Archive for April, 2009

Black hole balance sheets

Thursday, April 30th, 2009

Full story here. From Asia Times by Antal Fekete, who could be described as radical merely for holding the belief that gold could be used as a currency and for pointing out balance sheet idiocies. Oh well, can’t please everyone. If you want less scholarly and more cheeky, you can go here.

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“Our title is borrowed from a caption of the Chicago economist and monetary scientist Melchior Palyi (1892-1970) writing on the fiscal and monetary legerdemain of the US government in his Bulletin #401, dated February 27, 1960, as follows:

Faking balance sheets legalized
A corporation publishing faked balance sheets would be barred from every stock exchange. It may even face criminal prosecution. The objective is to protect the public against fraud. But exactly the same fraudulent practice has been legalized in so far as commercial and savings banks, and life insurance companies are concerned.

They can carry government bonds on their books at par value. A $1,000 bond may be quoted in the market at $800 or less; the balance sheet of your bank will still show it at $1,000. The purpose of this regulation, adopted by all federal and state supervisory agencies and by the Securities Exchange Commission as well, is to give those bonds a sacrosanct status and guarantee against paper losses. Thereby they are promoted to an absolutely safe and “liquid” status. The bank examiners count the bonds of the federal government, whatever their maturity and actual market price may be, as prime liquid assets, just like cash. The more bonds in the portfolio, the more liquid is the bank by the examiners’ standards – never mind the paper losses.

It is small wonder that the banks purchase long-term federal obligations, thereby creating a market for them. The result is that with rising interest rates and declining values of medium- and long-term securities, the modest capital and undivided surplus of the banks – reserves against losses – are impaired. In the case of quite a few banks, the entire capital and all reserves have been lost. In some cases, even a part of the deposits has been wiped out.

Silence of the Sea
But the public knows nothing about this sad situation. No newspaper dares to discuss it, or the preposterous practices of the government at the root of it. The “Silence of the Sea” covers them up. Those on the inside (and insight) hope and pray that a recession will reduce the pressures on the capital market, lower interest rates, raise bond prices, and wipe out the losses. Very likely it will; but what about the next cycle? And, above all, for how long, or how many times, will the depositors and savers permit themselves to be fooled and victimized? Sooner or later every legerdemain, however clever or subtle, is exposed – and backfires.

A further consequence is that the bond portfolio of the banks “freezes up”. By selling bonds, the bank would convert paper losses into real losses, which would skyrocket if major amounts were liquidated. While the boom and high interest rates obtain, the “prime liquidity” turns out to be the very opposite, unless the bonds are monetized at, and the losses shifted onto, the Federal Reserve. But the central bank can be relied upon to resist the “temptation” to absorb either or both.

The above was written in 1960. In 2009, we are wondering what has hit our banks. No mystery there. It was not subprime mortgages nor other loose lending practices. The banking crisis is entirely self-inflicted or, more precisely, government-inflicted, the origins of which – faking balance sheets – go back almost 90 years. (more…)

Biden in a ponzi?

Tuesday, April 28th, 2009

Full story here. From Bronte Capital. A nice, well-documented piece about the Vice President’s son and brother apparently working in and around some rather shady hedge funds…you’ll have to go to the link to see the pictures. Tricky deal that–hedge funds putting their marketing info in pictures, not text. Can’t be captured or searched on by Google–which you’d think would be desirable from a marketing standpoint. If you are curious, you can read more here and here.

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“I have been following the Paradigm Global/Ponta Negra and Stanford links for some time.

The first post – on Ponta Negra – got heavy lawyers letters – so I disappeared. There were lots of posts I did not make.

However here is one – quite tame really – that I did not make only a couple of days ago. It was labelled “A service to the clients of Onyx Capital”.

A service to the clients of Onyx Capital
Onyx Capital is updating its website. Onyx Capital is – as their website used to say – a marketer of hedge funds. All it has on the site is a picture of some text. I duplicate it here.

It’s a “picture of text”, not “actual text” which means that it is not findable by Google – nor will it be archived in the Google cache. So when removed it will disappear forever from Onyx’s site but will be stored for posterity here. It is strange to construct a website of entirely pictures rather than searchable text – but that is the way that Onyx seems always to operate.

The current “picture” says that they are updating their personal contact details. At the moment the website contains no phone numbers, no address and no way of contacting Onyx.

If you have your money allocated by Onyx you might find that unacceptable. So I am going to help you out.

Here are the contact details of Onyx before they chose to update their website. It was also in the form of a picture (not text) so you will not find these contacts archived in the Google cache. This makes it very hard indeed for clients to find contact details for Onyx. I copied that picture about a month ago.

Strangely even these marketing details contain no street address – only phone numbers.

