Trader Dan’s Commentary
I have often quipped that if some of these firms could make a profit betting against Granny’s life tenure, they would do so.
One thing about this charge is that it will open the flood gates for additional litigation against Goldman from institutions and pension funds, etc, that purchased these products from Goldman Sachs. This is the nature of the non-transparent derivative market and the beast that it has spawned.
SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21489 / April 16, 2010
Securities and Exchange Commission v. Goldman, Sachs & Co. and Fabrice Tourre, 10 Civ. 3229 (BJ) (S.D.N.Y. filed April 16, 2010)
The SEC Charges Goldman Sachs With Fraud In Connection With The Structuring And Marketing of A Synthetic CDO
The Securities and Exchange Commission today filed securities fraud charges against Goldman, Sachs & Co. ("GS&Co") and a GS&Co employee, Fabrice Tourre ("Tourre"), for making material misstatements and omissions in connection with a synthetic collateralized debt obligation ("CDO") GS&Co structured and marketed to investors. This synthetic CDO, ABACUS 2007-AC1, was tied to the performance of subprime residential mortgage-backed securities ("RMBS") and was structured and marketed in early 2007 when the United States housing market and the securities referencing it were beginning to show signs of distress. Synthetic CDOs like ABACUS 2007-AC1 contributed to the recent financial crisis by magnifying losses associated with the downturn in the United States housing market.
According to the Commission’s complaint, the marketing materials for ABACUS 2007-AC1 — including the term sheet, flip book and offering memorandum for the CDO — all represented that the reference portfolio of RMBS underlying the CDO was selected by ACA Management LLC ("ACA"), a third party with expertise in analyzing credit risk in RMBS. Undisclosed in the marketing materials and unbeknownst to investors, a large hedge fund, Paulson & Co. Inc. ("Paulson"), with economic interests directly adverse to investors in the ABACUS 2007-AC1 CDO played a significant role in the portfolio selection process. After participating in the selection of the reference portfolio, Paulson effectively shorted the RMBS portfolio it helped select by entering into credit default swaps ("CDS") with GS&Co to buy protection on specific layers of the ABACUS 2007-AC1 capital structure. Given its financial short interest, Paulson had an economic incentive to choose RMBS that it expected to experience credit events in the near future. GS&Co did not disclose Paulson’s adverse economic interest or its role in the portfolio selection process in the term sheet, flip book, offering memorandum or other marketing materials.
The Commission alleges that Tourre was principally responsible for ABACUS 2007-AC1. According to the Commission’s complaint, Tourre devised the transaction, prepared the marketing materials and communicated directly with investors. Tourre is alleged to have known of Paulson’s undisclosed short interest and its role in the collateral selection process. He is also alleged to have misled ACA into believing that Paulson invested approximately $200 million in the equity of ABACUS 2007-AC1 (a long position) and, accordingly, that Paulson’s interests in the collateral section process were aligned with ACA’s when in reality Paulson’s interests were sharply conflicting. The deal closed on April 26, 2007. Paulson paid GS&Co approximately $15 million for structuring and marketing ABACUS 2007-AC1. By October 24, 2007, 83% of the RMBS in the ABACUS 2007-AC1 portfolio had been downgraded and 17% was on negative watch. By January 29, 2008, 99% of the portfolio had allegedly been downgraded. Investors in the liabilities of ABACUS 2007-AC1 are alleged to have lost over $1 billion. Paulson’s opposite CDS positions yielded a profit of approximately $1 billion.
The Commission’s complaint, which was filed in the United States District Court for the Southern District of New York, charges GS&Co and Tourre with violations of Section 17(a) of the Securities Act of 1933, 15 U.S.C. §77q(a), Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. §78j(b) and Exchange Act Rule 10b-5, 17 C.F.R. §240.10b-5. The Commission seeks injunctive relief, disgorgement of profits, prejudgment interest and civil penalties from both defendants.
The Commission’s investigation is continuing into the practices of investment banks and others that purchased and securitized pools of subprime mortgages and the resecuritized CDO market with a focus on products structured and marketed in late 2006 and early 2007 as the U.S. housing market was beginning to show signs of distress.
Jim Sinclair’s Commentary
I might be getting home, we will see.
