With all due respect to that Nassim Taleb dude who popularized the term "Black Swasn", Black Swan events are both overrated and the term is sloppily bandied about by those who may not be putting the requisite thought into just how utilitarian the knowledge of Black Swans actually are. Since you can't accurately predict, nor back test against, nor adequately hedge against such events, exactly what good is a Black Swan discussion. Well, I can answer that question. Black Swan events do maximum damage when the economic cycle is at its weakest. In Reggie Middleton's Economic Circle of Life (think the Lion King) it is the right portion of the circle in which Black Swan events do the most damage.
Actually, it is not the Black Swan events themselves that do the damage but said event do serve as the catalyst that either bust a bubble that was waiting to pop anyway, or break a structure that was hobbling along on one leg as it was - where we happen to be now in many places of the developed world - sans rampant propaganda, misinformation and disinformation from less than disinterested sources.
I have always been of the contention that the 2008 market crash was cut short by the global machinations of a cadre of central bankers intent on somehow rewriting the rules of economics, investment physics and global finance. They became the buyers of last resort, then consequently the buyers of only resort while at the same time flooding the world with liquidity and guarantees. These central bankers and the countries they allegedly strive to serve took on the debt and nigh worthless assets of the private sector who threw prudence through the window during the "Peak" phase of the circle of economic life, and engaged in rampant speculation. Click to enlarge to print quality...
I read this headline from the Financial Times and said to myself, "Okay Reg, Don't say 'I told you so'". Thus, you won't hear it from me, at least not this time. As reported today in the Financial Times: Goldman reveals fresh crisis losses and Goldman’s republished results present a new picture
Goldman Sachs has revealed details of about $5bn in investment losses suffered during the crisis for the first time this week, in a move that will deepen the debate over companies’ financial disclosures. The figures, issued as part of internal reforms aimed at silencing Goldman’s critics, show that the bank suffered $13.5bn in losses from “investing and lending” with its own funds in 2008. But Goldman’s regulatory filings and its executives’ comments to investors at the time pointed to about $8.5bn of losses arising from its investments in debt and equity, as markets were rocked by the turmoil.
Hmmmm! I walked through this in explicit detail in “When the Patina Fades… The Rise and Fall of Goldman Sachs???“ and I did it without being privvy to Goldman's financial innards. It was more or less common damn sense. Goldman and its employees do not walk on water, they do not shit gold, and they cannot perform miracles. If one takes an objective approach to their equity analysis, and simple plug the numbers into a spreadsheet (objectively) you would have come up with the exact same conclusions that I gave my subscribers all of these years. Let's reminisce, shall we?
So, what is GS if you strip it of its government protected, name branded hedge fund status. Well, my subscribers already know. Let’ take a peak into one of their subscription documents ( Goldman Sachs Stress Test Professional 2009-04-20 10:06:45 4.04 Mb - 131 pages). I believe many with short term memory actually forgot what got this bank into trouble in the first place, and exactly how it created the perception that it got out of trouble. The (Off) Balance Sheet!!!
Contrary to popular belief, it does not appear that Goldman is a superior risk manager as compared to the rest of the Street. They may
the same mistakes and had to accept the same bailouts. They are apparently well connected though, because they have one of the riskiest
balance sheet compositions around yet managed to get themselves insured and protected by the FDIC like a real bank. This bank’s portfolio looked quite scary at the height of the bubble.
And back to the FT article...
The day after I posted "As JP Morgan & Other Banks Legal Costs Spike, Many Should Ask If It Was Not Obvious Years Ago That This Industry May Become The “New” Tobacco Companies" wherein I made clear my opinion that the legal and litigation risks that the banking industry faces is woefully underestimated, the Massachusetts Land Court Decision that invalidates foreclosures based on post sale assignments was up held by the Massachusetts Supreme Court. This is permanent, and precedent setting, absolutely justifies and vindicates my post from the day before, which also contained links to other posts which any declared sensational just a few days before, ex., The Robo-Signing Mess Is Just the Tip of the Iceberg, Mortgage Putbacks Will Be the Harbinger of the Collapse of Big Banks that Will Dwarf 2008! and As Earnings Season is Here, I Reiterate My Warning That Big Banks Will Pay for Optimism Driven Reduction of Reserves. This is a very big deal since it actually unravels many thousands of foreclosures and sets precedent to be examined across the country (all 50 state's attorney generals are looking into fraudclosure issues) that will really cause material damage to the banks that are pursuing (have pursued) said foreclosures. As reported in the Massachusetts Law Blog:
Breaking News (1.7.11): Mass. Supreme Court Upholds Ibanez Ruling, Thousands of Foreclosures Affected
Update (2/25/10)–Mass. High Court May Take Ibanez Case
Breaking News (10/14/09)–Land Court Reaffirms Ruling Invalidating Thousands of Foreclosures. Click here for the updated post.
