Michael Burry, the former head of Scion Capital LLC who predicted the housing market’s plunge, talks with Bloomberg’s Jon Erlichman about his investments in agricultural land, real estate and gold.
Michael Lewis made him famous in his book “The Big Short”.
(This is an excerpt. Source: Bloomberg)
“I believe that agricultural land, productive agricultural land with water on site, will be very valuable in the future. And I’ve put a good amount of money into that. So I’m investing in alternative investments as well as stocks.”
“I think there is some value in real estate. You have to buy it right. It’s not in general, that’s the problem. I think that there are an awful lot of people out there looking to buy these distressed properties out there and so you need to find special situations. That is how I’ve invested from the beginning. I’m looking for these special situations, these unique ideas and that’s true in real estate too.”
“In my situation I’d rather go long on housing itself, real estate itself. Depending on how you structure it, in the real market, in the physical market, you can get some pretty good deals and I’ve done some of that too.”
“Paulson is big in gold and that is something is interesting to me and given how I see the world playing out. Other than that, I’m just saying, other than gold I haven’t really bought into the other…
BUYINS.NET, www.buyins.net, announced today that these select companies have been added to the NASDAQ, AMEX and NYSE naked short threshold lists. Bay National Corp (OTC: BAYN), Extorre Gold Mines (OTC: EXGMF) and DJSP Enterprises (NASDAQ: DJSP). For a complete list of companies on the naked short lists please visit our web site. To find the SqueezeTrigger Price before a short squeeze starts in any stock, go to http://www.buyins.net .
In a “naked” short sale, the seller does not borrow or arrange to borrow the securities in time to make delivery to the buyer within the standard three-day settlement period. As a result, the seller fails to deliver securities to the buyer when delivery is due; this is known as a “failure to deliver” or “fail.” For further information on short selling, naked short selling, and threshold securities, please see the Division of Trading and Markets’ Key Points About Regulation SHO. Additional information relating to the SEC’s activities relating to short selling can be found in the SEC Spotlight on Short Sales.
NEW YORK (Reuters) – Lehman Brothers Holdings Inc (LEHMQ.PK) on Wednesday sued JPMorgan Chase & Co (JPM.N), accusing the second-largest U.S. bank of illegally siphoning billions of dollars of desperately-needed assets in the days leading up to its record bankruptcy.
The lawsuit filed in Manhattan bankruptcy court accused JPMorgan of using its “unparalleled access” to inside details of Lehman’s distress to extract $8.6 billion of collateral in the four business days ahead of Lehman’s September 15, 2008, bankruptcy, including $5 billion on the final business day.
JPMorgan was Lehman’s main “clearing” bank, in which it acts as a go-between in Lehman’s dealings with other parties.
According to the complaint, JPMorgan knew from this relationship that Lehman’s viability was fast weakening, and threatened to deprive Lehman of critical clearing services unless it posted an excessive amount of collateral.
“With this financial gun to Lehman’s head, JPMorgan was able to extract extraordinarily one-sided agreements from Lehman literally overnight,” the complaint said. “Those billions of dollars in collateral rightfully belong to the Lehman estate and its creditors.”
Lehman also said JPMorgan officials including Chief Executive Jamie Dimon decided to extract the collateral after learning from meetings with Federal Reserve Chairman Ben Bernanke and then-U.S. Treasury Secretary Henry Paulson that the government would not rescue Lehman from bankruptcy.
In the widely expected lawsuit, Lehman and its official committee of unsecured creditors are seeking $5 billion of damages, a return of the collateral and other remedies.
JPMorgan spokesman Joe Evangelisti called the lawsuit “meritless,” and said the bank will defend against it.
Any money recovered could increase the payout to creditors. Lehman has also sued Barclays Plc (BARC.L) to recover an $11.2 billion “windfall” from the takeover of U.S. assets.
In March, a bankruptcy judge approved an accord providing for JPMorgan to return several billion dollars of assets to Lehman’s estate, but giving Lehman a right to sue further.
