Who Watches the Watchmen?

 "Inside the Securities and Exchange Commission, the organization is bracing for a public outcry, according to people who have recently spoken with some high-ranking officials about the prospect of a WikiLeaks release of bank documents."

Prospect of WikiLeaks Dump Poses Problems for Regulators

“Tens of thousands of its internal documents will be exposed on Wikileaks.org with no polite requests for executives’ response or other forewarnings.”

The impending Bank Leak may be:

"...an embarrassment for the United States government, which has spent millions of dollars investigating Wall Street in the last two years without a scalp to show for it."

"The scuttlebutt is that WikiLeaks will reveal documents in which bankers discussed how they duped a client, how they dressed up their numbers or even how they tried to pull one over on regulators."

"Sadly, perhaps cynically, that’s almost to be expected."

"The big surprise would be that such chicanery was documented, in black and white, and that regulators hadn’t found it yet 

— or worse, they had found it and did nothing about it."

http://dealbook.nytimes.com/2010/12/20/prospect-of-wikileaks-dump-poses-problems-for-regulators/?ref=business

 

‘Revisionist Whitewash’

GOP omits ‘derivatives’ from crisis report

By Ronald D. Orol, MarketWatch

WASHINGTON (MarketWatch) — Republicans omitted the words “derivatives” and “deregulation” from their report released Wednesday on the cause of the financial crisis that shook the economy to the brink in 2008.

REPUBLICAN COMMISSIONERS
ON THE FINANCIAL CRISIS INQUIRY COMMISSION

‘Welcome to Information Retrieval’

Terry Gilliam’s Brazil

MarketWatch Article:

 http://www.marketwatch.com/story/gop-omits-derivatives-from-crisis-report-2010-12-15?reflink=MW_news_stmp

GOP Members break with commission and release independent interpertation:

Financial Crisis Primer


http://republicanleader.house.gov/UploadedFiles/Financial_Crisis_Primer_Final.pdf

Revisionists

Talking Business

Explaining the Crisis With Dogma

"But more recently, it has had to do with the growing tug of war between the commissioners over which financial crisis narrative would win out.

The Republican minority, fearing their view would get short shrift, pre-emptively put forward a CliffsNotes version of their theory of the case. In other words, they responded to a report that hasn’t even yet been written, much less read and voted on by the members.


Is there such a word as “presponse?” Perhaps we should coin it to describe what took place this week at the F.C.I.C."

http://www.nytimes.com/2010/12/18/business/18nocera.html?partner=rss&emc=rss    

& RENEGADES

Hon. Bill Thomas
Commission Vice Chairman

 

Peter J. Wallison
Commissioner

Keith Hennessey
Commissioner

 

Douglas Holtz-Eakin
Commissioner

 

Griftopia: Bubble Machines, Vampire Squids, and the Long Con...

"Matt Taibbi's unsparing and authoritative reporting on the financial crisis has produced a series of memorable Rolling Stone features. He showed us how Goldman Sachs, that "great vampire squid", played a central role in creating not only the housing bubble but four other big speculative booms that filled its coffers while wrecking the American economy. He explained how Wall Street banks cooked up schemes that helped decimate municipal budgets and cost countless jobs, and how Wall Street lobbying led to a financial reform bill that won't prevent another meltdown. Taibbi builds on that eye-opening work in his new book, Griftopia: Bubble Machines, Vampire Squids, and the Long Con That is Breaking America, due out from Spiegel & Grau on November 2. In this exclusive excerpt, he describes how our cash-strapped country is auctioning off its highways, ports and even parking meters at fire sale prices — and finding eager buyers in the unregulated sovereign wealth funds of oil-rich Middle Eastern countries."

The dramatic story behind the most audacious power grab in American history

Buy HERE.

The financial crisis that exploded in 2008 isn’t past but prologue. The stunning rise, fall, and rescue of Wall Street in the bubble-and-bailout era was the coming-out party for the network of looters who sit at the nexus of American political and economic power. The grifter class—made up of the largest players in the financial industry and the politicians who do their bidding—has been growing in power for a generation, transferring wealth upward through increasingly complex financial mechanisms and political maneuvers. The crisis was only one terrifying manifestation of how they’ve hijacked America’s political and economic life.

Rolling Stone’s Matt Taibbi here unravels the whole fiendish story, digging beyond the headlines to get into the deeper roots and wider implications of the rise of the grifters. He traces the movement’s origins to the cult of Ayn Rand and her most influential—and possibly weirdest—acolyte, Alan Greenspan, and offers fresh reporting on the backroom deals that decided the winners and losers in the government bailouts. He uncovers the hidden commodities bubble that transferred billions of dollars to Wall Street while creating food shortages around the world, and he shows how finance dominates politics, from the story of investment bankers auctioning off America’s infrastructure to an inside account of the high-stakes battle for health-care reform—a battle the true reformers lost. Finally, he tells the story of Goldman Sachs, the “vampire squid wrapped around the face of humanity.”

Taibbi has combined deep sources, trailblazing reportage, and provocative analysis to create the most lucid, emotionally galvanizing, and scathingly funny account yet written of the ongoing political and financial crisis in America. This is essential reading for anyone who wants to understand the labyrinthine inner workings of politics and finance in this country, and the profound consequences for us all.

Rolling Stone Expose on Goldman Sachs

Taibbi’s Takedown of ‘Vampire Squid’ Goldman Sachs

From tech stocks to high gas prices, Goldman Sachs has engineered every major market manipulation since the Great Depression — and they're about to do it again

"The first thing you need to know about Goldman Sachs is that it's everywhere. The world's most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money. In fact, the history of the recent financial crisis, which doubles as a history of the rapid decline and fall of the suddenly swindled dry American empire, reads like a Who's Who of Goldman Sachs graduates..."

