Wall Street Shenanigans - Is Iconic Brand USA Under Threat?

Breach of trust. Isn't that a culpable crime in financial world? How will you feel when your most trusted financial advisor, the one you even played golf with, was to commit breach of trust in order to swindle billions of dollars from you? Further, how would you feel if you happen to be the conscientious fund manager of a large Pension Fund on whom rests the onerous responsibility of ensuring that thousands of Pensioners have a respectable old age through timely pension? For a minute jump into the shoes of such a Pension Fund Manager and then tell me if  breach of trust is not a crime.

That is exactly what happened in the making of Sub Prime Crisis. Investment   bankers of Wall Street inflicted total breach of trust upon unsuspecting Institutional Investors and High Net worth Individuals(HNIs). This is becoming evident from the slew of court cases popping up against Goldman Sachs, the most venerable Investment Bank of Wall Street operating for the last 140 years. In global investment circles, Goldman Sachs' word in the final word on financial investment. And why shouldn't it be? Former employees of Goldman Sachs have headed World Bank, US Treasury Department, New York Stock Exchange, White House Staff, and financial giants like Citigroup and Merrill Lynch. Some such luminaries in recent times are Robert Rubin and Henry Paulson, who were United States Secretary of the Treasury under Bill Clinton and George W Bush respectively.

Here we realize that we are talking of an all powerful global Investment Bank with some very influential links. It is so powerful that in 1995 Robert Rubin, as US Treasury Secretary, could enforce bailout of Mexican Bonds with US taxpayers'  money worth $20 billion. Reason : Goldman Sachs had huge exposure to bonds issued by Mexican Government and Mexico was in economic crisis which threatened to wipe out the value of these bonds. And also remember that Robert Rubin was a former employee of Goldman Sachs, managing  its Mexican investments. So the point is, when Goldman Sachs gives financial investment advice institutional investors around the world take action in accordance. It was this very faith which was smothered by Goldman Sachs, thereby morphing the sub prime crisis into a credit crisis of  magnitude unparalleled since the Great Depression of 1929.

As the plot unravels, deals of Goldman Sachs are continuously tumbling out of cupboard like the proverbial skeletons. From 2004 to 2008 Goldman sold 25 toxic mortgage based Collateralized Debt Obligations(CDO) products labelled Abacus. They even pressured Moody's to rate these products higher. These deals were worth billions and Tetsuya Ishikawa was one of the Goldman investment bankers who was involved in these deals. He later published a book titled " How I Caused the Credit Crunch". However Securities and Exchange Commission (SEC), the regulatory body of markets in US, later sued Goldman Sachs and one of its employees Fabrice Tourre in April 2010. SEC alleged that Goldman sold Abacus 2007-AC 1(a synthetic CDO product of Abacus series) by misrepresenting facts to its investors. It allowed a hedge fund, named Paulson & Co., to select underlying mortgages, which Paulson was shorting, into this synthetic CDO. In this manner Paulson made $ 1 billion in profit from shorting and investors in this Abacus deal lost the same amount. On 30 April 2010 a criminal probe has been launched into Goldman Sachs by Manhattan office of US Attorney General.

SEC is now probing a second Goldman CDO called Hudson Mezannine 2006-1. It underwrote this CDO and itself was the only short investor on all the assets worth $ 2 billion tied to the CDO. Honesty is such a orphaned word!! Last week Basis Capital, an Australian Hedge Fund, sued Goldman Sachs for $1 billion alleging that it fraudulently sold bits of toxic assets in the form of CDO called Timberwolfe-1, while itself shorting the market. When the CDO eventually collapsed with the US housing market, Basis Capital had to shut shop.

Goldman is also in the eye of the storm regarding controversial American International Group(AIG) bailout with $182 billion of taxpayers' money by US Federal Reserves in September 2008. AIG is a massive insurance corporation with almost all global banks having insurance exposure to it. It is alleged that Goldman Sachs engineered the bailout with its lobbying muscles and links inside the Federal Reserves. It is reported that AIG bailout money has finally gone into Wall Street investment banks like Goldman Sachs with overpayment. New York State Attorney General announced on March 2009 that he was investigating whether AIG counterparties improperly received Government money.

Then there is this skeleton of Goldman Sachs having created the recent European Sovereign Debt Default crisis. It is reported that from 1998 to 2009 Goldman has been systematically helping the Greek Government to help mask facts about its true national debt. Then in September 2009 it created a special Credit Default Swap(CDS) index for cover of high risk national debt of Greece. The Greek national bond prices fell drastically, making it difficult for Greece to raise further funds thereby leading the economy to near bankruptcy.

