'The SEC didn't have ... the mindset to be a prudential regulator.'
-Mary Schapiro, Chairman of the SEC
'To me the SEC is utterly irrelevant. It is the federal fig leaf over the securities market. Bring back Joe Kennedy ... bring back free markets ... get rid of these people.'
- James Grant
'The new normal is not sub par economic growth. The new normal is the roll back of free markets.'
-Russell Napier
'The examination staff at the SEC's district office in Fort Worth, Texas reviewed the Stanford Group's operations in 1997, concluded that its sale of certificates of deposit likely constituted a Ponzi scheme, and referred the matter to SEC enforcement staff. Mr. Stanford kept on selling his seemingly too-good-to-be-true CDs, so SEC examiners investigated again in 1998, 2002 and 2004. Each time, they concluded that the Stanford operation was a probable Ponzi scheme and urged SEC action. Each time, the enforcement staff failed to act…'
-WSJ.com
'I have spoken to the heads of various Wall Street equity derivative trading desks and every single one of the senior managers told me that Bernie Madoff was a fraud. Of course no one wants undue career risk by sticking their head up and saying that the emperor isn't wearing any clothes. As a result of this case several careers on Wall Street and in Europe will be ruined. Therefore, I have not signed nor put my name on this report. I am worried about the personal safety of myself and my family.'
-Harry Markopolos in 2005.
'Obviously, first of all, this conversation never took place … OK? You know, you don’t have to be too brilliant with these guys, because you don’t have to be. The guys … ask a zillion different questions and we look at them sometimes and we laugh, and we say are you guys writing a book? These guys they work for five years at the commission then they become a compliance manager at a hedge fund now'.
-Madoff on a 2005 conference call telling colleagues how to dodge the SEC.
'This s%*t would be really interesting if we weren't in the middle of it.'
—Barack Obama
At first blush the SEC's civil case against Goldie looked like an institutional he-said, she-said.
A second read concludes it is a joke.
Either the folks at the SEC are stupidly criminal or criminally stupid ... a more appropriate servin' would be to charge themselves as well as their co-conspirators in silence and blindness... the fraudulent conveyan' , Nancy Capitalist enablin', Federales that are exhuming the epigram that without prudent regulation Marx, not Groucho, was right.
Ms. Schapiro when a progressive bankster-baitin' anonymous ranconteur takes Goldie's side against your pablum narrative 'bringin' them to justice' you know that we've jumped the capitalist shark and are rappelling our way right down the sovereign democratic rabbithole.
Mary, Mary, to be contrary, how does your mandate go?
For public secs and retail vests?
Or institutions too stupid for d'oh?
Failure to liquidate the insolvent banksters has led to the liquidation of a large part of the productive economy.A taxpayer financed bailout of rich folks' bad speculative bets has resulted in zombie banks and zombie customers... a fiscal tide that lifts no boats.(AM Rule #7)
The stress tests which were truly an I.Q. test, and squeezing the squints, set the stage for a generational workout.
Now extend and pretend is the proposed means to mend.
Why audit the Fed, or question the strong dollar policy which is a chimera of wealth transfer, or consider that in the land of the brave we've honed off the free?
Let's pick the winners and stick the sinners, after all the man on the street needs that metaphorical perp walk so we can turn the page and start afresh.
The magician's ability to get folks to ask the wrong questions belies the need for coherent answers.
In defense of the Banksters(?), incensed by the pranksters ... where the hell is the Hankster?
Can't wait to see Hanky Panky get on the stand and do an Admiral Poindexter.
This s%*t would be really interesting if we weren't in the middle of it.
16 comments:
anon M,
I don't understand why it matters what Goldie told ACA about Paulson's role or what ACA otherwise knew about Paulson's role. ACA wasn't an agent of the investors, so its knowledge isn't imputed to them. What seems relevant is what Goldie's disclosure told the investors, and whether it misrepresented something, specifically, the scope of authority ACA had to choose reference RMBS for the CDS underlying the CDO structure. Beyond affirmative misrepresentations though, hard to see what Goldie could have done wrong.
Mary, Mary, to be contrary, how does your mandate go?
For public secs and retail vests?
Or institutions too stupid for d'oh?
The SEC's mandate is disclosure and duties of care relative to public securities and retail investors...
This is a private contract between institutions.
Has the SEC even heard of the term accredited investor?
At the time most everyone thought Paulson was wrong... ACA and IKB and throngs of other yield pigs were searching for troughs... to say that these institutions were done wrong or that they were unaware someone would be shorting the synthetic is absolutely ridiculous.
Goldie was under no obligation to share who was on the other side of the trade.
This product would not have existed if there wasn't an interest to short it!
This is a sad joke...
Political risk is alive and well in Amerika.
anon M,
accredited investors are protected by the anti-fraud provisions of the 1933 Act.
http://www.moneylaw.com/pdfs/securities_pdfs/stat_exemptions.pdf
Again, if there are material misrepresentations in the disclosure, that's a problem and SEC has tools to pursue. Admittedly though, it would be better if they had a case with a US charity or municipality acting foolish.
Yes, of course you can commit fraud against accredited investors.
Affirmative misrepresentations, or in layman terms, knowingly false statements not just omissions, are the standard unless there is a fiduciary duty... if memory serves.
The only thing I've seen unless you have add'l info is ACA knowing or not knowing if Paulson was long or short.
And frankly I don't see why that would matter at all, you go long on the merits not cause some unknown hedgie is long or short... ACA decided what was in or out not Paulson.
And further if memory serves, any misrepresentation would have to be on a present or a past fact not a FUTURE fact.
Will restate has the SEC even heard of the term accredited investor?