None of this is the fault of the [debtor], yet the [debtor] suffers due to fewer (or no) bids in competition with the foreclosing institution. Only the foreclosing party is advantaged by the clouded title at the time of auction. It can bid a lower price, hold the property in inventory, and put together the proper documents any time it chooses. And who can say that problems won’t be encountered during this process?... Massachusetts Land Court Judge Keith C. Long
“[W]hat is surprising about these cases is … the utter carelessness with which the plaintiff banks documented the titles to their assets.” –Justice Robert Cordy, Massachusetts Supreme Judicial Court
Today, the Massachusetts Supreme Judicial Court (SJC) ruled against foreclosing lenders and those who purchased foreclosed properties in Massachusetts in the controversial U.S. Bank v. Ibanez case...
... For those new to the case, the problem the Court dealt with in this case is the validity of foreclosures when the mortgages are part of securitized mortgage lending pools. When mortgages were bundled and packaged to Wall Street investors, the ownership of mortgage loans were divided and freely transferred numerous times on the lenders’ books. But the mortgage loan documentation actually on file at the Registry of Deeds often lagged far behind.
Yesterday, I attempted to pull the wool from some of the more complacent eyes of news media consumers by outlining the potential goals for Goldman's half billion "investment" in Facebook while at the same time pondering the market for a different type of media concern. A media concern that is heavy on the analysis and investigation, yet light on the political correctness and conflicts of interest (see Facebook Becomes One Of The Most Highly Valued Media Companies In The World Thanks To Goldman, & Its Still Private!). I definitely don't want to be condescending, but there is obviously (at least to me) a need for such an entity amongst the mainstream rags for as I read through the comment sections of the articles written on the topic, I see such naivete as, "Wow!!! If Goldman is putting their money in this, it must be serious!" I say do myself, "It's a damn shame if that is actually a real person's viewpoint and not a Goldman equity underwriting employee".
You see, this is not about Goldman's attempt to create capital gains through investment, its about their attempt to create income through commissions, fees and spreads.
In 2008 I gave explicit warning that an unprecedented swath of US municipalities were at risk of default. I was pooh poohed by many "experts" who consistently said that the history of default in the US muni bond market is slim to none. Well, my friends, that is history and this is now. The dearth of revenues from declining building permits, sales taxes in the absence of real sales, property taxes from depreciating properties, etc. - all built upon budgets that were carved at the peak of bubble economics groupthink combine to make a disastrous brew.
NYC, arguably the richest economic "city state" in the world and the mecca of banking and real estate is experiencing "applied austerity" programs, effectively going through the service and government payment cutbacks that the Europeans are "promising" to deliver. Keep in mind that NYC is comparable to, if not larger than, from an economic footprint perspective Greece and Portugal. I have accurately determined that the EU is in it very deep - deep enough that default of several nations is a foregone conclusion (see the complete Pan-European Sovereign Debt Crisis series for more on this).
Despite the nearly guaranteed default of the Euro-area nations, it ain't pretty over hear either, particularly as those eliminated services that have been taken for granted are needed, as in the post Christmas mini-blizzard. I say mini-blizzard because real New Yorkers know that 16 inches of snow is close to a regular occurrence. We get snowstorms nearly every year, but this one literally shut the city down - completely down.
Give it a couple of minutes, the "Cash for Clunkers" program explanation may catch your attention.
Primarily Dealer Credit Facility
Note: Paying subscribers may download the fully scrubbed model containing all of the date output by the Fed regarding the PDCF as an Excel pivot table here, Primarily Dealer Credit Facility Analysis. Those who are interested in subscribing to our research should click here.
Yesterday, I illustrated how the Fed buried TARP 2.0 amongst a spreadsheet dump of over 70,000 trades and what amounted to probably a million cells of spreadsheet data distributed among a plethora files, see Buried Deep Within The Files That The Federal Reserve Released On Thier MBS Purchase Program, We Found TARP 2.0!!! More Taxpayer Money To The Banks!. Today, we will review another one of those files, dealing with the lending program that the Fed instituted for its Primary Dealer banks.
About a year ago, after hearing so many pie-in-the-sky perma-bullish pundits and bankers say how banks paid every cent of TARP and government assistance back, I went on the following rant - 10 Ways to say No, the Banks Have Not Paid Back Their Bailout from the Taxpayer! Monday, January 18th, 2010:
Yes, some of the banks repaid TARP, with interest and warrants. Okay. The investment big banks (that were still in existence) were offered expedited financial holding company (bank) charters. That is why they didn’t fail, at least in part. So, running down the list, the banks paid back TARP. That’s a +, but….
- What was the value for bank charter, to get cheap access to the Fed’s funds? did they pay back this value yet? No!
- How about the payment of interest on the banks’ excess reserves at the Fed. Have the banks repaid that yet? No!
- The Fed and the Treasury have purchased hundreds of billions of dollars of Agency debt, Agency mortgage-backed securities (MBS) and related securities through Treasury purchase programs. Have the banks paid back the capital behind those purchases yet? No!
