges in conjunction with his employers.

Goldman Sachs shares are currently taking a pounding – especially as the SEC has said that it is investigating other financial shenanigans both by Goldman Sachs and other “banks”.

Unsurprisingly, Goldman Sachs has denied all charges and has said that SEC’s charges are unfounded “in law and fact” and that it intends to contest them.

However, as Goldman Sachs knows  a great deal about the US Government’s past financial machinations, there will probably be a “deal” of some sort.  But, as the SEC is also looking to recoup money lost by investors, it is hoped that Obama is strong enough to resist any easy compromises.

If money is, in effect stolen, then the mere act of returning it to its rightful owners does not usually put things right, although it can be interpreted as an admission of guilt.

It all depends on whether Goldman Sachs want to fight the action and whether it has the appetite for a lengthy trial.

Currently, it seems that Goldman Sachs does not have a leg to stand on, especially as it was paid £10 million by John Paulson to put together the mortgage-related product which was bound to fail.

Paulson took money from investors but at the same time “hedged” his bets by laying-off the risk through taking out a form of “insurance” which paid him vast amounts of cash when the investments failed ( and which he knew would fail in the first place).

These “pooled” mortgages which Goldman’s were selling were given the very impressive name of “synthetic collateralised debt obligations” – which is no more than sales talk for  “a load of potentially bad mortgages which have been lumped together for the gullible and feeble-minded to invest in”. For example, the entire banking industry.

The pill was further sweetened by Goldman Sachs through their claim that an independent third party called ACA Management Ltd had selected the pools of sub-prime mortgages. In fact a lot of the input into these potentially bad investments came from  John Paulson himself.

 This is what SEC Enforcement Director Robert Khuzami said:  “Goldman wrongly permitted a client that was betting against the mortgage market to heavily influence which mortgage securities to include in an investment portfolio, while telling other investors that the securities were selected by an independent, objective third party”

Tourre cobbled together the alleged fraud in 2007, just when the U.S mortgage market was  beginning to unravel. As a reward, he was promoted to Executive Director of Goldman Sachs in London.

John Paulson is not being pursued by the SEC  because in spite of the fact that he may have been complicit in the alleged fraud , he did not make any representations to investing clients. That was done by Goldman’s. 

Goldman’s has been an advisor to investment banking clients for many years and is also well-known for filling  high-level U.S Government posts with its directors and senior executives. Those days appear to be at an end because , as Simon Johnson, professor at MIT recently said ” I don’t think that anybody really values being connected to Goldman at this point.”

Because the SEC has indicated that it is on a financial witch-hunt, financial shares have fallen heavily in the last few days with Goldman Sachs itself losing about £10 billion in market capitalisation.

It seems that the SEC is retuning to its original role; the one in which it has so manifestly failed and that is protection of the investor. Hopefully, other financial regulators such as the UK’s Financial Services Authority will also have the courage to bare their teeth and not continue to be bullied by the banking industry, its white-collar bandits and their excesses.

New Predictions 2010/2013

Alistair Darling has never looked so relaxed. David Cameron observed that if Darling and and the Prime Minister sat any closer to each other on the front bench yesterday, they would be kissing. The Labour front bench has never  looked so “at ease” and with good reason. There’s absolutely NOTHING that they can now do about the economy, NHS or any of the other major conundrums of State. They are in a good place and enjoying the rapid approach of Spring and what it will bring – the dissolution of Parliament.

The crippled economy appears to have been left to its own devices as it staggers and bumps along from crisis to crisis. The politicians, bankers and economists seem to have been reduced to the role of observers, purveyors of increasingly convoluted euphemisms and “guessers” who still have not grasped the difference between two fundamental Theories: Keynes and Chaos.

It may be an idea to try to slash a path through the current economic goings-on in order to see if we can make any sense of it all.

Our Chancellor’s current laid-back demeanour means one of two things. It means that either he has adopted the fatalistic attitude of one who cannot wait to put his hands on the severance pay, begin his memoirs  and give Gordon Brown the shafting that he has been deserving of for the last 13 years OR  maybe he really doesn’t understand the problem.