Lehman collapsed after letting its balance sheet swell through exposure to commercial real estate, subprime mortgages and other risky sectors. With $639 billion of assets, Lehman was by far the largest U.S. company to go bankrupt.
EXAMINER REPORT
In his March report on Lehman’s bankruptcy, court-appointed examiner Anton Valukas said Lehman could raise a “colorable claim” against JPMorgan over the collateral demands.
He nevertheless said JPMorgan could raise “substantial defenses” under U.S. bankruptcy law.
Evangelisti contended that “as the examiner’s report makes clear, it was the ill-advised decisions of Lehman and its principals to take on perilous leverage and to double down on subprime mortgages and overpriced commercial real estate — and not conduct by our firm — that led to Lehman’s demise.”
Lehman, though, maintained that JPMorgan extracted the collateral to “catapult” itself ahead of other creditors.
“A century ago, John Pierpont Morgan used his position atop the world of finance to shore up a teetering firm and rescue the nation from the brink of financial collapse,” the complaint said, referring to the Panic of 1907.
“A century later, when the nation faced another epic financial crisis, Morgan’s namesake firm stripped a faltering Lehman Brothers of desperately needed cash,” it added.
The case is In re: Lehman Brothers Holdings Inc et al, U.S. Bankruptcy Court, Southern District of New York, No. 08-13555.
Citigroup is investigating a rumor that one of its traders entered a trade that helped precipitate a drop of almost 1,000 points in the Dow Jones Industrial Average, a spokesman for the bank said on Thursday. Citigroup, the third-largest US bank, currently has no evidence that an erroneous trade …
NEW YORK: Citigroup is investigating a rumour that one of its traders entered a trade that helped precipitate a drop of almost 1,000 points in the
Dow Jones Industrial Average, a spokesman for the bank said on Thursday.
Citigroup, the third-largest US bank, currently has no evidence that an erroneous trade has been made, the spokesman said.
Earlier, sources told Reuters that the plunge in the Dow Jones Industrial average — its biggest intraday point drop ever — may have been caused by an erroneous trade entered by a person at a big Wall Street bank.
Market sources said the erroneous trade may have involved shares of the so-called E-Mini, a stock market index futures contract that trades on the Chicago Mercantile Exchange’s Globex trading platform. The composition of the E-Mini is similar to the stocks in the S&P 500.
A CME spokesman said it found no problems with its systems.
Other market sources said the erroneous trading involved the IWD exchange-traded fund or the S&P 500 Mini. A person close to BlackRock, which manages the IWD, said there was no unusual trading in the iShares product.
Amid the sell-off, Procter & Gamble shares plummeted nearly 37 per cent to $39.37 at 2:47 p.m. EDT (1847 GMT), prompting the company to investigate whether any erroneous trades had occurred. The shares are listed on the New York Stock Exchange, but the significantly lower share price was recorded on a different electronic trading venue.
“We don’t know what caused it,” said Procter & Gamble spokeswoman Jennifer Chelune. “We know that that was an electronic trade … and we’re looking into it with Nasdaq and the other major electronic exchanges.”
A different P&G spokesman had said earlier the company contacted the Securities and Exchange Commission, but Chelune said that he spoke in error.
One NYSE employee leaving the Big Board’s headquarters in lower Manhattan said the P&G share plunge lay at the center of whatever happened.
“I’ll give you a tip,” the employee said, speaking on condition of anonymity. “P&G. Check out the low sale of the day. Something screwed up with the system. It traded down $30 at one point.”
Nasdaq said it was working with other major markets to review the market activity that occurred between 2:00 p.m. and 3:00 p.m., when the market plunge happened.
The exchange later said it was investigating potentially erroneous transactions involving multiple securities executed between 2:40 and 3:00 p.m.
Nasdaq also said participants should review their trading activity for potentially erroneous trades.