100,000 Britons stranded in Europe by volcanic ash cloud as air traffic chiefs extend lockdown to 7am
By Michael Seamark, Ray Massey and Sean Poulter
Last updated at 3:36 PM on 16th April 2010
* No-fly deadline in England and Wales pushed back to 7am tomorrow
* But Scottish airspace will reopen from 7pm tonight
* Travellers warned to expect ‘significant disruption’ for at least 48 hours
* Families stranded across Europe at end of Easter break
Thousands of Britons today remain stranded after a vast cloud of volcanic ash from Iceland crippled airports for a second day.
With the no-fly deadline pushed back to 7am tomorrow, an estimated 100,000 people were desperately trying to get back to the UK at the end of the Easter break.
The National Air Traffic Service (NATs) has eased the lockdown for a large part of Scottish airspace – which includes Shetney, the Orkneys and Northern Ireland – from 7pm today.
Nats said this meant that some North Atlantic services could operate and that there might be an opportunity for some flights to operate from the north into Newcastle after 1am tomorrow.
Jim Sinclair’s Commentary
Only $3.9999 trillion left to go. Below is MOPE madness.
Fed’s Warsh: Now in ‘Exit Stage’ But Not Yet From Mon Pol Ease
By Steven K. Beckner and Claudia Hirsch
Friday, April 16, 2010 – 11:49
NEW YORK (MNI) – Federal Reserve Board Gov. Kevin Warsh said Friday the central bank has begun its exit from unprecedented financial rescue efforts, given the conclusion of most of the special liquidity facilities it created in the throes of financial crisis.
But Warsh differentiated between exiting from those facilities and exiting from the Fed’s easy monetary policy.
As the Fed proceeds with its exit strategy, he said it is important that the Fed do so in ways that are "understandable … credible and predictable."
Warsh, speaking extemporaneously as a panelist at a conference sponsored by the Levy Economics Institute, said the economy is in a "cyclical recovery," but it remains unclear what the longer term trends of growth and employment will be. He said that is something the Fed will be trying to determine.
After going through a boom and then a panic, Warsh asked rhetorically, "What stage are we in now?"
"I would say we are, in different forms, in an exit stage," he said in response to his own question.
Jim Sinclair’s Commentary
The Devil still rules Wall Street, and you know who owns DC, so look for scapegoats on all matters to take the fall, not Beelzebub.
Goldman Director Gupta to Leave
Galleon Case Figure Relayed His Decision in March After Notification of U.S. Scrutiny
By SUSAN PULLIAM
APRIL 15, 2010
Rajat Guptatold Goldman Sachs Group Inc. in March he wouldn’t stand for re-election as a director, after receiving notice from prosecutors that they were reviewing recorded conversations between him and Galleon Group founder Raj Rajaratnam, people close to the matter say.
Mr. Gupta, a Goldman director since 2006, said through a spokesman that his decision to step down was because of "other commitments."
The U.S. has charged Mr. Rajaratnam and 20 others in a wide-ranging insider-trading case. Mr. Rajaratnam is fighting the charges; 11 others have pleaded guilty in the case, which is continuing.
Goldman declined to say whether Mr. Gupta told the firm about the government notification. Mr. Gupta is in India and unavailable for comment, a spokesman said. Mr. Rajaratnam declined to comment.
As reported by The Wall Street Journal on Thursday, prosecutors are examining whether Mr. Gupta gave insider information about the big banking firm to Mr. Rajaratnam during the height of the financial crisis.
Mr. Gupta, 61 years old, is one of a number of individuals who received letters from the government saying their conversations had been intercepted in phone calls through wiretaps and consensual recordings made by witnesses in the case.
Jim Sinclair’s Commentary
Do you really buy this so called amazing recovery?
You cannot spin the economic world long term when the wind is hard and directly in your face.
U.S. Cities In Free Fall
Francesca Levy, Forbes.com
Apr 13th, 2010
Economic indicators in these metros have gone from bad to worse, with no sign of recovery.
Miami boasts a popular South Beach club scene, Art Deco Architecture, and perhaps the best Cuban food in the country. But residents don’t have much else to celebrate.
More than three years after the economy started its downward slide, the Miami metro area, like a handful of Sun Belt cities, still hasn’t begun to recover. Median home prices in Miami have fallen 38% since its market peaked in the second quarter of 2007; the city’s 11% unemployment rate is above the national average and has grown more than most of the 40 cities we surveyed.