The Winter Olympics, Christine Pratt, Gordon Brown and the Coles may be hogging the front pages but perhaps that’s all for the best because what could be on the front pages is strictly Certificate X. In fact, some of what is about to happen to the world’s economy would never pass the scrutiny of the British Board Of Film Censors.  We are heading for a cross between a social  Exorcist and an economic Armageddon. So let’s begin.

I have either observed or worked within the Financial Services Industry for over 30 years and remember the days before the present circus of  exotic financial instruments and comedy accounting. Stockbrokers and Fund managers were not riding financial tigers  or unbroken investment mustangs that were impossible to dismount without a great deal of pain. There were long bull markets interspersed with the occasional short sharp shock of a quick bear. There was order with only the occasional panic which would always be sorted out without the aid of the Bank of England’s printing presses. Those were the “My word is my bond” days.

Investment banks would never have cooked a country’s books in order to replicate what the banks themselves were doing in order to hide gargantuan unsustainable debts. They would not have  charged Greece 0ver £190 million for their trouble so that “on paper” Greece woud look financially fit enough to join the Euro.

Four months ago, Greece’s 10-year bond was trading happily, it was stable and rising.  Then,  global investors began to dump Greek bonds in huge volumes and with unprecedented speed. The whole thing was so brutal that the custodians of the Greek economy did not realise the full extent of the disaster until their economy was exhibiting all the symptoms of near-death. Thanks to Goldman Sachs who had (legally) helped them to cook the books, Greece had been living and borrowing in an economic cloud-cuckoo land. Currently, they are standing on of the equivalent of an “event horizon” at the edge of an economic Black Hole.

Three months ago,  Portugal’s 10-year government bond also peaked. That is also being dumped by global investors. Nobody wants it. Portugal’s problem mirrors that of Greece.  To put it very simply: overborrowed with no collateral. Just like our banks.

Investors are dumping Greek and Portuguese paper because they are nearly 100% certain that their current economic positions  are unsustainable and that both countries will default.

Italy is keeping afloat through the medium of creative accounting. The next economy to tumble after Portugal and Greece will be Spain  which is running out of both time and cheques with which to support its 20% unemployment rate. The ship that is probably going to support the sinking rats is the holed twin-hull of France and Germany who both know that they need to bail out Greece. After that is achieved, there is severe danger of a Euro-queue forming.

The Euro is doomed because France and Germany will be breaking that most sacred of rules which states that “Thou shalt not bail out thy Euro neighbour”. That rule was enshrined in statute so that a Euro economy in trouble would never drag down any other Euro-user.

Both the French and the Germans are continuing their own spending orgies and instead of doing something now, they are following the United States’ and United Kingdom’s lead. They are postponing the day of reckoning and merely watching the final death throes of the Greek economy.

It looks as if the Euro is about to be sacrificed.

The American dollar will also soon be needing  some sort of life support. Rating agency Moody’s  has already warned  the States about its giant but still accelerating debt.

Dollars  and Sterling have been pumped rather over-enthusiastically into both the American and British banking systems and that has directly resulted in an overvalued stock-market and the feeling is that we are now about to witness a fall in market values which will continue into 2013. That will be mirrored by the highest-ever percentage rise in the price of Gold, Platinum, Palladium and even silver. Gold may well cross the $2000 per ounce barrier.

The dollar will continue its slide which will accelerate by the middle of 2010 , with its downward journey picking up speed by the end of  the year. The pound sterling will follow because currency speculators will be falling over themselves to buy currencies such as  Australian and Canadian dollars. From flashy and weak to unexciting but solid.

At the front-end of 2011, we will see the beginning of the dreaded second dip in the recession which many commentators  seem to think is gradually exhibiting those iconic green shoots of recovery. Those shoots will turn brown and atrophy.

All this will happen because back  in 2009,  whole states made the decision to sacrifice themselves in order to  save their dead  banking systems. History will probably judge these to be the worst economic decisions ever made.   A country has never sacrificed its economy and welfare of its citizens in order to save a broke and discredited banking system which it had itself allowed to expand without proper control.

By the end of 2011 and into 2012, most countries will follow the Greek economy – which is currently exhibiting the green shoots of a civil unrest which will soon spread throughout Europe and the Americas .  That will happen because of of an exceptional set of events which will all take place more-or-less simultaneously . Western economies will collapse as their GDPs, currencies and stock markets all bottom-out .