Matt Taibbi has a feature article in The Guardian which parodies the Gordon Gecko “Greed is good” statement from the film “Wall Street”. He carries the subject forward to develop a picture of Ayn Rand Objectivism taking over the world.
This is an article that will make some readers scream in disgust at the position Matt espouses and others scream in disgust at the Randian world he rants against. He concludes the article:
This debate is going to be crystallised in the Goldman case. Much of America is going to reflexively insist that Goldman’s only crime was being smarter and better at making money than IKB and ABN-Amro, and that the intrusive, meddling government (in the American narrative, always the bad guy!) should get off Goldman’s Armani-clad back. Another side is going to argue that Goldman winning this case would be a rebuke to the whole idea of civilisation – which, after all, is really just a collective decision by all of us not to screw each other over even when we can. It’s an important moment in the history of modern global capitalism: whether or not to move forward into a world of greed with out limits.
Taibbi’s conclusion is similar to my repeated belief that it is important for the SEC vs. Goldman Sachs case to go to trial so the convoluted financial processes involved can be presented and reviewed by both plaintiff and defendant. The nature of the machinations must be understood by the masses and the limits of current law must be defined in order to have a rational debate. We need a complete expose so we can make logical decisions about where the financial system should go from here.
Absent the trial or some other process of discovery we risk being doomed to divide into three camps:
The Randians’ anything goes credo.
Those who want to regulate everything to death.
The vast majority who abandon hope of ever understanding enough to have an opinion.
We need a citizenry that understands what has happened to a sufficient extent to support some rational middle ground between the law of the jungle and all animals in zoo cages.
SHOCK & AWE …I’m betting! Thanks to Bloomberg for the lawsuit to DISCLOSE! Notice how both Bloomberg & Huffington are always the ones who go after the banksters…Because they probably don’t use the banksters to fund them!
By David Glovin and Bob Van Voris
March 19 (Bloomberg) — The Federal Reserve Board must disclose documents identifying financial firms that might have collapsed without the largest U.S. government bailout ever, a federal appeals court said.
The U.S. Court of Appeals in Manhattan ruled today that the Fed must release records of the unprecedented $2 trillion U.S. loan program launched primarily after the 2008 collapse of Lehman Brothers Holdings Inc. The ruling upholds a decision of a lower-court judge, who in August ordered that the information be released.
The Fed had argued that disclosure of the documents threatens to stigmatize borrowers and cause them “severe and irreparable competitive injury,” discouraging banks in distress from seeking help. A three-judge panel of the appeals court rejected that argument in a unanimous decision.
The U.S. Freedom of Information Act, or FOIA, “sets forth no basis for the exemption the Board asks us to read into it,” U.S. Circuit Chief Judge Dennis Jacobs wrote in the opinion. “If the Board believes such an exemption would better serve the national interest, it should ask Congress to amend the statute.”
The opinion may not be the final word in the bid for the documents, which was launched by Bloomberg LP, the parent of Bloomberg News, with a November 2008 lawsuit. The Fed may seek a rehearing or appeal to the full appeals court and eventually petition the U.S. Supreme Court.
Right to Know
If today’s ruling is upheld or not appealed by the Fed, it will have to disclose the requested records. That may lead to “catastrophic” results, including demands for the instant disclosure of banks seeking help from the Fed, resulting in a “death sentence” for such financial institutions, said Chris Kotowski, a bank analyst at Oppenheimer & Co. in New York.
“Whenever the Fed extends funds to a bank, it should be disclosed in private to the Congressional oversight committees, but to release it to the public I think would be a horrific mistake,” Kotowski said in an interview. “It would stigmatize the banks, it would lead to all kinds of second-guessing of the Fed, and I don’t see what public purpose is served by it.”
Senator Bernie Sanders, an Independent from Vermont, said the decision was a “major victory” for U.S. taxpayers.
“This money does not belong to the Federal Reserve,” Sanders said in a statement. “It belongs to the American people, and the American people have a right to know where more than $2 trillion of their money has gone.”