Taibbi on the Gangbang of Bureaucratic Fraud

Matt Taibbi: Courts Helping Banks Screw Over Homeowners

Retired judges are rushing through complex cases to speed foreclosures in Florida

 

"this foreclosure fiasco is a story about wide-scale bureaucratic fraud, with a kind of mortgage counterfeiting and a gangbang mentality with regard to the securitization process has infected the entire system."

Fantastic "House Advantage" Series from the NYT

Articles in the House Advantage series from The New York Times examine the ways that Wall Street banks can, and often do, gain advantages over their customers. Today’s giant banks not only create and sell investment products, but also bet on those products, and sometimes against them, putting their interests at odds with some of their customers’. The banks and their lobbyists also help fashion financial rules and regulations. And banks’ traders know what their customers are buying and selling, giving them a valuable edge.

Advantage: The Bankers Club — Helping to Write the Rules that Run the Market

A Secretive Banking Elite Rules Trade in Derivatives

By LOUISE STORY

In theory, clearinghouses exist to safeguard the integrity of the multitrillion-dollar derivatives market. In practice, they also defend big banks’ dominance.

December 12, 2010

Advantage: Financial — Getting Paid on the Upside, but Not Losing on the Downside

Banks Shared Clients’ Profits, but Not Losses

By LOUISE STORY

Banks like JPMorgan Chase offer to help big investors like pension funds earn a little extra. When it works, both win. When it doesn’t, only the client loses.

October 18, 2010

Advantage: Product Design — Designing Products Then Betting Against Them

Banks Bundled Bad Debt, Bet Against It and Won

By GRETCHEN MORGENSON and LOUISE STORY

Investigators are trying to determine whether banks like Goldman Sachs intentionally sold their clients especially risky mortgage-linked assets.

December 24, 2009

Advantage: Price Setting — Controlling the Marks on Investments, With Self-Interest in Mind

Testy Conflict With Goldman Helped Push A.I.G. to Edge

By GRETCHEN MORGENSON and LOUISE STORY

The bank’s demands for billions of dollars from the insurer bled it of cash, which the government later provided.

February 7, 2010

Advantage: Friendly Regulators — Watching Out for the Banks

In U.S. Bailout of A.I.G., Forgiveness for Big Banks

By LOUISE STORY and GRETCHEN MORGENSON

Federal regulators ignored recommendations to force banks that did business with A.I.G. to accept losses.

June 30, 2010

Advantage: Ratings Game — How Debt Watchdogs May Have Been Compromised

Rating Agencies Shared Data, and Wall St. Seized Advantage

By GRETCHEN MORGENSON and LOUISE STORY

Trying to be transparent, credit rating agencies made their computer models public, and banks used that knowledge to shape some of the investments involved in the financial crisis.

April 24, 2010

Advantage: Information — Inside Insights Help Protect Banks' Interests, but Leave Clients Behind

Clients Worried About Goldman’s Dueling Goals

By GRETCHEN MORGENSON and LOUISE STORY

The conflicts inherent in having a trading arm have created a wariness toward Goldman Sachs.

• Goldman Sachs’ Responses to The Times

On the third Wednesday of every month...

A Secretive Banking Elite Rules Trading in Derivatives

By LOUISE STORY

On the third Wednesday of every month, the nine members of an elite Wall Street society gather in Midtown Manhattan.


The men share a common goal: to protect the interests of big banks in the vast market for derivatives, one of the most profitable — and controversial — fields in finance. They also share a common secret: The details of their meetings, even their identities, have been strictly confidential.


Drawn from giants like JPMorgan Chase, Goldman Sachs and Morgan Stanley, the bankers form a powerful committee that helps oversee trading in derivatives, instruments which, like insurance, are used to hedge risk.
In theory, this group exists to safeguard the integrity of the multitrillion-dollar market. In practice, it also defends the dominance of the big banks. (MORE).

 

Click on Image To Enlarge

Ten Stock-Market Myths That Just Won't Die - WSJ

By BRETT ARENDS

The Dow Jones Industrial Average last week ended up pretty much where it had been a little more than a week earlier. A rousing 200-point rally on Wednesday mostly made up for the distressing 200-point selloff of the previous Friday.

The Dow plummeted nearly 800 points a few weeks ago -- and then just as dramatically rocketed back up again. The widely watched market indicator is down 7% from where it stood in April and up 59% from where it was at its 2009 nadir.

View Full Image

Andy Rash 

 

These kinds of stomach-churning swings are testing investors' nerves once again. You may already feel shattered from the events of 2008-2009. Since the Greek debt crisis in the spring, turmoil has been back in the markets.

 

At times like this, your broker or financial adviser may offer words of wisdom or advice. There are standard calming phrases you will hear over and over again. But how true are they? Here are 10 that need extra scrutiny.

1 "This is a good time to invest in the stock market."

Really? Ask your broker when he warned clients that it was a bad time to invest. October 2007? February 2000? A broken watch tells the right time twice a day, but that's no reason to wear one. Or as someone once said, asking a broker if this is a good time to invest in the stock market is like asking a barber if you need a haircut. "Certainly, sir -- step this way!"

2 "Stocks on average make you about 10% a year."

Stop right there. This is based on some past history -- stretching back to the 1800s -- and it's full of holes.
About three of those percentage points were only from inflation. The other 7% may not be reliable either. The data from the 19th century are suspect; the global picture from the 20th century is complex. Experts suggest 5% may be more typical. And stocks only produce average returns if you buy them at average valuations. If you buy them when they're expensive, you do a lot worse.

3 "Our economists are forecasting..."