That will finally signal the inevitable dawn of the wealth-shift from West to East.

China will begin to call ALL the shots because Western economies will have  been painted  into an economic  corner with no way out.

Our Chancellor knows that after the next election, he will probably be on the Opposition benches. In the unlikely event of a Labour Prime Minister being asked to form a government, Darling will probably be “reshuffled” out of the Treasury.  Either way, he will be able to continue what he has already started to do – observe the  sunset of the Western economies.

The green shoots of economic recovery? We’ve been looking in the wrong place. They’re in China.

Obama and the Banks.

“OMFG!”

The last twelve months have seen bank profits reach pre-crunch heights. There is no doubt that the banks were able to continue their activities only because of the intervention of world’s governments who have pumped eye-watering amounts of liquidity (money) into the banking system.

Now that the banks are producing a surplus, they have four very clear choices:

1. They can increase lending (on reasonable terms) to commerce and business.

2. They can place the money in their reserves – just in case there is another crisis or a “run” on bank assets.

3. They can repay money to the world’s taxpayers who have underwritten the banks’ past, present and future losses.

4. They can extract the money from the banking system through the medium of high salaries and bonuses.

The reality is that the banks have dabbled in all four options but through their smug bumptiousness, have created the perception that all that they are interested in is Option 4.

The banks appear to have closed ranks and decided to keep their heads down while they pick both government and taxpayer pockets.

Here in the UK, the Prime Minister and Chancellor have made increasingly strangulated noises in the bankers’ direction and attempted to appeal to the bankers’ better nature. They are yet to find it. The situation here in the UK is a delicate one because the Financial Services Industry used to add about £100 billion per annum to the country’s wealth. There are over 500 banks in the City of London and Docklands, where the majority of the business is being carried out internationally. Golden goose and all that.

To put it simply, the United Kingdon economy is over-reliant on the banks. That is why all that the politicians can do is to try and shame the bankers into complying but at the same time, they do not want London to lose its place as the world’s leading financial centre.

Our own Chancellor has stopped short of introducing legislation to curb the bankers’ excesses but instead has dabbled with a one-off bonus-related tax which the bankers have side-stepped and swatted quite neatly because they know that any levy claimed by the government will consist of no more than a refund of the government’s own money back to the government. The bankers are not-only in the driving seat but they are driving a limousine while all that the government can do is to run alongside barefoot and knock on the window while the bankers sigh, light up another Monte Cristo and count their bonuses.

Bankers used to be “middle-earners”, whereas nowadays – especially Investment Bankers, are well-and-truly in the top 10% of all earners. It is interesting to see how income distribution looks after so many years or “ersatz” socialism: The Lowest 10% of earners in the United Kingdom collect about 3% of the total earnings, whereas the top 10% of earners take home about 30% of the total.

It is doubly frustrating for a nominally socialist government which (on paper) is committed to fairer income distribution, having to stand-by as a mere spectator, while the bankers continue to plunder the economy. Some may say that the plundering is being carried out with the government’s connivance or perhaps merely as a result of the government’s intransigence and ineptitude.

That is why it was so refreshing to hear that President Barack Obama has decided to declare war on the bankers and impose some rules. The reaction of the financial markets has been spectacular and not-only indicated fear but has also demonstrated the banking industry’s foot-stamping petulance.

Bank values fell in the United States and the good news is that the “Obama-effect” is spreading .

The US Dow Jones fell by 2%. In London the Stock Exchange fell by 2.2% – led by Barclays which dropped by 3.5%. Barclays was followed by the German Deutche Bank which more-or-less matched Barclay’s fall.

The banks are fearing an imposed break-up of their operations because most of them realise that they are too big. If you listen carefully you will hear the rasping sound of Bank Directors choking on their Remys.

If a bank is too big to fail – then it is too big. THAT should be a self-evident truth.

President Obama has said that he is “ready for a  fight” with the banks. He is a very brave man because there are many within the US establishment – both Democrat and Republican who are still not 100% comfortable to see a black democrat with a social conscience running the show. Mr Obama has a difficult year ahead – but good luck to him.

