Alan Greenspan, former chairman of the Federal Reserve board (August 1987 – January 31, 2006), recently appeared on The Daily Show with Jon Stewart. Greenspan said he didn’t see the financial crisis coming; he thought bankers would be better stewards of their capital. That was meant to be an apologia of sorts for the Fed’s bungling oversight of the banking system. According to Greenspan, banks didn’t understand their risks, and neither the Fed nor the banks can forecast well. He added that people on Wall Street are “screwy.” Greenspan says he always thought “screwiness” would wash out, since people “would act rationally in their long term self-interest.” Read More »
I intend to perform my responsibilities in a way that will live up to the standards set by the men and women serving in the British armed forces: my comrades in combat, and my friends. You claim you are doing “God’s work.” I see your work is ongoing. I have chosen a different path. I aspire only to acquit myself well in doing the work of an adult person of honor, as so many of the men and women I admire have done.
Whenever we see another case of manipulation in the currency, energy, gold, commodities, interest rate, credit derivatives, securitization, or equity markets, management of the culprit financial institution inevitably blames it on “unauthorized” trading by one or more “rogue” traders.
Traders’ salaries are low relative to the potential for seven figure bonuses. When you offer a trader a pink slip for failure and a princely bonus for success, traders tend to minimize losses and inflate successes. Read More »
Bloomberg News’ Yalman Onaran wrote an article on Monday about the disaster that would unfold if we don’t raise the debt ceiling and the U.S. has a technical default by missing an interest payment on U.S. Treasuries. James Kochan’s quote summed up my feelings: “Well, holy cripes!” It has never happened in modern history and would be a disaster greater than the September 2008 financial crisis. Read More »
The U.S never really minded if a Latin American oil minister took a kickback here or a bribe there to grease the wheels for a foreign oil company or an importer of hard liquor. Latin American taxpayers wouldn’t notice. The money was really just an upfront golden parachute. No U.S. executive ever went to jail just because he voted himself a huge separation bonus as a corporate raider took over a company. Shareholders didn’t complain. The only difference between an executive and a Latin American honcho was the executive got his money after he lost power. But the U.S. minded a lot after Alan Garcia won Peru’s presidential election in 1985. Garcia announced to the world that Peru couldn’t pay back its debt. Garcia was going to mess with U.S. banks, and that was definitely not okay. Read More »
Seymour Hersh, the Pulitzer Prize winner who exposed the My Lai massacre during the Vietnam War, wants to fix what’s wrong with American journalism. He asserts the press should be outsiders instead of access journalists:
“Our job is to find out ourselves, our job is not to just say—here’s a debate, our job is to go beyond the debate and find out who’s right and who’s wrong about the issues.” Read More »
A reconsideration of the London Whale, JPMorgan’s risk management, Jamie Dimon’s oversight – and their implications for other financial institutions
If you are a risk manager at a U.S. bank, you will be faced with difficult decisions. You’ve probably already run into one or more of what I think of as the three major problems for risk managers. The first is the lip service paid to risk management by people in leadership positions who are unfit to lead; the second is ignoring or covering up oversized risky positions; and the third is not effectively managing short positions. Read More »
The SEC filed a cease-and-desist order on September 19, 2013, in the matter of JPMorgan Chase & Co.’s “London Whale” credit derivatives trading incident and misstatement of earnings. JPMorgan admitted it violated securities laws and agreed to pay a $920 million settlement.
The release mentioned that JPMorgan filed inaccurate reports with the SEC: Form 8-K filed April 13, 2012, and Form 10-Q filed May 10, 2012. The SEC also listed several failures by senior management defined as the JPMorgan Chief Executive Officer, the JPMorgan Chief financial Officer, the JPMorgan Chief Risk Officer, the JPMorgan controller, and the JPMorgan General Auditor. But the report doesn’t mention them by name, and in particular, it doesn’t mention Jamie Dimon by name, even though he is both the Chief Executive Officer and the Chairman of the Board. Read More »
At Bank One I headed up capital markets risk management when Jamie Dimon was CEO. Today, the SEC filed Release No. 70458 as JPMorgan Chase admitted it violated federal securities laws. Dimon is both the Chairman and CEO. JPMorgan agreed to pay a $920 million fine to resolve several probes into the $6.2 billion trading loss in its Chief Investment Office (CIO) unit based in London. Read More »
On August 13, 2007, more than a year before the AIG meltdown, I publicly challenged AIG’s phony accounting for credit default swaps linked to over $19 billion in “super senior” exposure to subprime and other dodgy loans. These were meant to be super safe, but any competent CDO specialist should have been able to perform the same analysis I did. Instead of super safe, AIG had several billion dollars worth of principal risk due to exposure to mezzanine tranches backed by a significant percentage of poorly underwritten loans, and losses were eating through all of the so-called protection. Yet, despite market prices already eroding on the underlying collateral, AIG took no accounting losses at all. That was far from AIG’s only problem. Read More »
What is it like to live in a country where the government has been accused of torture, fickle application of the law to imprison citizens, unfair courts, repression of journalists, and a huge prison system? I’m not talking about the United States—in case you thought I was—I’m talking about Cuba.