Hold it. Ask your broker if the firm's economist predicted the most recent recession -- and if so, when.
The record for economic forecasts is not impressive. Even into 2008 many economists were still denying that a recession was on the way. The usual shtick is to predict "a slowdown, but not a recession." That way they have an escape clause, no matter what happens. Warren Buffett once said forecasters made fortune tellers look good.

4 "Investing in the stock market lets you participate in the growth of the economy."

Tell that to the Japanese. Since 1989 their economy has grown by more than a quarter, but the stock market is down more than three quarters. Or tell that to anyone who invested in Wall Street a decade ago. And such instances aren't as rare as you've been told. In 1969, the U.S. gross domestic product was about $1 trillion, and the Dow Jones Industrial Average was at about 1000. Thirteen years later, the U.S. economy had grown to $3.3 trillion. The Dow? About 1000.

5 "If you want to earn higher returns, you have to take more risk."

This must come as a surprise to Mr. Buffett, who prefers investing in boring companies and boring industries. Over the last quarter century, the FactSet Research utilities index has even outperformed the exciting, "risky" Nasdaq Composite index. The only way to earn higher returns is to buy stocks cheap in relation to their future cash flows. As for "risk," your broker probably thinks that's "volatility," which typically just means price ups and downs. But you and your Aunt Sally know that risk is really the possibility of losing principal.

6 "The market's really cheap right now. The P/E is only about 13."

The widely quoted price/earnings (PE) ratio, which compares share prices to annual after-tax earnings, can be misleading. That's because earnings are so volatile -- they're elevated in a boom, and depressed in a bust.

Ask your broker about other valuation metrics, like the dividend yield, which looks at the dividends you get for each dollar of investment; or the cyclically adjusted PE ratio, which compares share prices to earnings over the past 10 years; or "Tobin's q," which compares share prices to the actual replacement cost of company assets. No metric is perfect, but these three have good track records. Right now all three say the stock market's pretty expensive, not cheap.

7 "You can't time the market."

This hoary old chestnut keeps the clients fully invested. Certainly it's a fool's errand to try to catch the market's twists and turns. But that doesn't mean you have to suspend judgment about overall valuations.
If you invest in shares when they're cheap compared to cash flows and assets -- typically this happens when everyone else is gloomy -- you will usually do very well.

If you invest when shares are very expensive -- such as when everyone else is absurdly bullish -- you will probably do badly.

8 "We recommend a diversified portfolio of mutual funds."

If your broker means you should diversify across things like cash, bonds, stocks, alternative strategies, commodities and precious metals, then that's good advice.

But too many brokers mean mutual funds with different names and "styles" like large-cap value, small-cap growth, midcap blend, international small-cap value, and so on. These are marketing gimmicks. There is, for example, no such thing as "midcap blend." These funds are typically 100% invested all the time, and all in stocks. In this global economy even "international" offers less diversification than it did, because everything's getting tied together.

9 "This is a stock picker's market."

What? Every market seems to be defined as a "stock picker's market," yet for most people the lion's share of investment returns -- for good or ill -- has typically come from the asset classes (see No. 8, above) they've chosen rather than the individual investments. And even if this does turn out to be a stock picker's market, what makes you think your broker is the stock picker in question?

10 "Stocks outperform over the long term."

Define the long term? If you can be down for 10 or more years, exactly how much help is that? As John Maynard Keynes, the economist, once said: "In the long run we are all dead."

Write to Brett Arends at brett.arends@wsj.com

With US debt, two clocks are ticking

The US debt clock reached $13 trillion this week. America's demographic clock will make it harder to pare it back.

http://www.csmonitor.com/Money/new-economy/2010/0527/With-US-debt-two-clocks-are-ticking

Eight Reasons You Should Care

World debt crisis: eight reasons you should care

As the world starts to focus on its debt crisis, Greece's financial woes may presage problems to come in Europe and the United States – with implications for your bank account and stock portfolio

http://www.csmonitor.com/Money/2010/0526/World-debt-crisis-eight-reasons-you-should-care

Some see the euro sinking to $1 early next year.

Bet on the Greenback to Beat the Euro 

 http://online.barrons.com/article/SB127388746977692097.html?mod=googlenews_barrons

Disrupting The Wall Street World View

Bond Market Will Never Be the Same After Goldman: 

Michael Lewis

Commentary by Michael Lewis

April 22 (Bloomberg) -- If you happen to be sitting on the Goldman Sachs bond-trading floor life must feel horribly unfair.

You did nothing worse than live by the ethical assumptions of your market -- any money-making event short of obviously illegal is admirable -- and now your own grandfather thinks you’re some kind of monster. Your world feels upside down: What was right is now wrong; what was good is now bad; what once felt like winning now feels like losing.

You are probably wondering: What next? What will the angry rabble -- all those ordinary people who can never really understand your business -- now demand that you explain to them, so they can disapprove of you all over again?


A few possibilities:

No. 1 -- Full knowledge of the inner workings of your proprietary trading desk.
In particular: the moment-to-moment dealings of your correlations traders from late 2004 (when they first exploited American International Group’s idiotic willingness to sell cheap insurance on pools of subprime mortgage loans) until the end of 2007, when they would have taken most of their profits from the total collapse of the subprime bond markets.


Your bosses claim to have lost almost $100 million on the Abacus trade for which your firm is being sued. This seems, to put it mildly, disingenuous. In March 2007, the time of this particular Abacus trade, your prop traders were already short the subprime market. Would they really have taken a naked long position in a deal you helped to construct precisely so that it would fail without offsetting in some other way on their books?


Ritual Sacrifice


Sadly, it will not suffice to offer up Fabrice Tourre as a ritual sacrifice. No one is going to accept a then 27-year-old Frenchman, whose job was apparently to keep sweet the patsies on the other end of your trades, as the world’s authority on your trading positions.