Fed Review
The Fed is reviewing the decision and considering its options for reconsideration or appeal, Fed spokesman David Skidmore said.
“We’re obviously pleased with the court’s decision, which is an important affirmation of the public’s right to know what its government is up to,” said Thomas Golden, a partner at New York-based Willkie Farr & Gallagher LLP and Bloomberg’s outside counsel.
The court was asked to decide whether loan records are covered by FOIA. Historically, the type of government documents sought in the case has been protected from public disclosure because they might reveal competitive trade secrets.
The Fed had argued that it could withhold the information under an exemption that allows federal agencies to refuse disclosure of “trade secrets and commercial or financial information obtained from a person and privileged or confidential.”
Payment Processors
The Clearing House Association, which processes payments among banks, joined the case and sided with the Fed. The group includes ABN Amro Bank NV, a unit of Royal Bank of Scotland Plc, Bank of America Corp., The Bank of New York Mellon Corp., Citigroup Inc., Deutsche Bank AG, HSBC Holdings Plc, JPMorgan Chase & Co., US Bancorp and Wells Fargo & Co.
Paul Saltzman, general counsel for the Clearing House, said the decision did not address the “fundamental issue” of whether disclosure would “competitively harm” borrower banks.
“The Second Circuit declined to follow the decisions of other circuit courts recognizing that disclosure of certain confidential information can impair the effectiveness of government programs, such as lending programs,” Saltzman said in a statement.
The Clearing House is considering whether to ask for a rehearing by the full Second Circuit and, ultimately, review by the U.S. Supreme Court, he said.
Deep Crisis
Oscar Suris, a spokesman for Wells Fargo, JPMorgan spokeswoman Jennifer Zuccarelli, Bank of New York Mellon spokesman Kevin Heine, HSBC spokeswoman Juanita Gutierrez and RBS spokeswoman Linda Harper all declined to comment. Deutsche Bank spokesman Ronald Weichert couldn’t immediately comment. Bank of America declined to comment, Scott Silvestri said. Citigroup spokeswoman Shannon Bell declined to comment. U.S. Bancorp spokesman Steve Dale didn’t return phone and e-mail messages seeking comment.
Bloomberg, majority-owned by New York Mayor Michael Bloomberg, sued after the Fed refused to name the firms it lent to or disclose loan amounts or assets used as collateral under its lending programs. Most of the loans were made in response to the deepest financial crisis since the Great Depression.
Lawyers for Bloomberg argued in court that the public has the right to know basic information about the “unprecedented and highly controversial use” of public money.
“Bloomberg has been trying for almost two years to break down a brick wall of secrecy in order to vindicate the public’s right to learn basic information,” Golden wrote in court filings.
Potential Harm
Banks and the Fed warned that bailed-out lenders may be hurt if the documents are made public, causing a run or a sell- off by investors. Disclosure may hamstring the Fed’s ability to deal with another crisis, they also argued.
Much of the debate at the appeals court argument on Jan. 11 centered on the potential harm to banks if it was revealed that they borrowed from the Fed’s so-called discount window. Matthew Collette, a lawyer for the government, said banks don’t do that unless they have liquidity problems.
FOIA requires federal agencies to make government documents available to the press and public. An exception to the statute protects trade secrets and privileged or confidential financial data. In her Aug. 24 ruling, U.S. District Judge Loretta Preska in New York said the exception didn’t apply because there’s no proof banks would suffer.
Tripartite Test
In its opinion today, the appeals court said that the exception applies only if the agency can satisfy a three-part test. The information must be a trade secret or commercial or financial in character; must be obtained from a person; and must be privileged or confidential, according to the opinion.
The court said that the information sought by Bloomberg was not “obtained from” the borrowing banks. It rejected an alternative argument the individual Federal Reserve Banks are “persons,” for purposes of the law because they would not suffer the kind of harm required under the “privileged and confidential” requirement of the exemption.