- How about the Term Auction Facility? Has the capital behind the benefits of that program been paid back? No!
- Then there is the Primary Dealer Credit Facility (PDCF), has this been paid back? No!
- Do you remember the Term Asset-Backed Securities Loan Facility (TALF)? Have the funds behind that been paid back? No!
- What about the PPIP? No!
- Hey, there’s the Foreign Exchange Swap programs (the currency swap lines, that saved not only our banks but out banks facing counterparties who were short on dollars), has that been paid back? No!
- There’s the Commercial Paper Funding Facility (CPFF), have the funds behind that been paid back? No!
- Most importantly, the opportunity cost of ZIRP, which hurts those who do not speculate (or have not speculated) with near free money! How do you pay that back to grandma and her .017% CDs?
Well, all rants aside, if you bothered to go through the mass dump of data that the Fed produced as a result of the Bloomberg FOIL suit, you will find that not only did the banks not pay back the massive amount of assistance that was given to them, they were actually granted more in the form of MOPTARP (MBS Overpayment Troubled Asset Repayment Program), and yes, I did make that up. How much more? Well, potentially more than the original TARP bailout! I'm getting ahead of myself though, so let's backtrack.
Here's a little cross pollination to attract bears from all over. Karl Deninger, the editor of the Market Ticker, invited me over for a half hour chat on his Blog Talk Radio show to discuss things such as foreclosure fraud, banks, derivative risk and the markets. You can access the original airing podcast on Karl's site. I have taken the liberty to append some graphics to the background to add some information to the discussion (see below). Enjoy!
Part One (the impatient may want to skip ahead about 1:32 to get the actual start of the discussion. I highly recommend you choose the 720p HD setting and expand to full screen in order to read the graphics in full fidelity.
While chatting with Herb Greenberg before my interview at CNBC on the banks, he asked me why I was short the banks, JPM in particular (JP Morgan’s 3rd Q & Just How XYZ Bank Can Never Go Out of Business!!!). I told him that I believe they are overly optimistic about the reserve thingy (Big Banks Will Pay for Optimism), the mortgage put back cosequences (JP Morgan’s Analysts Agree with BoomBustBlog Research, Contradict CEO Jamie Dimon’s Conference Call and The Putback Parade Cometh: Pimco, New York Fed Said to Seek Bank of America Repurchase of Mortgages) and real estate in general. I also said that in the scheme of things, Jamie Dimon appears to be, by far, the most effective manager of the big banks, and JPM seems to be the best run of the big banks. He negotiated a literal coup with Bear Stearns purchase, getting the billion dollar head quarters for free, the company for $10 per share and government backing for the legacy assets. He made a mistake with WaMu by not demanding a deeper discount. I know it seems like 28% or so off seems like a good deal, but it was not - and I clearly stated it several times (Is JP Morgan Taking Realistic Marks On Its WaMu Portfolio Purchase? Doubtful!). I just want to make this clear. There is nothing personal here, at least in terms of investments and financial analysis. The stream of events are of such grave consequence that this goes beyond mere finance, though. Why? This country has been "Bamboozled by the Banking Industry", but the "Chickens Are Coming Home to Roost". Let me explain...
Throughout most of 2009, while 10%+ of unemployed middle America stopped paying their mortgages, busy standing in line for shiny fat margin iThingies while in rabid debate about how many pieces of tail Tiger Woods may or may have not hit (yes, that story got 2160 tweets and 375 comments on how well endowed "the Tiger" is - would you dare to bet that this article on a potential depression will get even one third of that?) the greatest mass fraud of this lifetime against said persons was underway.
This should be played 720 HD full screen mode
Mr. and Mrs Middle America, you've been Had, you've been Took, Bamboozled, Hoodwinked, led Astray, run Amok (yes, YOU have, see You’ve Been Bamboozled, Hoodwinked and Lied To! Here’s the Proof. What Are You Going to Do About It? and click your rung in the socio-economic ladder, ex. your "social class"). From rating agency subprime madness to stress tests designed not to apply any stress to robo-signing and beyond (Mortgage Putbacks, the Harbinger of the Collapse that Will Dwarf 2008!) the financial and political elite appear to be running a real time experiment to demonstrate how numb they can prove the mainstream populace to really be? Will the experiment fail this time around? After all, things are different with the Web, and independent thought rocketed around the world in the form of blogs. We shall see what becomes of this real time socio-economic lab session, we shall see!
A few have been emailing me looking for a bio. I believe my track record should speak louder than any paragraph or two about my prior occupation(s). Credibility should come from accomplishment, not pedigree, no? Click here to find out who I am what I have done. Be sure to scroll all the way down to the bottom of the page.
- the updated JP Morgan forensic valuation (yes, what I think it is actually worth) for subscribers (there's a surprise or two in here that I'll reveal to the public)
- the Goldman Sachs forensic valuation update
- and my proprietary research on the foreclosure backlog this one will be a doozy)!
The Truth goes Viral!