His name isn’t even on the top of the list of Goldman traders listed on the $2 billion Abacus deal for which you are being sued. The name on top of that document is Jonathan Egol. Egol appears to have been the bond trader at the center of your Abacus program. The same Jonathan Egol who told fellow traders in 2006 -- a year before this transaction -- that the subprime market was doomed.

The public eventually will ask: Who is Jonathan Egol and what exactly was his game?

No. 2 -- A far better understanding of your relations with the inaptly named “CDO manager.”

Clearly Clueless

In this case the manager was ACA Management, but there were other CDO managers at least as pliable as ACA. The SEC suit charges you with using ACA as a shill: the end investors in your CDO assumed that it was ACA’s job to figure out whether the bonds inside the CDO were intelligent investments.
But ACA quite clearly had no idea what it was doing -- and you quite clearly understood that.
The telling details here are the e-mails between your French salesman and ACA, in which ACA feels it needs to understand exactly what John Paulson’s interest are in this new CDO. Paulson, who had done a great deal of analysis on the underlying bonds, was of course picking the ones he wanted to see inside the CDO. (Hard to understand why it didn’t disturb you that he was even in the room, by the way, but that’s another conversation.)

The SEC accuses you of lying to ACA, by suggesting Paulson was a long investor in the deal when he was in fact selling the deal short.

Good From Bad

But what’s interesting here is what you appear to take for granted: that ACA has no talent for evaluating the bonds picked by Paulson. After all, if ACA was doing its job it wouldn’t have cared one way or the other what Paulson (then a little-known hedge fund manager) was up to. ACA would have known which bonds were good and which were bad, and picked the good ones.

In their anxiety about Paulson’s motives we can all glimpse their incompetence. They want to know that Paulson has an interest in picking the good ones because they themselves have no clue which ones they are.
But if a CDO manager had no independent ability to select the bonds inside a CDO what, please explain to us, was his financial function? Why did you select ACA to manage your deal?

No. 3 -- A far better sense of why, and when, you ceased completely to concern yourself with the consequences of your actions.

The masses will be curious to know, for instance, how you became blinded to the very simple difference between right and wrong. The more moralistic among them will ask the question mainly to fuel their own outrage; the more tactical will ask the question because they sense that the financial system doesn’t function unless you have the incentive to think in these terms - - and you clearly do not.

Soul-Changing

What begins as an effort to change your business may well end up as an attempt to change your soul.
Among the many likely consequences of the SEC’s decision to sue Goldman Sachs for fraud is a social upheaval in the bond markets.

Indeed, the social effects of the SEC’s action will almost certainly be greater than the narrow legal ones. Just as there was a time when people could smoke on airplanes, or drive drunk without guilt, there was a time when a Wall Street bond trader could work with a short seller to create a bond to fail, trick and bribe the ratings companies into blessing the bond, then sell the bond to a slow-witted German without having to worry if anyone would ever know, or care, what he’d just done.

That just changed.

(Michael Lewis, most recently author of the best-selling “The Big Short,” is a columnist for Bloomberg News. The opinions he expresses are his own.)

Click on “Send Comment” button in sidebar display to send a letter to the editor.

To contact the writer of this column: Michael Lewis at mlewis1@bloomberg.net
Last Updated: April 21, 2010 21:00 EDT

The financial meltdown wasn't a mistake – it was a con

Now we know the truth. The financial meltdown wasn't a mistake – it was a con

Hiding behind the complexities of our financial system, banks and other institutions are being accused of fraud and deception, with Goldman Sachs just the latest in the spotlight. This has become the most pressing election issue of all

"The cases not only have a lot in common – using financial complexity allegedly to deceive and then using so-called independent experts to validate the deception (lawyers, accountants, credit rating agencies, "portfolio selection agents," etc etc ) – but they also show how interconnected the financial system is. In Iceland Citigroup and Deutsche Bank covered the margin calls of distressed Icelandic business borrowers, deepening the crisis. Lehman uses the lightly regulated London markets and two independent British experts to validate that their "Repo 105s" were "genuine" trades and not their own in-house liability. The American authorities pursued a Swiss bank over aiding and abetting US nationals to evade tax."

EXCERPT, Read  Entire Article HERE.

Looters in Loafers from the NYTimes

Op-Ed Columnist
By PAUL KRUGMAN

Published: April 18, 2010
  
Looters in Loafers

 "...the S.E.C. is charging that Goldman created and marketed securities that were deliberately designed to fail, so that an important client could make money off that failure. That’s what I would call looting." 

http://www.nytimes.com/2010/04/19/opinion/19krugman.html?src=me&ref=general

Just How Sorry Are They?

 Measuring Wall Street Apologetics

 The parade of bankers called to account for the financial crisis continued last week when Kerry K. Killinger, head of Washington Mutual, the largest bank ever to fail, apologized, sort of, as have many before him. But he also said that his firm “should have been given a chance.” Here are some of those mea culpa moments.

Read their quotes in today's New York Times

Angelo R. Mozilo
Co-founder, former chairman and chief executive, Countrywide Financial

TOTAL COMPENSATION $530.9 million.

Kenneth D. Lewis
Former chairman and chief executive, Bank of America

TOTAL COMPENSATION $251.5 million.

Kerry K. Killinger
Former chief executive, Washington Mutual

TOTAL COMPENSATION $95.7 million

E. Stanley O’Neal
Former chairman and chief executive, Merrill Lynch

TOTAL COMPENSATION $201.9 million.

 
Lloyd C. Blankfein
Chairman and chief executive, Goldman Sachs

TOTAL COMPENSATION $391.2 million

Richard S. Fuld
Former chairman and chief executive, Lehman Brothers

TOTAL COMPENSATION $167.5 million.

Charles O. Prince III
Former chairman and chief executive, Citigroup

TOTAL COMPENSATION $132.7 million. 