Cities in the "Sand States" of Florida, California, Arizona and Nevada, where overbuilding was rampant, are also in trouble, claiming nine of the top 10 spots in our list of cities in free fall. In Las Vegas, Riverside, Calif., and Phoenix, median home prices have fallen 50%, 44% and 37% from their respective peaks. Jobs are vanishing. Though country-wide, employers added 162,00 jobs last month, Riverside gained 13% fewer jobs in February 2010 (the latest numbers available by metro) than it did the same month three years earlier. Tampa, Fla., saw a 10% drop, and Los Angeles added 9% fewer jobs over the same time period.
These cities are also slow to absorb their glut of unsold foreclosed homes, keeping recovery at bay.
"These were highly speculative housing markets," says Jonathan Miller, president of Miller Samuel, a Manhattan-based real estate appraisal firm. "In the markets that have unloaded a lot of foreclosed housing stock there’s still a lot more coming."
Jim Sinclair’s Commentary
Truth comes at a price. Consider subscribing to it.
- Housing Still Bottom-Bouncing
- Production Set to Soften
"No. 292: March Housing Starts, Industrial Production"
http://www.shadowstats.com/
Jim Sinclair’s Commentary
Bloomberg is reporting Goldman Sachs has been charged with fraud in regard to CDO structuring today.
Goldman shares are off 6% on the news.
I am amazed. The reporter looks perplexed.
Goldman Sachs Sued by SEC for Fraud Tied to CDOs (Update1)
By Joshua Gallu and Christine Harper
April 16 (Bloomberg) — Goldman Sachs Group Inc. was sued by U.S. regulators for fraud tied to collateralized debt obligations that contributed to the worst financial crisis since the Great Depression. The firm’s shares tumbled as much as 16 percent and financial stocks slumped.
Goldman Sachs misstated and omitted key facts about a financial product tied to subprime mortgages as the U.S. housing market was starting to falter, the Securities and Exchange Commission said in a statement today. The SEC also sued Fabrice Tourre, a Goldman Sachs vice president.
“The product was new and complex but the deception and conflicts are old and simple,” SEC Enforcement Director Robert Khuzami said in the statement. “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.”
The SEC alleged that Goldman Sachs, led by Chief Executive Officer Lloyd Blankfein, 55, structured and marketed CDOs that hinged on the performance of subprime mortgage-backed securities. The New York-based firm failed to disclose to investors that hedge fund Paulson & Co. was betting against the CDO, known as Abacus, and influenced the selection of securities for the portfolio, the SEC said. Paulson wasn’t accused of wrongdoing.
Financial Stocks Slump
A gauge of banks and brokerages in the Standard & Poor’s 500 Index sank 3.9 percent for the top loss among 24 groups after the SEC announced its action. Bank of America Corp. and JPMorgan Chase & Co. lost at least 3.5 percent as all 27 companies in the S&P 500 Diversified Financial Index declined.
Jim Sinclair’s Commentary
If you think that Goldman’s problems are not shared by the entire derivative market, you are bonkers.
If you see the Goldman situation as negative to gold you are a total fool.
If you see the Goldman situation as being bullish to the dollar, you are hopeless.
Jim Sinclair’s Commentary
Sprott speaks out in this excellent interview.
If you have a sense of humor look at the advertisement. What an unlikely match they make.
Jim Sinclair’s Commentary
UBS is in dire need of some positive PR.
This will not do much to make a Texas man feel better about his potential imprisonment.
UBS has “witnessed a Waterloo”
Apr 15, 2010 – 10:19
Swiss newspapers on Thursday morning were full of praise for UBS shareholders who voted to hold 2007 executives partially responsible for the bank’s near collapse.
Commentators say the decision not to exonerate former CEO Marcel Ospel and other top managers of allowing the bank to suffer record losses and reputational damage is nothing short of historic.
“Shareholders yesterday preferred honesty over immediate profit,” the Geneva-based Le Temps newspaper said in an article titled, “Shareholder courage”.
“It was a courageous and responsible decision.”
During the big bank’s annual shareholder meeting in Basel, some 4,700 stockholders representing 1.7 billion shares, voted by a margin of 53 per cent to reject recommendations by the current board to absolve executives from all responsibility for the bank’s staggering subprime losses that prompted a SFr60 billion federal bailout.
The decision means former managers are now exposed to potential lawsuits.
“This is something that no one for a long time thought possible,” said Blick.
“By standing up to the board, the owners of UBS have written economic history.”
Jim Sinclair’s Commentary
Greece is PEANUTS compared to States of the USA. This will dawn on people like a bolt of lightening soon.