Let us not get carried away by the wrong notion that only Goldman Sachs is to be blamed. What Goldman Sachs did, other Investment Banks on Wall Street also did the same. Take the court cases piling up against Merrill Lynch  where the stories sound exactly similar to those of Goldman Sachs' cases, albeit with different name. One case filed by Rabobank against Merrill Lynch is so similar to Goldman's Abacus case that it is quite unnerving. It is because the entire Investment Bank community on Wall Street was practising what by then had become glorified business of daylight robbery in the garb of global investment opportunities in housing market of Brand USA. Imagine devastating plots being hatched by coterie of investment bankers in smoke-filled-cellars of Wall Street, plots which crippled the financial world and is now ready to take down nations with debt burden.

What is most disturbing in all this is that breach of trust is not being given due importance. No one has been found guilty so far in any meaningful way and hence no one has been sufficiently punished. As I mentioned in my last post of 6th June 2010 titled " Isn't It Anymore Immoral to Loot!- Oh Wall Street Ethics", derivatives is a zero sum game. If trillion dollars have been lost collectively in sub prime crisis by vast majority of global investors, then there will be a handful  who would have gained trillion dollars. Track down these few heroes and investigate their dealings and links with  Wall Street Investment Banks and you will get your answer. Although some investigations are directed towards that but they are yet to bear any fruit. A global crisis which could propel a German billionaire to commit suicide is no mean crisis. What US has build painstakingly as  iconic Brand America over decades is at a risk of being diluted, if not lost, just because Wall Street honchos cannot control their excessive greed. Breach of Trust can have a telling effect on pecking order of financial world , so what if it gets unnoticed in courtroom battles.

In the next post we shall scrutinize the role of nations in pumping steroids into  their respective economies hit by the tsunami of credit crisis. Commonly known as stimulus packages, we will dwell on the fallout of such steroids.

Can You Spot a Design in Market Madness? - Cartels at Work

Sixth of May 2010. A day I simply cannot seem to erase from my recent memory region. US markets plunged nearly 10% on a single day!!! Dow Jones Industrial Average crashed 1010 points from its day high. New York Times headlines screamed "Stocks Plunge on Concerns Over Greece". Investors on Wall Street are left licking their wounds and the general public sympathizes.

Concerns over Greece? What was so new about concerns over Greece on that particular day that stock prices had to be reduced to few cents and then made to rebound up to 70%  within an hour or so? By the way, financial problems facing Greece was not a new fact uncovered that very day that market players had to sell off in utter shock anything and everything in sight in such tearing hurry. In fact on 17 Dec 2009 I had published a post titled "Debt Laden Dubai - When Will The Woes End?". In that post I had indicated that Greece and Spain were simmering with debt troubles and global investors were worried more on that account than Dubai defaulting. It was common knowledge in global investment circles for the last six months or so that Greece was tottering on a serious financial crisis and would be the first of the European nations to start the Domino Effect. Now would the regulators please explain to US public as to what really happened on 6th May 2010 and who were the extraordinary beneficiaries?

One can understand European markets selling off with one or the other bad news. First from the blocks was Greece with its credit contraction, then Spain bailing out one of its banks and then Germany banning short selling - all that is understood. In between North Korea brandishes its sword on South Korea and China goes on clean up drive to rein in inflation by pulling back some stimulus packages in small measures. Perfectly fine. But what would you say when Financial Times on 26th May tells investors with all authenticity that China was going to sell its reserve of Euro bonds. China holds about $ 630 billion in Euro bonds. That news sent jitters down the spine of global investors.

The shock waves created in Europe from the shattering news in Financial Times was so great that Euro currency nosedived and almost became  serious competitor of Zimbabwean Dollar!! With it the European stocks were dragged down and US exports to Europe presented a great challenge. Pandemonium broke loose in global investment circles. Dow Jones lost 230 points from its day high. Investors were planning their exit strategies further when the very next day China in a surprise move rubbished the news of Financial Times and reiterated its faith in Euro and the European Union. European markets and Euro rebounded with zest and Dow Jones gathered 295 points extra weight.

In all this high drama, one thing stands out very clearly. Influential parties will go to any length and pull off any stunt to browbeat the investors. How can Financial Times, the venerable publication of global markets, be so callous as to publish a news which is so far from the truth? Who are responsible for painting such panic-setting scenarios? Has Financial Times apologized to the investors and to its readers? Will market regulators take some time off their busy schedule and look beneath the cover? Bizarre things are on the cards in global markets. There will be more rude shocks and many more deceptions. Wild swings will tear short term  traders apart on both sides of the trade. Welcome to the Year of Volatility, because cartels are at work with a vengeance.

I will be providing more evidence of big boys of Wall Street who are working in cahoots with other big global players to swindle billions from honest investors. Watch this space for more on this issue of cartelization. Till that time just mull over the news that Wall Street investment banks have engaged lobbying firms for close to $ 450 million to block financial bank reforms in US. You will get to know more about big boys of stock markets and their Machiavellian plans in the sequel to this article. God save US investors!!