That’s the question that ran through my mind as I read Havana Lost, a new thriller by my friend Libby Hellmann, former president of the Midwest chapter of Mystery Writers of America and National President of Sisters in Crime. She deftly weaves a story of the Chicago Mafia and its ties to Cuba spanning several generations. Read More »
In November 2008, President Obama was elected, and he was sworn in January 2009. The country was promised change and reform. Recently two democrats close to the top of President Obama’s administration made excuses to me for the lack of financial reform in the United States. Their separately related versions were remarkably similar, so similar they seemed scripted:
The administration made a bargain, and I’m not sure it was the right decision. The world was teetering on the edge of collapse. There was a crisis of confidence. There would have been unimaginable consequences. So bad even your imagination can’t handle the truth? Read More »
It has been five years since the September 2008 financial crisis. In December 2006, large mortgage lenders began to go bankrupt, and their accounting problems and fraudulent lending practices were made public. HSBC took a $6 billion write-down for the first quarter of 2007, the first of more to come. U.S. banks took no meaningful write-downs that quarter–or the next–related to this activity. Instead, U.S. banks accelerated securities fraud in the first half of 2007. Yet no senior officer of any TBTF U.S. bank has been held accountable. Read More »
Who is right? Warren Buffett and Charlie Munger and many more say you shouldn’t own gold. Ray Dalio, David Einhorn, Jim Rogers, John Paulson, George Soros, and I (among many others) own some gold—but that doesn’t mean you should own it.
Many people believe Warren Buffett is the magic Jesus of finance. He’ll be the first to tell you he is not. He’s made a lot of mistakes. He held on to Berkshire textiles for too long; he bought and sold Conoco Phillips for a $2 billion loss a couple of years ago, and more. But he’s avoided the really big mistakes, and he positioned himself to prosper in the wake of the financial crisis—irrespective of any taxpayer’s opinion about the methods. He also engaged in a huge successful silver speculation many years back. He might be right about gold today. Read More »
The financial reform farce continues. The DOJ and so-called regulators tickle bankers with feathers as CEOs shriek: You’re too tough!
September 2013 marks the five-year anniversary of the 2008 global financial crisis. Earlier this month, Attorney General Eric Holder said the DOJ is pursuing cases as the statute of limitations runs out for many of them. He “declined to discuss specifics or say when such cases would be announced.”
The revolving door between Washington (including friends and relatives) and Wall Street continues to spin. Grateful beneficiaries of campaign contributions protect cronies.
Price manipulation is a time-honored tradition in structured finance. There will be abuse anytime there is a price “fixing” or a price set on the basis of a trade.
Instances of abuse are the dragons that “regulators” are supposed to constantly slay. When regulators are too slow, unwilling, or unable to do the job—and if you haven’t been paying attention, regulators have been all three for decades—market professionals take matters into their own hands.
William K. Black, a law professor and former deputy director of the National Commission on Financial Institution Reform, Recovery and Enforcement, wrote a thoughtful commentary on the DOJ’s recent lawsuit against Bank of America: “The DOJ’s Pathetic Suit against BofA Might Be the Most Pathetic in History.”
The DOJ either deliberately aims to miss, or may be among a large crowd of incompetent (and oddly proud of it) lawyers. At this late stage there is too much information–and too many well-argued examples–for the DOJ to be excused for this shoddy work.
For years before the 2008 financial crisis, I issued specific warnings about credit derivatives, mortgage backed securities, collateralized debt obligations, misrated structured financial products, and leverage.
I wrote books and published articles in professional journals. In 2007, I specifically warned risk managers at Merrill Lynch (among others), to get out. Risk managers had responsibility without authority, so why should they go down for malfeasance at senior levels in their organizations? (See: “Subprime Mortgages: The Predators Fall,” GARP Risk Review, March 2007.)
At one time, investors tripped over themselves to become one of the “extractive elite” in SAC. Stevie Cohen could do no wrong, at least if you read mainstream financial news. But that may be due to weak-kneed management in main stream financial media, instead of lack of news of alleged wrongdoing.
After Cohen’s ex-wife filed a lawsuit including allegations that Cohen engaged in insider trading in the 1980’s, investigative journalist Matthew Goldstein dug further. Read More »
Steven Cohen, founder of SAC Capital Advisors LP, may have to defend his firm against criminal charges to be filed later this week, according to the Wall Street Journal. He runs the most successful equity trading firm in the history of hedge funds. At the start of this year he had $15 billion under management and charged his investors 3-and-50 instead of the usual hedge fund gouge of 2-and-20. Questions have swirled around Cohen for years.
In November, 2003, the Wall Street Journal labeled Cohen, then 47 years-old with only $4 billion under management, a “hypertrader.” At the time his fund gained 40% per year on average, despite his stratospheric performance fees. Read More »