He said  “Never again will the American taxpayer be held hostage by banks that are too big to fail.”

Goldman Sachs has just announced the equivalent of a £500,000 bonus to each of its US employees – each one of whom already averages about £300,000 in salary. Needless to say, Goldman Sachs shares have fallen  in value and perhaps finally, their stranglehold on the US economy will be broken. READ HERE.

In spite of Gordon Brown’s delusions, he has not been the “leader” during the global financial crisis. He is very much a follower who has always found it difficult to go out on a limb in the way that Obama just has.  Brown’s spokesman , City Minister Lord Myners said yesterday that the US proposals were “very much in accordance with the direction we have been setting” .  Since when?  Yesterday?

George Osborne, the Conservative Shadow Chancellor has said that if elected, the Conservatives would dismantle United Kingdom banks but only if he managed to secure international agreement.  It would seem that no-one wanted to be the first to blink and now that President Obama has shown the will and the courage – the bandwagon will begin its long and creaky journey to banking reform.

We should not be surprised however, if the banking industry regains the initiative any day soon by announcing its own plans for reform and reorganisation. Watch this space.

One of the main causes of the 2008/09 banking meltdown was (and still is) the habit that the banks acquired through gambling with their own money – the so-called proprietary trading . The problem is that they weren’t always using their own money – they were themselves borrowing the money from other banks and “investing ” it. Hopefully, that will now stop and they will only invest their customers’ money – which after all, is what they are supposed to do. Banks are not in the business of putting themselves into hock in order to gamble borrowed money on the stock exchanges.

Obama said: “While the financial system is far stronger today than it was one year ago, it is still operating under the exact same rules that led to its near collapse.”

He will change those rules but the more likely outcome is that the banks will comply without any bloodshed. There is a saying that “the fight is won – even before the first blow is struck.”

Obama has nothing to lose and everything to gain. He has been in office for one year and the banking fiasco has been a constant irritant from Day One. In addition, US unemployment is rising, he has a battle with his proposed health-care reforms and Republican Scott Brown has captured Ted Kennedy’s old Massachusetts Senate seat.

Make no mistake – Obama has diamond-hard resolve. His attack on the banks is no more than the play of  a wily gambler who pushes his chips into the middle and says ” I’m all in. What have you got?”

The banks are facing him across the table but at this stage they are not sure which of them is holding the weaker hand.

My money is on the President to prevail and for the rest of the world’s governments to back his hand.

 

 

Twenty-one 2010 predictions

On 15th May 2008, I predicted the nationalisation of British Banks. 

On 20th April 2009, I predicted that by the end of the year the FTSE 100 would fall to below 2500

On 3rd November 2009, I predicted the collapse of the dollar and of the pound-sterling 

The first prediction has come to pass – in all but name. The third prediction is about to come true. The FTSE 100 prediction of 2500 was out by a factor of over 100% – so what happened? Quantitative Easing is what happened. Very few of us could have predicted that the Bank of England would start to generate free money, hand it to the banks and allow them to use it to gamble on the stock markets and continue to declare false profits.

Currently, the FTSE 100 stands at over 5400 but this value is totally unsustainable. It is a false dawn. Bankers are now daring to predict that we will not have a “double-dip” recession and that everything seems to be looking rosy. When the dollar and pound collapse and the pound is worth the same or less that the Euro, we will see some real (genuine) action on the world’s stock exchanges.

The critical time in 2010 will not be the first quarter but the second –  because Q2 will contain not-only the beginning of the new tax year but also the General Election and the frightening spectre of the Liberals holding the balance of power. The only good thing that would come out of such a result would be Vince Cable as Chancellor of the Exchequer.

Here are the 2010 predictions.

1. The collapse of the dollar and the pound – with the pound achieving a value of 0.9 Euros and the dollar achieving parity with the pound.

2. An accelerated move away from the concept of Anthropogenic (Man made) Global Warming.

3. The United Kingdom being down-graded by the rating agencies – based on its inability to service its current debts.

4. Bankers, Financiers and financial journalists will finally run out of metaphors to describe the apalling state of the British economy.

5. Conservatives will win the  General Election but without an overall majority.

6. Stock Market crash  .

7. 10% more British retailers to go out of business.