Pension funds have been the dumping ground for Wall Street junk. That is why there has been no recovery in this liquidity driven equity rally.
I have my suspicions of why the Pension Fund managers are not screaming foul.
Going for broke in L.A.?
Unless pension costs can be brought under control, the city may face bankruptcy.
By Tim Rutten
April 14, 2010
Former mayor Richard Riordan has been roiling the civic waters by arguing that the surest — and perhaps the only — way out of Los Angeles’ fiscal crisis is a declaration of municipal bankruptcy, which he believes ought to come sooner rather than later.
In a conversation with The Times over the weekend, Riordan argued that bankruptcy may be the only way to attack the structural problem gnawing the heart out of the city budget: unsustainable public employee pension costs. Currently, Riordan says, the city is struggling to meet its pension obligations, and that’s assuming it will receive 8% annually on the money invested on retirees’ behalf. In fact, the average return over the past decade has been just 4%. Over the next few years, L.A. may be looking at $1.5 billion in pension obligations it can’t meet. "We need some adults to come alive in the city and to talk through how to meet that liability," he said. "If that doesn’t happen, we shouldn’t rule out bankruptcy."
Mayor Antonio Villaraigosa’s chief of staff, Jeff Carr, says categorically that "this mayor has made it clear that we are not going to declare bankruptcy." Moreover, while federal law lets bankruptcy judges reduce negotiated pension and health benefits in the private sector, it forbids changes in public employees’ agreements.
Wherever you come down on the bankruptcy question, it’s clear that anything approaching a genuine resolution of the civic financial troubles will have to involve a thorough overhaul of the pension system. Traditionally, public employment offered generous benefits because wages and salaries were lower than in the private sector for comparable work. More recently, public sector salaries have increased — in part because the governmental workforce is the most significantly unionized in the American economy — at the same time compensation in most of the private sector has been falling. When you narrow the focus of this national trend to labor-friendly L.A., the picture that emerges is fairly stunning.
Jim Sinclair’s Commentary
BRICs rule should be the title of 2010 onward.
BRIC must create a new world order: Lula
Posted: Friday , Apr 16, 2010 at 1003 hrs Brasilia:
The BRIC group of the world’s four biggest emerging powers has a fundamental role in creating a new world order, Brazil’s President Luiz Inacio Lula da Silva said on Thursday.
Lula was speaking at the end of a summit in Brasilia with the leaders of China, India and Russia. The countries reiterated their call for developing nations to have a bigger role in global economic and financial decision-making.
PM pitches for close cooperation among BRIC nations
Noting that India, Russia, China and Brazil are resource-rich, Prime Minister Manmohan Singh on Friday pitched for close cooperation among them in the fields of energy and food security besides tapping potential in other sectors like trade and investment, science and technology and infrastructure.
Addressing the Brazil-Russia-India-China (BRIC) Summit here, he said the four countries can benefit by sharing their experiences in the field of inclusive growth.
Jim Sinclair’s Commentary
This will produce little. I would like to be proven incorrect, but I doubt it will happen.
Goldman Sachs director in Galleon probe: report
On Thursday April 15, 2010, 9:06 am EDT
NEW YORK (Reuters) – Prosecutors are examining whether Goldman Sachs Group (NYSE:GS – News) director Rajat Gupta gave inside information about the Wall Street bank to Galleon Group hedge fund founder Raj Rajaratnam, the Wall Street Journal said on Thursday, citing people close to the situation.
"Mr. Gupta is unaware of any examination of any such issue and has done nothing wrong," a spokeswoman for Gupta said in a statement responding to the report.
Rajaratnam has pleaded not guilty to criminal insider trading charges. He faces a related civil lawsuit by the U.S. Securities and Exchange Commission.
In a March 22 letter made public last week, the government said it was examining trades by Rajaratnam and others in shares of several companies, as part of a wide-ranging insider trading probe.
Among these companies is Goldman (NYSE:GS – News), where trades between June 2008 and October 2008 were being examined. The bank’s shares traded between $74 and $187 over that time.
Jim Sinclair’s Commentary
The sales staff and the men and women out of Wall Street sold junk to everyone they could.
I would not be surprised to find states of the US in vehicles like the debt hiding swaps.
Saint-Etienne Swaps Explode as Financial Weapons Ambush Europe
By Alan Katz
April 15 (Bloomberg) — The worst global financial crisis in 70 years arrived in Saint-Etienne this month, as embedded financial obligations began to blow up.