James E. Cayne
Former chairman, Bear Stearns

TOTAL COMPENSATION $424.3 million.

 http://www.nytimes.com/2010/04/18/weekinreview/18dash.html

Reblog from WSJ Goldman Sachs in the Hot Seat

Goldman Sachs Charged With Fraud

SEC Alleges Firm Misled Investors on Securities Linked to Subprime Mortgages; Major Escalation in Showdown With Wall Street

By GREGORY ZUCKERMAN, SUSANNE CRAIG and SERENA NG

Goldman Sachs Group Inc.—one of the few Wall Street titans to thrive during the financial crisis—was charged with deceiving clients by selling them mortgage securities secretly designed by a hedge-fund firm run by John Paulson, who made a killing betting on the housing market's collapse.


Goldman vigorously denied the Securities and Exchange Commission's civil charges, setting up the biggest clash between Wall Street and regulators since junk-bond king Drexel Burnham Lambert succumbed to a criminal insider-trading investigation in the 1980s, helping to define the era. "The SEC's charges are completely unfounded in law and fact," Goldman said in a statement, promising to "contest them and defend the firm and its reputation."

Excerpt: Profiting From the Crash

In his 2009 book, Wall Street Journal reporter Greg Zuckerman was the first to lay out how Mr. Paulson approached banks, including Goldman and Bear Sterns among others , with the proposal that they create securities of sub-prime mortgages that he could bet against. It is those trades that are at the heart of the Securities and Exchange Commission's case against Goldman.

The civil charges against Goldman and one of its star traders, 31-year-old Fabrice Tourre, represent the government's strongest attack yet on the Wall Street dealmaking that preceded, and some say precipitated, the financial crisis that gripped the nation and the world. Goldman's shares fell 13%, one of the steepest slides since the firm went public in 1999, erasing some $12 billion of market capitalization.

The SEC lawsuit likely strengthens the position of President Barack Obama as he tries to push financial-overhaul legislation through Congress. He vowed Friday to veto any version of the bill that doesn't bring the derivatives market "under control."

Regulators say Goldman allowed Mr. Paulson's firm, Paulson & Co., to help design a financial investment known as a CDO, or collateralized debt obligation, built out of a specific set of risky mortgage assets—essentially setting up the CDO for failure. Paulson then bet against it, while investors in the CDO weren't told of Paulson's role or intentions.

"The product was new and complex, but the deception and conflicts are old and simple," said Robert Khuzami, the SEC's enforcement chief.

Mr. Paulson and his firm aren't named as defendants. The hedge-fund firm said in a statement that it wasn't involved in marketing the bonds to third parties. "Goldman made the representations, Paulson did not," Mr. Khuzami said.

Mr. Paulson took home $4 billion in 2007 for correctly betting on a housing collapse.

View Interactive

Take a look at some famous cases that allege serious fraud at major financial companies.

The SEC said Mr. Tourre was "principally responsible" for piecing together the bonds and touting them to investors. According to the SEC, Mr. Tourre wrote in an email shortly before the bonds were sold that "the whole building is about to collapse anytime now." He described himself in the email as the "Only potential survivor, the fabulous Fab … standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstruosities!!!"

But he was hardly alone, the SEC alleges: The deals were signed off by senior Goldman executives, though the SEC didn't specify how high up it believes the knowledge extended.

In the past year, Goldman—the most profitable firm on Wall Street—has emerged as a symbol of excess. The taxpayer-funded rescue of the markets helped catapult Goldman to a huge profit rebound last year and stirred resentment of the firm's bonuses. Goldman paid out about $16 billion in compensation to employees in 2009.
And late last year in a profile in London's Sunday Times, Goldman's chief executive, Lloyd Blankfein, described himself as "doing God's work," a remark that Goldman later explained was made in jest. Still, the quip inflamed Goldman critics who said it showed the firm was tone deaf about concerns over its business practices and rich pay.

Goldman is one of the few financial firms the U.S. government has accused of misleading investors in the subprime-mortgage debacle, although it is one of many that created and sold securities that cratered when the housing market collapsed.

View Full Image

Reuters

The new Goldman Sachs Group headquarters in New York's lower Manhattan.

The Dow Jones Industrial Average fell 116.38, or 1.04%, to 11028.19, as investors worried that other financial firms could be on a collision course with the SEC over Wall Street's behavior during the crisis.

It has been a brutal week for Goldman. The SEC's charges against the firm came just days after The Wall Street Journal reported that prosecutors are investigating Goldman director Rajat Gupta on suspicion that he provided inside information to the Galleon Group, the hedge fund founded by Raj Rajaratnam now at the center of the biggest insider-trading probe in decades.


The deal at the center of the SEC suit came as Goldman and other firms were deeply involved in making, buying and building complex investments out of subprime loans, just as the market for those loans was beginning to weaken perilously. Critics of such deals say they enriched the firms but magnified what became the worst financial crisis since the Great Depression.

As the housing market sank in 2007 and 2008, investors in the deal, known as Abacus 2007-AC1, suffered losses of more than $1 billion, according to the SEC. The sinking market gave Paulson a profit of about $1 billion. Goldman was paid about $15 million for structuring the bonds and pitching them to investors. Goldman is a major trader of stocks and bonds on behalf of Paulson

In a statement, Goldman said it suffered a $90 million loss on the deal. Goldman said investors were provided with extensive information about the securities in the portfolio. Mr. Tourre, the trader facing civil charges as part of the SEC action, couldn't be reached to comment. He works as executive director in Goldman's international unit.

Analysts said the suit could cost Goldman business and even threaten its executives. "Someone must 'fall on their swords' for the devastating decline in this company's persona," wrote Richard Bove, an analyst with Rochdale Securities.