They are acting as if IKB and ACA are ma and pop investors that had no idea what they were investing in. Didn't know that this was synthetic created in part with someone having to take the other side of the trade... they are acting as if IKB and ACA are totally unsophisticated ...
Since there is no (standardized) test you can take to prove your sophistication, either the SEC or Congress created a net-worth requirement with the presumption that an entity or person with sufficient capital is either sophisticated or has advisors who are capable of doing the proper due diligence on any such offering.
Unless there's a smoking gun that no one is discussing I stand by the assertion that this is a sad joke.
By the way, your link didn't work :)
Best,
AM
anon M,
I don't know why anyone cares what ACA knew or was told. What matters is whether Goldie's disclosure lies about the process by which the reference RMBS were selected. If the disclosure lies materially, that is a problem.
ACA was not an agent of the investors in terms of soliciting, negotiating, or closing their purchase of CDOs. So ACA's knowledge of what Paulson was doing seem totally irrelevant.
What am I missing? Why isn't talk about ACA and the he said she said, just a bunch of distracting smoke blown by Goldie's PR people?
Sorry about the link.
AM,
Professor Black advised in his testimony on Lehman that;
"The [Valukas] Report documents at least three major deficiencies in Lehman’s corporate governance that need to be addressed globally. First, it points out that Lehman, and many other Delaware corporations, have eliminated the fiduciary duty of “care."
My question is...I wonder if Goldie is one of these "Delaware corporations"???
The larger question everyone dances around is simply this...if Goldie can be charged with selling a "secondary" product that was specifically asked to be created for by the hedgie (Paulson), how can politicians NOT be charged as co-conspirators in the creation of the "primary" product that was anticipated to collapse??? ;-)
I have given myself many enigmas searching for the answer, some with a solution of mysteries, some a solution riddles, so far nuthin...I have now resorted to my patented swinging of a dead chicken over my head seeking enlightenment...LOL.
Always enjoy your commentary.
Regards,
nmewn
The Hankster isn't looking so good these days. Puffy...red blotchy face...maybe they have him on the GMO corn.
Great Read.
Anon,
'how can politicians NOT be charged as co-conspirators'
Second that emotion...
'I have now resorted to my patented swinging of a dead chicken over my head seeking enlightenment'
I think a dead fish might be more appropriate given the subject matter :)
'What am I missing?'
Joe don't think you're missing anything.
At the time folks thought Goldie was taking Paulson to the cleaners because home prices would never go down.
That is truly the madness here.
At the time, if Paulson showed up in person at the site of every buy-side investor when they were circling the bonds with a neon sign on his forehead shouting 'I'M SHORT!'... no one would have cared.
They would have thought he was absolutely nuts.
Betcha Goldie goes to trial and does not settle.
Thanks Craig...
Think Hanky Panky just got back from Argentina.
Maybe he forgot to wear his gaucho hat.
anon M,
The investors may have a case. It depends on whether it looks like GS marketed CDOs as designed to perform in good faith, when in fact the CDOs were designed to self-destruct.
And if so, that sounds problematic under the 1933 Act's anti-fraud provisions.
Even if most people thought real estate prices would rise, it may well be material if the people designing the security create it in good faith, or design it to self-destruct.
Oh that's right, he was down there teaching an advanced class in con artistry.
Joe,
Was my understanding that ACA rejected some that Paulson had submitted and then added some that brought the overall performance DOWN!
Based on the reality at that time though this case is a stronger pejorative than ridiculous... question is can Goldie find a non-prejudiced jury?
Your comment though 'may have a case', well there ain't a soul in the world that might not have a case regardless of the subject matter ...that's the scourge of the legal profession isn't it?
Craig,
And he did it all from memory 'cause gosh... notes just ain't allowed!
anon M,
If you like, I'll remove the weasel words.
If the offering memorandum represents the CDOs were in good faith structured to give Toyota Accord quality exposure to residential mortgages, while in fact they were trying to give Ford Pinto exploding gas tank quality exposure to residential mortgages, then I think Goldie is going to lose in court. And I think it'll prompt others to try to sue trying to prove up similar facts.
You rock. But not this time. Even if you're buying houses in an absurd bull market, it is material whether the builder is trying to structure the houses to collapse. That presents idiosyncratic risk separate an apart from market risks.
Joe,
I hear what you're saying, but at the time, and in part I did have a small seat at the circus, a lot of PHDs would swear on a thousand bibles that the only cars in the lot were Mercedes Benz thanks to the pixie dust of the rating agencies.
Paulson was one of the lone voices against. He did his research, the long side did not.
No one put a gun to ACA's or IKB's head.
In order for either to go long there had to be another party going short. Had to be. The short side created the trade for the longs and the longs lapped it up, doing their diligence and concluding shorty was the sucker at the table.
If Goldie withheld material information about the homes, in this case, material information about the delinquencies or the LTV, or the FICO, or the ZIP CODES etc.. then yeah Goldie would be in jeopardy.
But don't believe that was the case.
To use your Ford Pinto case, Ford had used a cost-benefit analysis to compare the cost of an $11 repair against the monetary value of human life.
Bubbles are only obvious in hindsight... who is to say that home values wouldn't have appreciated , albeit more slowly, for the next 20 years? Paulson would have lost 20 million.
There were two bets one long, one short, one was wrong, one was right.
It appears ACA knew Paulson was short, there was a reference that he might buy the equity tranche but at the end of the day there was no equity tranche.
Again, don't see how Paulson being long or short mattered...
Would wrap this up by saying the fact that you are an erudite fella and seem to believe that on the merits the SEC has a case, makes me believe that it might just be impossible for Goldie to get an impartial jury.
What now seems so probable in hindsight was viewed as impossible at the time. Absolutely impossible.
We'll have to agree to disagree but do appreciate the debate!
Best to you.
AM
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