8. Arsenal to win the Premiership.

9. The beginnings of civil unrest in the United Kingdom. 

10. AFNAJ ( Artist formerly known as Jordan) hospitalised – inevitable progression. Woo Woo land beckons.

11. Another scandal involving Jeffrey Archer – it’s about time and will include at least one of his editors or maybe Jeffrey’s well-travelled trouser department or maybe the Kurds’ missing millions. We’ll see what we can do.

12. A well-known rock star will succumb to “prescription drugs”. (That’s an easy one because it is an annual event.)

13. The Queen will visit China. It’s about time and someone has to hold the begging bowl.

14. United Kingdom unemployment will be over 3 million.

15. At least one large bank will move its operations offshore.

16. The Americans will threaten to invade Iran. The Russians and Chinese will tell them to “butt-out”.

17. The cost of an  iPhone will be halved because of competition from Google and Android.

18. iSlate will be the “must have” 2010 Christmas present. (Apple has just bought islate.com)

19. The Miliband brothers will be tasked with rebuilding the Labour Party.

20. Gordon Brown’s wife Sarah will write a book and become a television chat-show host.

21. Someone from Goldman Sachs will tell the world how Executive Order 12631 has been abused both to their and the US Government’s benefit.

What Recovery?

 

TOOLS OF THE TRADE: INVESTMENT BANKING

 

 

Since 2007, there have been at least three announcements  which declared an end to the economic crisis. Today, we have the latest pronouncement of a slight ”recovery” and the fact that a survey shows “increased confidence” from consumers. All a bit nebulous but nevertheless welcome.

 

The FTSE 100 is trying to muster the courage to break through the 5000-barrier and there are predictions that it will be well over 5000 by year-end.

 

Pundits are once again queuing up to make predictions. It’s a pity that they weren’t around this time last year to predict the 2008  banking meltdown.

 

Whenever the Government intervenes with yet another injection of cash or dose of “quantitative easing”, investors rush back to the risks and the markets rally sharply.

 

We seem to have gone from a boom-bust cycle to a much shorter “cash handout-gamble” cycle. Continue reading What Recovery?

Goldman Sachs – Fiscal Frankenstein.

It was a few months ago that I realised the size of the divide between us ordinary Earthlings and the government-venerated banking royalty had gone past the tipping point and that we were now separate species. Survival of the fittest?  Darwin was right. We are the peasants with pitchforks gathered below Frankenstein’s castle where mysterious new things are happening. Continue reading Goldman Sachs – Fiscal Frankenstein.

Did you call me a Banker?

 

Over the last week-or-so, there has been a slight upswing in the markets as investors  focus on economies rather than on the global banking crisis. 

The sad fact however is that the banking sector is still having a vastly negative effect on the economy:

1. The banks are not lending.

2. They are “upping” interest rates to businesses as well as personal borrowers – in spite of prevailing downward pressures on rates.

One could argue that banks have behaved fraudulently over the last few years. The mere act of keeping dodgy investments “off balance sheet” (hidden) means that these loss-making institutions have been declaring fictitious profits which have enabled them to pay executive bonuses.

Barclays has gone to the Middle East for a cash injection. Why? Would their books not stand up to detailed government scrutiny and would government money have strings attached? Such as parachute-free executive resignations?

Barclays was already after a £5 billion cash injection in May 2008 and now  appears to have secured £6.5 billion jointly from the Quatar and Libyan Investment Authorities. It’ll cost them and let’s hope that when the time comes, they are able to repay the loans to their new masters.

Barclays is currently behaving like a teacher’s pet and will be the first bank to participate in the European Investment Bank’s £4billion scheme to provide cheap loans for small businesses.

In the States, the screens were placed round Goldman Sachs with almost indecent haste. Why? Did they have an unacceptable exposure to SIVs and SIV-lites? We’ll never know – unless of course the new Washington administration is in a surgical mood and decides to take a scalpel to its own banking system.

Sadly, the banks seem managerially-unequipped to deal with the current business chaos and if they need “cash in” , they simply jack-up rates and withdraw credit in the vain hope of temporarily tarting up their balance sheets, prior to the inevitable write-offs 12 months later. 