Goldman and Mr. Tourre both received Wells notices from the SEC in recent months indicating that the staff of the agency could recommend action against the parties in the case, a person familiar with the matter said. Goldman isn't required to disclose the Wells notice if it believed it wasn't a material event. The notices don't always lead to charges or fines.

Journal Community

Goldman employees were stunned by the suit, even though Goldman has been cooperating with the SEC's probe of CDOs. Traders at the company's headquarters in lower Manhattan stopped working when the headline flashed across TV screens.

Goldman has vehemently denied putting its own interests ahead of its clients.' In a letter to shareholders earlier this month, Mr. Blankfein and President Gary Cohn said: "Our goal was, and is, to be in a position to make markets for our clients while managing our risk within prescribed limits." But it was common knowledge among Goldman executives that the firm created mortgage bonds so clients could bet against housing.
Other firms also used CDOs to offset risk taken on through credit-default swaps with hedge-fund clients, including Deutsche Bank AG, according to people familiar with the matter.

Goldman and Paulson have worked together ever since the hedge-fund firm was established in 1994. By mid-2006, Mr. Paulson and his fund had purchased protection on billions of dollar of potentially toxic mortgages, and he wanted to expand his bearish wager.

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Reuters

'CEO Lloyd Blankfein has drawn heat for Goldman's rich pay and profits in the wake of the taxpayer bailout of the financial system.

Graphic: See an example of how a mortgage CDO is made.

Goldman and Deutsche Bank were among the firms that agreed to put together deals for Paulson. The fund chose a list of securities to form the foundation of the CDOs, zeroing in on those it saw as particularly risky. In at least some deals, potential buyers of the mortgage bonds were consulted, along with credit-rating agencies, people familiar with the transactions say.

In contrast, one senior banker at Bear Stearns Cos. turned down the business. He questioned the propriety of selling deals to investors that a bearish client was involved in putting together, according to people familiar with the matter.

One investor who lost money on Abacus was German bank IKB Deutsche Industriebank AG, the SEC said. A bank spokeswoman said it is aware of the suit and responded to SEC inquiries.

Middleman

How Goldman Sachs structured the deal under scrutiny. (Click on the image.)

 Another big loser: ACA Capital Ltd., which operated a bond insurer that insured a $909 million chunk of the CDO in return for a fee, according to the complaint. When the bond insurer imploded in late 2007, most of its Abacus-related risk wound up with ABN Amro Bank NV, the complaint said.

The Dutch bank, which agreed to cover ACA's obligations if the insurer couldn't pay, was later acquired by a group of banks that included Royal Bank of Scotland PLC. In 2008, RBS paid $840.9 million to Goldman to unwind the agreement. Goldman paid most of that money to Paulson, according to the SEC.

From 2004 to 2007, Goldman arranged about two dozen similarly named deals, according to rating-agency data. American International Group wrote credit protection on $6 billion of Abacus transactions before the insurer nearly collapsed in 2008, though not the deal detailed in the SEC's suit, according to documents reviewed by the Journal. Last year, AIG unwound most of its Abacus-related swaps with Goldman, losing $2 billion.

A 65-page marketing document for Abacus 2007-AC1 reviewed by The Wall Street Journal described the deal as a $2 billion synthetic CDO based on a pool of residential mortgage assets "selected by" another unit of ACA. The logos of Goldman and ACA were printed on nearly every page.

SEC v. Goldman Sachs

The lawsuit suggests "senior level management" at Goldman was aware of the Abacus transaction and Paulson's connection to the deal. "Goldman is effectively working an order for Paulson to buy protection on specific layers of" the deal's "capital structure," according to excerpts of a 2007 internal memo included with the suit. The Goldman committee that was sent the memo included senior-level management, the SEC said.
According to the SEC, Mr. Tourre misled ACA officials about Paulson's role, saying the firm had invested $200 million in hopes the CDO would rise. ACA and Paulson chose the 90 pools of mortgage assets used to create Abacus, the SEC said.


In a statement, Goldman said it "never represented to ACA" that Paulson was investing in hopes the values would rise. People close to the firm said officials saw no need to disclose to investors that Mr. Paulson had a hand in creating the portfolio or was taking a bearish position.
Abacus 2007-AC1 was issued in April 2007. By October, more than 80% of the underlying mortgage securities in the deal had been downgraded, reflecting the housing market's deepening turmoil. A total of 99% were downgraded by January 2008, according to the SEC.

—Aaron Lucchetti contributed to this report.

Write to Gregory Zuckerman at gregory.zuckerman@wsj.com, Susanne Craig at susanne.craig@wsj.com and Serena Ng at serena.ng@wsj.com

is anyone considering our reliance on imports and inflation driven by transportation costs? The darkside of Globalization and perhaps the impetus for an increase in domestic manufacturing...

US military warns oil output may dip causing massive shortages by 2015

• Shortfall could reach 10m barrels a day, report says
• Cost of crude oil is predicted to top $100 a barrel

"By 2012, surplus oil production capacity could entirely disappear, and as early as 2015, the shortfall in output could reach nearly 10 million barrels per day," says the report, which has a foreword by a senior commander, General James N Mattis.

http://www.guardian.co.uk/business/2010/apr/11/peak-oil-production-supply

AP Economic Stress Map

The map displays unemployment, foreclosures, bankruptcy, or a composite “stress index”, by county. Easy to miss: in the upper right you can change the scale of the mapping (rates, m-t-m, y-t-y). To look at data over time, click on the “monthly rates” option and a historical slider will appear at the bottom. Double click on a region to zoom in; click & hold to move around, point at a county for popup detail.

http://hosted.ap.org/specials/interactives/_national/stress_index/

Reclaim Main Street from Wall Street!