In a related case, U.S. District Judge Alvin Hellerstein in New York previously sided with the Fed and refused to order the agency to release Fed documents that Fox News Network sought. The appeals court today returned that case to Hellerstein and told him to order the Fed to conduct further searches for documents and determine whether the documents should be disclosed.
“We are pleased that this information is finally, and rightfully, going to be made available to the American public,” said Kevin Magee, Executive Vice President of Fox Business Network, in a statement.
Balance Sheet Debt
The Fed’s balance sheet debt doubled after lending standards were relaxed following Lehman’s failure on Sept. 15, 2008. That year, the Fed began extending credit directly to companies that weren’t banks for the first time since the 1930s. Total central bank lending exceeded $2 trillion for the first time on Nov. 6, 2008, reaching $2.14 trillion on Sept. 23, 2009.
More than a dozen other groups or companies filed friend- of-the-court briefs. Those arguing for disclosure of the records included the American Society of News Editors and individual news organizations.
“It’s gratifying that the court recognizes the considerable interest in knowing what is being done with our tax dollars,” said Lucy Dalglish, executive director of the Reporters Committee for Freedom of the Press in Arlington, Virginia.
“We’ve learned some powerful lessons in the last 18 months that citizens need to pay more attention to what’s going on in the financial world. This decision will make it easier to do that.”
The case is Bloomberg LP v. Board of Governors of the Federal Reserve System, 09-04083, U.S. Court of Appeals for the Second Circuit (New York).
To contact the reporters on this story: David Glovin in New York at dglovin@bloomberg.net; Bob Van Voris in New York at vanvoris@bloomberg.net.
This in combination with A.K. Barnett-Hart’s Thesis make’s one hell of a Discovery.
LEGAL AND ECONOMIC ISSUES IN
SUBPRIME LITIGATION
Jennifer E. Bethel*
Allen Ferrell**
Gang Hu***
Discussion Paper No. 612
03/2008
Harvard Law School Cambridge, MA 02138
ABSTRACT
This paper explores the economic and legal causes and consequences of recent difficulties in the subprime mortgage market. We provide basic descriptive statistics and institutional details on the mortgage origination process, mortgage-backed securities (MBS), and collateralized debt obligations (CDOs). We examine a number of aspects of these markets, including the identity of MBS and CDO sponsors, CDO trustees, CDO liquidations, MBS insured and registered amounts, the evolution of MBS tranche structure over time, mortgage originations, underwriting quality of mortgage originations, and write-downs of investment banks. In light of this discussion, the paper then addresses questions as to how these difficulties might have not been foreseen, and some of the main legal issues that will play an important role in the extensive subprime litigation (summarized in the paper) that is underway, including the Rule 10b-5 class actions that have already been filed against the investment banks, pending ERISA litigation, the causes-of-action available to MBS and CDO purchasers, and litigation against the rating agencies. In the course of this discussion, the paper highlights three distinctions that will likely prove central in the resolution of this litigation: The distinction between reasonable ex ante expectations and the occurrence of ex post losses; the distinction between the transparency of the quality of the underlying assets being securitized and the transparency as to which market participants are exposed to subprime losses; and, finally, the distinction between what investors and market participants knew versus what individual entities in the structured finance process knew, particularly as to macroeconomic issues such as the state of the national housing market. ex ante expectations and the occurrence of ex post losses; the distinction between the transparency of the quality of the underlying assets being securitized and the transparency as to which market participants are exposed to subprime losses; and, finally, the distinction between what investors and market participants knew versus what individual entities in the structured finance process knew, particularly as to macroeconomic issues such as the state of the national housing market.
Doubtless, historians will be going over the mammoth 2,200 page report from the Lehman bankruptcy examiner for years to come.
But we bloggers are writing the first draft now. And there’s plenty of good fodder on Lehman’s final days, including fresh details on its effort to get support from billionaire investor Warren Buffett.