They should take their own business advice and nurture the businesses who will provide them with future cash-flow. One of the great banking paradoxes is that when a client is in trouble, the bank’s tendency is to increase his loan-and-overdraft rates. That’s banking logic – if someone cannot afford £1000 per month, increase it to £1100, sit back and watch them choke but give them lots of advice.

The other paradox is that of bankers providing “business advice”. The individuals who need  banking as a career are diametrically opposed to their clients who have chosen the risky route of creating wealth through entrepreneurship. 

Yet, it is the entrepreneurs who have to sit and nod as their bank’s “business advisor” or “consultant” tells them how to run a business. Bankrupt banks providing advice through the medium of bankrupt ideas and penniless platitudes – priceless!

One more thought: did the government complete a detailed audit of the banks prior to agreeing to support them with taxpayers’ funds? Or did they accept their word as gentlemen?

From a Jack to a King.

 

The government’s  rescue package has been met with a tsunami of indifference, as has the Bank of England’s announcement that the base rate has been lowered to 4.5%.

There is still a fear that there are other financial services outfits who are yet to declare that they are not viable – notably insurance companies and judging by the FTSE 100 index (which today is happily bouncing between 4400 and 4500), traders are unimpressed. How many more SIVs and SIV-lites are sitting and festering in off-balance-sheet suspense accounts?

The FTSE 100, the Dow Jones and all the other indices will continue to oscillate up and down like a bride’s nightie until we are all allowed a good look under the voluminous skirts of the entire financial services system. The money’s on the table – now let’s see what you’ve got. We already know it’s not balls.

The same people who are responsible for the catastrophe are still in charge and advising Gordon Brown, George Bush et al. There is already talk of not butchering bank executive remuneration because this “talent” will simply up sticks and go to ply its trade elsewhere. Good.

There is no explanation as to why this all happened and why nothing positive  is going to happen for a very long time. The other mantra “The Banks won’t lend to each other” is being intoned on a daily basis without real explanation. “Toxic Debt” is still toxic as far as we can tell and the fatcat bankers are still plundering executive expenses.

There was a time in the early 80s when the banks decided for the first time that they would have  a go at the mortgage market – prior to that it had been a simple affair which had been run without mishap  for many years by degree-free and MBA-less Building Societies.

On that occasion in the 80s, the banks screwed it up (Yvette Cooper’s words, not mine) for the first time and then climbed out of the market. They should have stuck to what they knew.

Lending money to people so that they can buy a house was not rocket science – until bankers and securitisers become involved. Then it goes way beyond rocket science because the banking alchemists believe that they can produce cash out of debt ad infinitum.

A few days ago , the spectacle of an angst and bile-ridden Dick Fuld answering “Janet and John” Congressional questions with all the grace of a Dodge-ball full-back with a club was sickening. He had no intention of sharing what he knew with questioners who were obviously way out of their depth. “You are confusing liquidity and collateral” really meant “You seem confused – let me confuse you some more”.

Here’s some more for you, Dick. You are confusing profit with earnings. You are confusing electronic promises with cash. You are confusing all of us because you don’t know what the hell happened either.

For years, you were holding a pair of Jacks but you  tried to make us think that you had a royal running flush.

Let me explain. The “lending” that goes on between banks is not the lending of hard cash. What they are lending to each other is a series of promises of cash at some time in the future. Our politicians who still do not appear to understand the process are about to inject cash into the system and there is nothing to show that the banking fraternity will know what to do with it.

Banks have been inflating their profits for years by concealing their debts – or as they like to put it: keeping their debts “off balance sheet”.

They have been playing Texas Hold-’em with worthless chips – and I would still like to know why a Federal screen was placed around Goldman Sachs with such indecent haste. Insider knowledge?

Scurrilous? You bet.

 

 

The Ringmaster

Henry Paulson

 

When the $700 million Wall Street rescue package is unveiled, remember the saying:   A camel is a horse designed by a committee.

The last few days have shown how unpopular the US $700 million rescue package is among the American electorate.

Both the Republicans and the Democrats are very mindful of the fact that a Presidential election is looming, so the fact that Joe Average is having to bail-out the Wall Street fatcats is a potential vote loser.