'The Road From Ruin':

10 Ways You Can Fix The Economy 

And Build Popular Capitalism

"Main Street America has to take the lead in getting our economy in shape for the next fifty years": that was the rallying cry of our first post in this series.


Given the dire state of the US economy and the political paralysis on financial reform in Washington, it came as no surprise to us that some of the responses to our blog doubted that citizens could shape a better, genuinely popular, version of capitalism, in which we all benefit. That is why we have come up with a ten point action plan that all of us can follow. It will not be easy for ordinary citizens -- in our work, as consumers and as investors, as well as in how we vote -- to defeat the entrenched interests on Wall Street and in Washington, but things certainly won't change unless we take up the challenge.

Here are our ten ways we can each make a difference:

1) Banks need capital, which means your savings. So support the banks that do the things you want -- banks that invest in their local communities -- by joining the Huffington Post's 'Move Your Money' campaign, which is already proving that even in a 'too big to fail' banking system, individual citizens moving small amounts of money can be a powerful force for change.

2) They looked great until the market crashed in 2008, but mutual funds and pension funds have done a terrible job of investing your money to create sustainable wealth. So be active in choosing a fund that puts your money to work in responsible ways that generate riches that last. Tell your financial adviser that you want a 401k-plan that invests your money for long term value, not short term profit-chasing, and be ready to move your money. If your financial adviser cannot offer you options that do what you want - change your financial adviser! One website that can help you find better options is provided by the Social Investment Forum.


3) Read your mutual fund or pension provider's annual report to find out what they are doing to challenge the short-termist bonus culture and get companies thinking long term. Ask them questions, go to the annual meeting, and tell them that you want a more responsible capitalism. They are more likely to take notice if government and the courts push them in the right direction, so join our campaign (and encourage your friends to do the same) to get the Department of Labor and Pensions to sue big mutual funds and pension funds over their failure to fulfil their fiduciary duty to the public.

4) A month after the bankruptcy of Lehman Brothers triggered the near-collapse of the financial system, billionaire financier Carl Icahn launched a group called the United Shareholders of America to campaign to give shareholders real rights over corporate executives. Icahn is right that American shareholders are far less powerful than their counterparts in many other countries, including Britain -- but he now seems to have lost interest in the United Shareholders Association. Join our call on Icahn to revive the organisation and turn it into a genuine voice for shareholders.

5) Executive pay is out of control. An urgent priority should be to give shareholders a vote on what executives are paid at the companies they own. This idea is being kicked around in Congress, but has yet to be adopted. Sign up to our "We Want A Say on Pay" campaign.

6) America's system of financial regulation is a mess, yet Washington shows no sign of implementing the serious reforms that are needed. In a blog responding to "The Road From Ruin," Citigroup director and former bank regulator Diana Taylor proposed a new nationwide 411 financial regulation helpline -- a one-stop service for anyone who has questions or concerns of any kind about a bank or other financial company and does not know who to talk to about it. Support her by joining our campaign for a 411 helpline.

7) Reject the 'greed is good' culture that helped cause the crisis. Graduates of leading business schools like Harvard and Thunderbird have started taking an oath, promising that they will uphold proper ethical standards. This is not just for business school students; it is for anyone in business. If you own your own company, or work for a company, take the oath, live it and tell other people about it. If you are not in business, ask the executives of the company you work for, or of the companies you buy from, to take the oath. The oath project website is here.

8) One reason Washington does not reform capitalism to make it work in the interests of all citizens is all the campaign finance dollars paid by business to politicians. Imagine if every time a politician appeared on TV, details of how much campaign finance he or she received and who the largest donors are appeared on the screen at the same time, the political equivalent of a news or stock ticker. Actually, don't just imagine it: sign our petition to the main TV networks, plus C-Span, Fox News and MSNBC.

9) Use the power of your consumer dollars. Buy from the companies which operate according to values that you respect and don't buy from companies are all about short-term greed. Tell the companies what you are doing and tell other people about it, too.

10) Be a competent economic citizen. All of us contributed to the crisis by forgetting the basic laws of economics and finance. We all need to do better. Test how well you understand finance by playing financial soccer. Read the business and economic pages of your newspaper. If they are not telling you about what we need to build a more sustainable capitalism, tell them; if they don't give you a decent answer, get a different paper! Help others to be more financially literate by supporting campaigns like Operation Hope, the Hip-Hop Action Summit, Aflatoun or the Network for Teaching Entrepreneurship. Join the 5MK campaign chaired by Quincy Jones and Ambassador Andrew Young to mentor 5 million kids on financial literacy and their other "silver rights". Becoming a competent economic citizen is not easy, but it holds the key to building a better capitalism.

As we conclude in "The Road From Ruin," reforming capitalism is a task for all of us. Ultimately, we are the change.

http://www.huffingtonpost.com/michael-green/the-road-from-ruin-10-way_b_525052.html

The Competitive Job Market

As reported from Across the Pond

Geithner says unemployment is 'terribly high'

Geithner says Obama is hugely concerned about jobless rate

The treasury secretary Timothy Geithner warned today that US unemployment was "terribly high" and would remain "unacceptably high for a very long time". The Obama administration was "very worried" about the jobless rate, Geithner said in an interview, which has soared to almost 10% in the wake of the worst economic downturn since the depression.

However, Geithner was encouraged by figures showing that American jobless claims fell last week and told NBC that business growth has been improving.

"A huge amount of damage was done to businesses and families across the country ... and it's going to take us a long time to heal that damage," he explained.

More than 11 million people in the US are now drawing unemployment insurance benefits and the jobless rate of 9.7% understates the problem as many people who give up looking for work are no longer in the official count of the unemployed.