Now, it’s well known that Lehman reached out to Buffett in its final months. The Journal’s Scott Patterson wrote about the Oracle’s decision to pass on Lehman in a story back in December.
But the level of detail provided by this report is pretty astounding. It offers a pretty amazing snapshot of Buffett’s conversation with Lehman CEO Dick Fuld as well as a remarkable window on how the Oracle negotiates during times of crisis.
The report really reads like a novel, so we’ll just give you the sections here:
Fuld and Buffett spoke on Friday, March 28, 2008. They discussed Buffett investing at least $2 billion in Lehman. Two items immediately concerned Buffet during his conversation with Fuld. First, Buffett wanted Lehman executives to buy under the same terms as Buffett. Fuld explained to the Examiner that he was reluctant to require a significant buy?in from Lehman executives, because they already received much of their compensation in stock. However, Buffett took it as a negative that Fuld suggested that Lehman executives were not willing to participate in a significant way. Second, Buffett did not like that Fuld complained about short sellers. Buffett thought that blaming short sellers was indicative of a failure to admit one’s own problems.
Following his conversation with Buffett, Fuld asked Paulson to call Buffett, which Paulson reluctantly did. Buffett told the Examiner that during that call, Paulson signaled that he would like Buffett to invest in Lehman, but Paulson “did not load the dice.” Buffett spent the rest of Friday, March 28, 2008, reviewing Lehman’s 10?K and noting problems with some of Lehman’s assets. Buffett’s concerns centered around Lehman’s real estate and high yield investments, lending?related commitments derivatives and their related credit?market risk, Level III assets and Lehman’s securitization activity. On Saturday, March 29, 2008, Buffett learned of a $100 million problem in Japan that Fuld had not mentioned during their discussions, and Buffett was concerned that Fuld had not been forthcoming about the issue. The problems Buffett saw in the 10?K along with Fuld’s failure to alert Buffett to the issue in Japan cemented Buffett’s decision not to invest in Lehman.
At some point in their conversations, Fuld and Buffett also discovered that there had been a miscommunication about the conversion price. Buffett was interested only in convertible preferred shares. Buffett told Fuld that he was willing to agree to a $40 conversion price per share, while Fuld thought Buffett was offering to buy in at “up? 40,” or 40% above the current market price, which would have been about $56 per share. On Friday, March 28, 2008, Lehman’s stock closed at $37.87. Fuld spoke to Lehman’s Executive Committee and several Board members about his conversations with Buffett. Lehman recognized that an investment by Buffett would provide a “stamp of approval.” However, Lehman already had better offers for its April capital raise, and Lehman did not think it could give a better deal to Buffett at the same time it gave a less attractive deal to others. On Monday, March 31, 2008, before Buffett could tell Fuld that he was not interested, Fuld called Buffett to say that Lehman could not accept his terms.
Last?Ditch Effort with Buffett
[Hugh “Skip” E. McGee, III, the head of Lehman’s Investment Banking Division] contacted [President David L. Sokol, president of Berkshire Hathaway’s MidAmerican Energy] again in late August or early September 2008 and outlined Lehman’s “Gameplan” for survival, specifically SpinCo. During a subsequent telephone call with Sokol, McGee explained the “good bank/bad bank” scenario and stated that Lehman would need an investor. Sokol believed the e?mail and call were intended to induce Sokol to pass that information on to Buffett, so Sokol briefed Buffett on SpinCo. Buffett thought the idea would not solve Lehman’s problems.
Sometime during the week prior to Lehman’s bankruptcy, McGee again reached out to Sokol with what both Sokol and McGee described to the Examiner as a “Hail Mary” pass. McGee asked, “Do you have any ideas to save us?” Sokol, who was bear hunting in Alaska at the time, told McGee that he did not.
Judging by the inclusion of the largely irrelevant bear hunting detail at the end, we can tell that this report was written by a frustrated novelist. (And they did an amazing job.) But what we find most remarkable is the insight these sections offer on how Buffett assesses companies.