Neither Party wants to be seen as the one which pushed the deal through Congress – just in case. The package is currently being window-dressed  so that it will look as if it was agreed and objected-to in equal measure by both parties.

Self-preservation and vote acquisition have triumphed.

The system is supposed to have seized up because (new mantra)“the banks have lost confidence and therefore will not lend to each other.”  So why don’t they do what we used to do in the old days and use their own money?

The reason is simple – they do not have any money. Most of the mortgage cheques that lending institutions sent  out in the last few years should have bounced.

Banks are distributors of money – no more and no less. They do not MAKE anything.

They cannot conjure-up new money because all that they can do is MOVE money from a. to b.

They do not CREATE new money. They do however, create wealth for themselves.

The U.S. ringmaster, Henry Paulson who is currently United States Secretary of the Treasury has a net worth in excess of $700 million and his income in his last full year as CEO of Goldman Sachs (2005) was nearly $40 million. No-one would ever suggest any impropriety but is an executive  who spent nearly 32 years at Goldman Sachs the best man to be proposing a rescue package?

There is now talk of curbing the excesses of the Wall Street fatcats through legislation and the whole process is being overseen by a former uber-fatcat.

There are several important questions: Has Henry Paulson retained any shares in Goldman Sachs and could we please have  sight of Mr Paulson’s investment portfolio? How much is he currently worth and how much (if anything)  does he stand to gain?

Nightmare on Hudson Street?

“A very strange day on Hudson Street although they’re not really wanting to believe it!”

 

The figures below represent what is known as the “Capital Multiple” of brokerages/merchant banks  in the United States. That is to say the total capital, divided by the minimum capital requirement.

 

The source of these figures is the Securities and Exchange Commission and is based on the most recent financial statements.

 

When choosing a broker or Merchant Bank with which you wish to deal, go to an organisation which has a higher capital multiple. The CM is a good indicator of the bank’s ability to withstand losses and its ability to field other financial difficulties.

 

It is interesting to note that on average, the companies that are currently experiencing turbulence tend to have a low capital multiples.

 

Edward Jones  19.9

Bank of New York Mellon (Pershing) 15.8

T. Rowe Price 13.98

Scottrade 13.86

OptionsXpress 12.65

Raymond James 11.92

Merrill Lynch 8.62

Fidelity 7.93

Bank of America Securities 5.97

ING Direct 5.85

Schwab 5.85

Lehman Brothers 5.43

E Trade 5.00

TD Ameritrade  4.72

Citi Smith Barney  4.06

Goldman Sachs   3.90

Morgan Stanley 3.21

 

Below is a snapshot of prices and movements on the NYSE as at 14.45 GMT today:

 

 

Top Losers

 

GENWORTH FINANCIAL

8.69

1.15

down

 

PROLOGIS TRUST

37.93

4.61

down

 

MORGAN STANLEY

20.21

1.54

down

 

CONTL AIRLINES CL B

17.08

1.15

down

 

A M R CP

10.47

0.67

down

 

Northwest Airlines Corp.

9.95

0.60

down

 

US AIRWAYS GROUP INC

7.30

0.44

down

 

GOLDMAN SACHS GRP

108.04

6.46

down

 

American International Group Inc

3.24

0.09

down

 

American International Group Inc

3.31

0.09

down

 

 

It looks as if the market is after anyone without deep coffers, irrespective of any recent profit announcements.

 

After a harrowing day, Morgan Stanley’s shares finished down $6.95, or 24%, to $21.75.

Goldman Sachs Group, the largest U.S. investment bank by market value, also fell $18.51, or 14%, to $114.50.

 

There was a time when these two banks considered themselves as “untouchable” but the prohibitive cost of money is going to make it difficult for them to fund their businesses without some sort of outside intervention.

 

We can see them both running for cover and in fact, Morgan Stanley is in advanced talks with Wachovia Corp. although it is also talking to other banks.

 

Friday 19th September will be an interesting day for both organisations but don’t forget that the darkest hour is just before the dawn following a Treasury meeting.

 

By lunchtime tomorrow, all that will remain is the hazy memory of something similar to a sub-prime out-of-body experience – and they will both have managed it without flatlining.

 

But it will be close.