The initial claims for unemployment benefits fell slightly last week as the recovering economy moves closer to generating more jobs. The labour department said new jobless benefit claims dropped 6,000 to a seasonally adjusted 439,000.

Geithner also spoke about the financial reforms embarked upon by Obama and admitted that it was "deeply unfair" that some of the financial institutions that received taxpayer bailouts are emerging in better shape from the recession than millions of ordinary Americans.

He acknowledged public outrage over that and said people watched with disdain as Washington protected high-risk banks, even as the unemployment rate was soaring. But Geithner also argued that Obama had no choice when confronted with a financial crisis.

"As the president has said, we had to do some very unpopular things," he added.

"What happened in our country should never happen again. People were paid for taking enormous risks. It was a crazy way to run a financial system."

http://www.guardian.co.uk/business/2010/apr/01/geither-speaks-on-us-unemployment

Underemployment Rising

Underemployment Rises to 20.3% in March

Unemployment saw a slight but insignificant decline

by Jenny Marlar

WASHINGTON, D.C. -- Gallup Daily tracking finds that 20.3% of the U.S. workforce was underemployed in March -- a slight uptick from the relatively flat January and February numbers.

"The underemployed in March became neither more nor less hopeful about finding work soon."

These results are based on March interviews with more than 20,000 adults in the U.S. workforce, aged 18 and older. Gallup classifies respondents as underemployed if they are unemployed or working part-time but wanting full-time work. Gallup employment data are not seasonally adjusted.

A rise in the percentage of part-timers wanting to work full time (from 9.2% to 9.9%) is responsible for the March increase in underemployment. Unemployment saw a slight, but insignificant, decline in March.

Underemployed Americans Still Not Hopeful

Despite the Obama administration's March 16 announcement that unemployment would remain high or increase in coming months, the underemployed in March became neither more nor less hopeful about finding work soon. Six in 10 underemployed Americans are not hopeful they will find work or move from part-time to full-time work in the next four weeks. That translates to 12% of the workforce that is both underemployed and not hopeful they will find their desired amount of work. The lack of change suggests that underemployed Americans anticipated long-term difficulties in finding work well before the administration's formal announcement was made.

Bottom Line
As unemployed Americans find part-time, temporary, and seasonal work, the official unemployment rate could decline. However, this does not necessarily mean more Americans are working at their desired capacity. It will continue to be important to track underemployment -- to shed light on the true state of the U.S. workforce, and the millions of Americans who are searching for full-time employment.

Survey Methods
Results are based on telephone interviews with a random sample of 20,504 national adults, who are part of the workforce, aged 18 and older, conducted March 1-31, 2010. For results based on the total sample of national adults, one can say with 95% confidence that the maximum margin of sampling error is ±1 percentage points.

For results based on the sample of 4,164 adults who were underemployed in March, the maximum margin of sampling error is ±2 percentage points.

Interviews are conducted with respondents on landline telephones (for respondents with a landline telephone) and cellular phones (for respondents who are cell-phone only).

In addition to sampling error, question wording and practical difficulties in conducting surveys can introduce error or bias into the findings of public opinion polls.

http://www.gallup.com/poll/127091/Underemployment-Rises-March.aspx

Unemployment

March unemployment rate unchanged at 9.7%

 

The official U.S. unemployment rate in March remained unchanged at 9.7 percent, the Labor Department's Bureau of Labor Statistics said Friday.
A total of 162,000 new jobs were created on non-farm payrolls--the biggest one-month jobs gain in the past three years, but still well below what economists were predicting.
Most forecasters had expected about 200,000 new jobs to be created in March. The difference is largely attributable to fewer census workers than expected being hired by the government. But analysts say the numbers also illustrate the slow and wobbly nature of the ongoing economic recovery

http://www.washingtonpost.com/wp-dyn/content/article/2010/04/02/AR2010040201040.html

 

Perspective - Nonfarm payrolls

Today, the Labor Department reported that nonfarm payrolls (jobs) increased by 162,000 in March -- the largest increase in three years. Today's chart puts that decline into perspective by comparing job losses following the beginning of the current economic recession (solid red line) to that of the last recession (dashed gold line) and the average recession from 1950-1999 (dashed blue line). As today's chart illustrates, the current job market has suffered losses that are more than triple as much as what occurs at the lows of the average recession/job loss cycle. It is also worth noting that previous job market declines did not tend to end abruptly but rather flattened out before moving back into an expansionary phase. Today's relatively positive jobs report provides an early indication that the current job market is moving from a phase of stabilization to that of expansion.

Move Your Money

Move Your Money campaign update:

9% of U.S. adults on board

Move Your Money, the brainchild of Rob Johnson, Arianna Huffington and Eugene Jarecki, has taken America by storm. For anyone who thought grassroots action was futile, think again. According to a recent Zogby poll, nine percent of U.S. adults have taken at least some of their money out of the big banks to protest abuses and bailouts. As we have been reporting, state and local governments are joining the movement. Legislatures in New Mexico and Minnesota inspired by the campaign have proposed measures that would prioritize local banks for dealing with state deposits.

John Zogby in Forbes:

We know that people are mad as hell about their tax dollars going to bail out big banks and Wall Street, and then seeing the recipients of their hard-earned cash rewarding themselves with million-dollar bonuses.

We also know that the blowback from the bank bailouts is one reason why incumbents, especially the majority Democrats, are in great jeopardy of losing their jobs in November. People can’t vote out big bankers, but we are finding evidence that some people are voting with their bank accounts and moving their business to community banks and credit unions. A recent Zogby Interactive poll found 9% of U.S. adults have taken some of their business away from big banks as a protest.

The MYM site has a tool that lets you enter your zipcode and find a highly-rated community bank near you.

http://www.newdeal20.org/2010/03/31/move-your-money-campaign-update-9-of-us-adults-on-board-9298/