It’s simple–but not easy–as he combines 10-K analysis with probing questions to management.
Are they willing to put their own money at risk? Are they being upfront? Are they giving investors the full story?
Michael Lewis’s new book, The Big Short: Inside the Doomsday Machine,is already #1 at Amazon. Tonight he had some very cool interviews on 60 Minutes discussing how a few Wall Street outsiders made billions shorting real estate, his thoughts on Wall Street bonuses, and more. These videos are highly recommended now that the NCAA brackets are out and the tournaments are over until Thursday:
Listen carefully it’s not only the sub-prime …it’s now those who called everyone in foreclosure a dead beat. Those “who” were living in glass houses shouldn’t throw stones because one might come bouncing back to shatter. We are now in this together so I welcome you with open arms and into a hug because I know you will need one.
We hold that a series of standardized agreements to cure default between a non-debtor mortgagor and the mortgage servicer are covered by the Consumer Fraud Act, even when executed post-foreclosure.
As a lot of you have come to realize LOAN MODIFICATIONS have not solved anyone’s problems but to put more money into the bank’s pockets and have the homeowner eventually wind up back where they were before the loan mod, but this time with the bank arguing that although they tried to help the homeowner the homeowner fell behind again, therefore they need to finish the foreclosure. The bank also argues that if they were any discrepancies or infractions on the original loan, well by the homeowner agreeing to a LOAN MODIFICATION the original loan is null and void and the terms on the loan modifications are in effect. They also argue that the homeowner basically signed away their rights to the original loan and are bound by the loan mod terms. However the bank still maintains theirs and will seek to foreclose on the homeowner. Well, the judges are beginning to see what we have been saying all along. BE AWARE if fraud was committed in the original loan ti does not make it go away because the bank gave the homeowner a loan modification and it puts the homeowner in a position to seek legal and financial compensation from the bank. GOD BLESS
Here is the detail info:
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-2634-08T2
This is why getting a Forensic Loan Audit is much needed. This is not something an amateur should attempt leave this to the professionals who have the keen eye for understanding complexities to address all applicable regulatory compliance requirements as well as any Federal and State violations.
If you’ve read, are reading, or plan to read Andrew Ross Sorkin’s Too Big To Fail, you also need to pick up a copy of Hank Paulson’s memoir, On The Brink. Sorkin has the bankers’ story, in sordid yet compelling detail, of how they received the most generous bailout in the world financial history during fall 2008 – and set us up for great problems to come. Paulson tells us why, when, and how exactly he let them get away with this.
Hank Paulson does not, of course, intend to be candid. As I review in detail on The New Republic’s The Book site this morning, On The Brink is actually a masterpiece of misdirection and disinformation.
But still, he gives it all away – and if any details remain obscure, check them in Sorkin. Paulson honestly believes that the financial sector as constructed is productive, makes sense, and should continue to operate in roughly its current form.
Whether or not Paulson really understands the functioning of big banks in the US today is an interesting question – for example he never mentions how they treated customers during the boom, and there is not one word about the need for greater consumer protection moving forward. On the other hand, perhaps this omission tells us that he understands the game all too well – and is keen for it to continue.
Short-Selling Vs. Naked Short-Selling: An Explanation
In “Wall Street’s Naked Swindle,” Matt Taibbi examines how a scheme to flood the market with counterfeit stocks helped kill Bears Stearns and Lehman Brothers — and the feds have yet to bust the culprits. The scheme that helped do in two of the five major investment banks in the U.S. is known as naked short-selling — the sale of shares you don’t have or won’t deliver. Normal short-selling, however, is legal and good for the market: it lets investors bet against companies that they believe will decrease in value.