A bill came due for 1.18 million euros ($1.61 million) owed to Deutsche Bank AG under a contract that initially saved the French city money. The 800-year-old town refused to pay, dodging for now one of 10 derivatives so speculative no bank will buy them back, said Cedric Grail, the municipal finance director. They would cost about 100 million euros to cancel today, he said.
“It’s a joke that we’re in markets like this,” said Grail, 38, from the 19th-century city hall fronted by an arched facade and the words Liberte, Egalite, Fraternite. “We’re playing the dollar against the Swiss franc until 2042.”
Saint-Etienne is one of thousands of public authorities across Europe that tried to shave borrowing expenses by accepting derivatives deals whose risks they couldn’t measure. They may be liable for billions of euros, according to the Bank of Italy and consulting and law firms in France and Germany. As global economies climb out of recession, the crisis is hitting Saint-Etienne in central France, Pforzheim in western Germany and Apulia, an Italian regional government on the Adriatic. They may pay for their bets into the next generation.
Jim Sinclair’s Commentary
This means China will do nothing to hurt China and will only do what China wants when it wants. All else is spin.
Yuan Plan Reflects China Consensus, Not U.S., PBOC Adviser Says
April 16, 2010, 3:06 AM EDT
April 16 (Bloomberg) — China has come to a “consensus” on adjusting its exchange rate gradually and wants to avoid the impression that it is bowing to U.S. pressure by allowing appreciation, central bank adviser Li Daokui said
President Hu Jintao asserted China’s right to act independently in meetings with U.S. President Barack Obama so the policy change “won’t be seen as giving in to external pressure,” Li said in an interview with the state-run Central Television broadcast last night. Hu’s comments “have helped resolve pressure from U.S. Congressmen.”
Hu told Obama in Washington this week that his country would follow its own path and won’t yield to “external pressure” on ending the yuan’s 21-month-old peg at around 6.83 per dollar. Congress has urged Obama to impose sanctions on China’s imports unless the yuan is allowed to strengthen.
China may allow the yuan to appreciate by June 30 and widen the daily limit on its fluctuations, while avoiding a one-time jump in value that might endanger export jobs, a Bloomberg survey of analysts this week showed. The yuan should be allowed to appreciate “slowly and gradually” with a wider trading band and more flexibility “over the medium and long term,” Li said.
“On this, China’s policy making and academic circles are basically in consensus,” said Li. “But now this issue has turned into a political subject, and if China appreciates the yuan right after the U.S. calls, the situation will turn into a political game.”
Jim Sinclair’s Commentary
This is the equivalent of Raid on a bug when you compare spending to state and Federal deficits.
Obama signs extension of jobless benefits
The measure passes the Senate and House largely along partisan lines, with most Republicans opposed.
By Richard Simon
April 16, 2010
President Obama signed an extension of jobless benefits for the long-term unemployed Thursday night that will allow those whose aid expired to apply retroactively.
When Congress passed the measure earlier in the day, it ended, at least for now, a partisan stalemate that highlighted election-year differences over federal spending.
The Senate passed the $18-billion measure, 59 to 38, with the support of 54 Democrats, three Republicans and two independents. Every other Republican opposed it; the other three Democrats were absent.
Hours later, the House passed the bill, 289 to 112.
The measure extends jobless aid through June 2. Democrats, anxious about high unemployment in an election year, are working on separate legislation to extend benefits through the end of the year.
Jim Sinclair’s Commentary
All is not well for the clients of hell!
Goldman real estate fund wiped out.
Goldman Sachs’ (GS) international real estate fund, Whitehall Street International, has lost nearly all its $1.8B in equity on troubled property investments in the U.S., Germany and Japan. According to Whitehall’s annual report, the fund was down to just $30M as of the end of 2009. This is the latest disclosure of heavy real estate losses by bank-owned property funds; earlier this week, Morgan Stanley (MS) said it stands to lose $5.4B on soured real estate investments, or roughly two-thirds of the value of its real estate fund.
Jim Sinclair’s Commentary
There will be a climatic result of this that could be bullish on certain edibles.
Volcanic Ash to Curtail Air Traffic Into Midday Friday
By NICOLA CLARK and LIZ ROBBINS
The plume of ash from a volcano in Iceland forced aviation authorities to order the restrictions, affecting thousands of flights in a wide arc from Ireland to Scandinavia.
