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).

 

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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