Now – Onyx is a financial services marketing organisation. And like all marketing organisations it wants clients to be able to find it. But strangely their contact details have always been in the form of “pictures of text” rather than plain text – and hence have never been archived by Google – making them difficult to find.

To help Onyx in its marketing I have chosen to repeat three of the contact details.

Jeffry Schneider
Principal
512 617 6335
jschneider@onxy-cap.com

Justin Hare
Director of Investor Relations
713 320 2767
jhare@onyx-cap.com

Alla Babikova
Managing Director
New York Office
646 594 7598
ababikova@onyx-cap.com

I have also sought some information about these people – again for the benefit of Onyx clients.

Jeffry Schneider is a hedge fund marketer and financial professional with some standing. He has several CVs on the internet (one of which I have repeated below). He is quoted in this Wall Street Journal story explaining the business relationship between Paradigm Global (a fund of hedge funds) and a certain Alan Stanford. The relationship is minor. Stanford used to market Paradigm’s products (including a cobranded product) and Paradigm held some Stanford moneys. There is no evidence that Paradigm ever allocated any of their client moneys to Stanford. There is no evidence of wrongdoing – only that Paradigm Global are less careful than they should have been about whose name they attached to their product. As there is no evidence of wrongdoing the relationship would not be worthy of an article in the Wall Street Journal except that Paradigm Global is owned by Hunter Biden and James Biden who are Vice President Joe Biden’s son and brother respectively. The link between Stanford and the Bidens is tenuous – at least in the WSJ article. The link between Onyx and the Bidens is strong.

Schneider is also listed as a contact on other funds marketed from the 17th Floor of 650 Fifth Avenue New York. (It turns out that the other funds included Ponta Negra.)

650 Fifth Avenue (17th Floor) is the address of Paradigm Global so he has managed to garner other clients on that floor. If he got clients knocking door to door or by word of mouth on that floor – good luck to him.

Justin Hare has had a dual career. He has worked for Onyx as the head of investor relations (sales) whilst simultaneously working in “relationship management” (sales) for Stanford (which is widely believed to have been a pure ponzi scheme).

I am guessing that the Stanford relationship is the reason that Onyx needs to update its contact details. That however is a pure guess.

Alla Babikova – who works in the New York office of Onyx also sometimes gives her career as the head of marketing for Paradigm Global. The only CV I can find on the web suggests she joined Onyx in September 2009 – something that appears impossible. That said – the CV on the web speaks to a long marketing career.

Jeffry Schneider also acts as the marketing agent for other hedge funds – sometimes with Jared Toren who is not mentioned on these contact details.

Jeffry Schneider and Jared Toren were once sued for allegedly stealing a hedge fund marketing database. They then – alledged in this lawsuit – set up Onyx Capital. The lawsuit gives Onxy’s address – something that is also missing from the contacts page:

6835 Bee Caves Road
Suite 245
Austin Texas

For the benefit of Onyx clients I have repeated – for searching by Google – the physical address of Onyx’s Austin Texas operations. The website did not contain the NYC office address and I do not know it.

I hope this helps Onyx’s clients keep in contact with Onyx. Meanwhile Onyx should – at a minimum – give some contact details on their website and I am looking forward to the website’s next update.

John”

Weekly Commentary Apr 27 thru May 1

Sunday, April 26th, 2009

This week was chock full of earnings.

On Monday, Bank of America beat analysts’ estimates which was easy since it was so low) with a Q1 $4.25 billion profit. But their investors sold the shares off as most of the profits came from recently approved accounting rules changes and one-time accounting gains. (more…)

Failed your test? No problem, you’re saved anyway

Friday, April 24th, 2009

Full story here. I’m a rage-aholic! I’m full of rage-ahol! Didn’t we already learn this lesson a long time ago when they “socially promoted” kids who did poorly in schools– because they’d have poor self-esteem if they didn’t get to move up– only to find later that they prevented the rest of the class from doing as well and still failed to catch up.

See, I KNEW that the “stress test” was a load of crap just by the methodology, but it’s even more disheartening to hear that once the scabby hides of festering banks were exposed to the light of day, all were pronounced beauty queens just the same. Seems it would cause a panic if the less desirables were left standing with no investors. Heaven forbid.

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“The Federal Reserve on Friday said the government is prepared to rescue any of the banks that underwent “stress tests” and were deemed vulnerable if the recession worsened sharply. The Fed, in outlining the tests’ methodology, said the 19 companies that hold one-half of the loans in the U.S. banking system won’t be allowed to fail — even if they fared poorly on the stress tests. (more…)

Obama pressures credit card issuers on rates

Friday, April 24th, 2009

Full story here. Probably the best part of this New York Times article is the picture of Larry Summers nodding off. Remember how, at other places of employment, sleeping on the job is cause for dismissal?

