Wednesday, April 22, 2009

How to funnel your hard earned money into our I-bank : the Goldman primer

Its fucking amazing.

Amidst the current economic mess, while jobs are being lost in millions, people are being forced to leave their homes left right and center, life savings, 401ks, retirement savings of the common man are being reduced to rubbles, I banks (read Goldman Sachs) continue to churn out amazing profits from what is now nothing but a naked form of state-subsidized (read Obama administration) profit generating racket for the remaining few I-banks (Goldman primarily after Merryl, Bear Sterns and Lehmann managed to go belly up with greed, as a sidenote the prestigious scumbag and asshole of the decade award goes to (Sloan) Harvard alum and ex Merryl CEO John Thain for managing to award himself and his fellow execs 100s of millions of $$ in performance bonus exactly 8 days before they had to go to the US government asking for a bailout).

Ok lets start:

The chief players: Goldman Sachs, SEC, White house
Cameos: Merryl, Bear Sterns, Lehmann
Comic relief: AIG
Act 1: The great depression of 09 aka how wall street managed to ass rape you

The story so far (quoted in green):

A former Goldman chief, Rubin, presses the Commodities Futures Trading Commission(CFTC, a federal government regulation and enforcing agency for the market) to deregulate a type of derivative contract whose chief benefit to an investment bank like Goldman is that it allows it to lend more — the CDS being most useful as a tool to move investment risk off a bank’s balance sheet. Then another Goldman chief, Paulson, pushes for further relaxation of lending limits. Then Goldman jumps head-first into the housing bubble, buying tens of billions in CDS protection to hedge their crazy investments. This massive explosion in lending by banks like Goldman, fueled in part by the use of derivatives like CDS and fueled still more by the 2004 change in rules, puts an enormous strain on the economy, leading to giant holes blown in its hull by the end of 2007 and on through 2008. It follows that when Goldman’s chief partners in those CDS deals, AIG, collapses as part of this wave of crashes, Paulson — now Treasury Secretary — rushes to the rescue, pumping billions in taxpayer money into AIG that is quickly funneled to Goldman. Then a Goldman alum is put in charge of AIG while another bunch of Goldman alums funnels still more bailout money to AIG, and yet another Goldman alum is put in charge of regulating the derivative market that is the focus of most of the bailout efforts.

In the midst of all of this, something amazing happens. Goldman Sachs, along with Bank of America, Morgan Stanley, and a host of other “troubled” banks, reports a profit for its first quarter in 2009! How and why that happened is another fascinating story, for another time. For now the only thing to remember is that all the same people who got us into this mess — Rubin, Summers, Goldman in general — are now being put in charge of the cleanup by a president who spent most of 18 months on the campaign trail pledging to end the influence of money in politics.

Add this together with the obscene giveaway that is the Toxic Asset program Geither has just devised (Goldman Sachs “expressed interest in participating in the plan as an investor,” according to the WSJ), and you have an amazing situation. Between the Bush and Obama administrations, you have a bailout program that has now figured three ways to funnel money to Goldman, Sachs: via AIG, via TARP, and now via this trillion-dollar “Public-Private Investment Program,” which basically lends huge amounts of money to investors and provides guarantees against heavy losses. It’s free money, state-subsidized profiteering at its most naked.

Hail Goldman, fucking assholes, all of you execs and b-school alums at Goldman should be lined up in a row and asked to eat shit burgers followed by a "thanks a lot, can I have one more and please can you piss on me while you are flipping those shit burgers".

In today's fun news: I played poker at the airport on saturday after my flight got delayed on a supremely dodgy Boingo connection, and managed to rip $8k off a huge donkish player in less than 2 hours.

Tuesday, April 7, 2009

EFF U WORLD: so says Citi and AIG and I-Banks

And the plot (conspiracy?) thickens. Those following the markets would know that there was a memo by Citi chief Vikram Pandit in early March, that got conveniently (?) leaked to the media and that shows that Citi was pretty profitable in the first quarter of 09, quoting Pandit:

"In fact, we are profitable through the first two months of 2009 and are having our best quarter-to-date performance since the third quarter of 2007. In January and February alone, our revenues excluding externally disclosed marks were $19 billion".

Of course soon thereafter other such news came gushing in from other I-banks (JPMorgan, BOFA, GS..etc etc) and all of them reported major profits in that time frame (first two months of 09). For the layman like me this was utterly puzzling, banks with garbage on their balance sheets suddenly should not, by any logical means, start raking in big profits in a market with ever widening spreads and a ultra tight credit market.

But spending a ton of time reading a ton of, usually useless information, does have its perks when I finally came up on these whistle-blowing bunch of writeups from Zerohedge, there is a followup post on Rortybomb as well.

Basically what Pandit and his clique at the I-banks are upto this time is the following, (I quote in green)
  • AIG, knowing it would need to ask for much more capital from the Treasury imminently, decided to throw in the towel, and gifted major bank counter-parties with trades which were egregiously profitable to the banks, and even more egregiously money losing to the U.S. taxpayers, who had to dump more and more cash into AIG, without having the U.S. Treasury Secretary Tim Geithner disclose the real extent of this, for lack of a better word, fraudulent scam. (this happened in the jan-early march time frame of 09).
  • What this all means is that the statements by major banks, i.e. JPM, Citi, and BofA, regarding abnormal profitability in January and February were true, however these profits were a) one-time in nature due to wholesale unwinds of AIG portfolios, b) entirely at the expense of AIG, and thus taxpayers, c) executed with Tim Geithner's (and thus the administration's) full knowledge and intent, d) were basically a transfer of money from taxpayers to banks (in yet another form) using AIG as an intermediary.
So essentially AIG is a clearing house, it funnels in tax-payer money in billions and serves it up on silver platters to I-banks with a ton of garbage derivatives on their balance sheets as profitable trade opportunities. The sad part is that the banks then come up with blatantly false follow-up statements, on the back of these criminally-shady deals, announcing "Hello world we are profitable invest in us".

One wonders how much low can this supposedly respectable executives at I-banks stoop to? As I have alluded several times in this blog "Ethics for MBA, often publicized with vigor by B-schools" is an eye-candy meant for mary poppins.

Also to those disgruntled soul(s) who have spammed my mail box/comment section (comment moderation is now on) on the previous post regarding false claims and charges of plagiarism, which I-bank do you work for?