To help explain his story, Taibbi heads to the white board and breaks down the differences between the two: click above to watch him explain short-selling (our buyer: Wilford Brimley, broker: Count Chocula, short-seller: Hervé Villechaize), and below for a discussion of its evil twin, naked short-selling. — Rolling Stone
Wall Street’s Naked Swindle
A scheme to flood the market with counterfeit stocks helped kill Bear Stearns and Lehman Brothers — and the feds have yet to bust the culprits
MATT TAIBBI Posted Oct 14, 2009 9:30 AM
On Tuesday, March 11th, 2008, somebody — nobody knows who — made one of the craziest bets Wall Street has ever seen. The mystery figure spent $1.7 million on a series of options, gambling that shares in the venerable investment bank Bear Stearns would lose more than half their value in nine days or less. It was madness — “like buying 1.7 million lottery tickets,” according to one financial analyst.
But what’s even crazier is that the bet paid.
At the close of business that afternoon, Bear Stearns was trading at $62.97. At that point, whoever made the gamble owned the right to sell huge bundles of Bear stock, at $30 and $25, on or before March 20th. In order for the bet to pay, Bear would have to fall harder and faster than any Wall Street brokerage in history.
The very next day, March 12th, Bear went into free fall. By the end of the week, the firm had lost virtually all of its cash and was clinging to promises of state aid; by the weekend, it was being knocked to its knees by the Fed and the Treasury, and forced at the barrel of a shotgun to sell itself to JPMorgan Chase (which had been given $29 billion in public money to marry its hunchbacked new bride) at the humiliating price of … $2 a share. Whoever bought those options on March 11th woke up on the morning of March 17th having made 159 times his money, or roughly $270 million. This trader was either the luckiest guy in the world, the smartest son of a bitch ever or…
Or what? That this was a brazen case of insider manipulation was so obvious that even Sen. Chris Dodd, chairman of the pillow-soft-touch Senate Banking Committee, couldn’t help but remark on it a few weeks later, when questioning Christopher Cox, the then-chief of the Securities and Exchange Commission. “I would hope that you’re looking at this,” Dodd said. “This kind of spike must have triggered some sort of bells and whistles at the SEC. This goes beyond rumors.”
Cox nodded sternly and promised, yes, he would look into it. What actually happened is another matter. Although the SEC issued more than 50 subpoenas to Wall Street firms, it has yet to identify the mysterious trader who somehow seemed to know in advance that one of the five largest investment banks in America was going to completely tank in a matter of days. “I’ve seen the SEC send agents overseas in a simple insider-trading case to investigate profits of maybe $2,000,” says Brent Baker, a former senior counsel for the commission. “But they did nothing to stop this.”
The SEC’s halfhearted oversight didn’t go unnoticed by the market. Six months after Bear was eaten by predators, virtually the same scenario repeated itself in the case of Lehman Brothers — another top-five investment bank that in September 2008 was vaporized in an obvious case of market manipulation. From there, the financial crisis was on, and the global economy went into full-blown crater mode.
Like all the great merchants of the bubble economy, Bear and Lehman were leveraged to the hilt and vulnerable to collapse. Many of the methods that outsiders used to knock them over were mostly legal: Credit markers were pulled, rumors were spread through the media, and legitimate short-sellers pressured the stock price down. But when Bear and Lehman made their final leap off the cliff of history, both undeniably got a push — especially in the form of a flat-out counterfeiting scheme called naked short-selling.
See the movie “Stock Shock” on DVD to learn more about this. trailer at www.stockshockmovie.com
The Experts: “In NY they call us the plumbers. We’re the plumbers of Wall Street…and Nobody wants to hear what the plumber has to say until the SHIT backs up in the livingroom”
If you really get into all, you might want to visit DeepCapture by Patrick Byrne it was a mind-blowing experience and opened my eyes to a “whole new world”. He takes it to another level with names.
Here is another video of Matt Taibbi explaining how Goldman Sachs makes money.
Courtesy of 
is already #1 at Amazon. Tonight he had some very cool interviews on 60 Minutes discussing how a few Wall Street outsiders made billions shorting real estate, his thoughts on Wall Street bonuses, and more. These videos are highly recommended now that the NCAA brackets are out and the tournaments are over until Thursday:
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