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“Seizing on the growing unpopularity of credit card companies, President Obama on Thursday threw his support behind legislation moving swiftly through Congress that would restrict the ability of banks to impose higher fees and interest rates on consumers.

In a White House meeting with credit card industry executives, Mr. Obama sought to jawbone the companies into accepting changes — some voluntarily, some through legislation — that could cut heavily into profits at a financially difficult time. (more…)

China stocking up on gold

Friday, April 24th, 2009

Full story here. From Naked Capitalism blog, one of my favorite finance/econ destinations on the web.

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“China is really looking at a lot of other options to get away from the U.S. dollar. The latest report is that it has been building huge gold reserves. There is no doubt that China wants to get out and away from the U.S. dollar now. We have heard SDRs, copper and precious metals all mentioned as plays out of U.S. dollars. How this will play out on currency markets and in the U.S. government bond market is no at all clear.

China revealed on Friday that it built up its gold reserves by three quarters since 2003, making it the world’s fifth largest holder of bullion. (more…)

Rage of the Privileged Class

Thursday, April 23rd, 2009

Full story here. From NY Magazine. When the gravy train runs out…

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“No offense to Middle America, but if someone went to Columbia or Wharton, [even if] their company is a fumbling, mismanaged bank, why should they all of a sudden be paid the same as the guy down the block who delivers restaurant supplies for Sysco out of a huge, shiny truck?” e-mails an irate Citigroup executive to a colleague. (more…)

How Madoff scandal festered for 4 years

Thursday, April 23rd, 2009

Full story here. A detailed account from Counterpunch.org on the Wall Street Journal and NY Times, er, missteps in handling the evidence Harry Markopoulos provided to them and the SEC nearly 5 years ago regading Madoff.

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“An old maxim has it that newspaper editors separate the wheat from the chaff, then print the chaff. By this standard, the editors of the Wall Street Journal showed special deftness in their handling of the Madoff affair.

They used the occasion of whistleblower Harry Markopolos’ testimony in Washington in February to address seemingly every minuscule detail of the scam. They even published an irrelevant, if lovingly crafted, floor plan of the Madoff firm’s office in the Midtown Manhattan Lipstick building. Yet, in all their apparent desire to “flood the zone” (maybe they were angling for a Pulitzer!), one detail was missing. Not a word of explanation was offered about the curious role played by the Journal’s own Washington-based investi­gative reporter John R. Wilke.

As Markopolos’ written testimony made clear, Wilke long ago knew the score. As far back as 2005, he had been entrusted with Markopolos’ now famous dossier raising no less than 29 red flags about Madoff. It is hardly an exaggeration to say that, on the strength of an afternoon’s research, a good reporter could have worked up any one of Markopolos’ points into a cracker of a front-page story. Taken as a whole, the dossier represented the biggest “career development opportunity” any journalist has been handed since Deep Throat delivered the goods on Richard Nixon to Woodward and Bernstein a generation ago. (more…)

Four US banks to open in Iran

Monday, April 20th, 2009

Full story here. What a boon to Tehran. Given the US’s policy of supporting Goldman Sachs at all costs, the Iranians need only to have some GS branches visible and they can guarantee that not only will they not be bombed, US forces might even drop pallets of billions $$$ to help GS out in this “frontier” area. Aren’t there existing laws about doing business with Axis of Evil (or whatever it’s called this week) nations? Heck, they’re not even supposed to download 128-bit encryption browsers.

“Four American banks, including Citigroup and Goldman Sachs, have filed requests to open branches in Iran, a Tehran-based daily reported over the weekend. (more…)

Dear Mr. Buffett

Monday, April 20th, 2009

Full story here. An interview with Janet Tavakoli author of “Dear Mr. Buffett”, the story of her meetings with Warren Buffet prior to the economic downturn and how that impacted the way she views investing. She gives an interview where she defines and discusses many points of the current economic situation.

“BRIAN LAMB, HOST, CSPAN Q&A: Janet Tavakoli, author of the book ”Dear Mr. Buffet,” what do you think of money?

JANET TAVAKOLI, PRESIDENT, TAVAKOLI STRUCTURED FINANCE: What do I think of money? You know, I’m glad you asked that question because this is all about money and whether or not Washington protected our money and what has happened to our money over the past few years.

Money was nothing more than something we human beings created in order to enhance our probability of survival. So money is a very important means of exchange.

You know, and back when we created money, the reason we did it is because, let’s say I was growing wheat. Well, I would have to exchange my wheat in the marketplace for various goods and services that I needed. And if somebody didn’t need wheat at the moment, it would be hard for me to barter my wheat for something else.

So we created money as a representation that I have this wheat behind it. I’ll give you this piece of paper or this coin and someone else will take that piece of paper or coin for your goods because they know that I have wheat backing my coins.

And we created money to make it easier for us to trade goods and to enhance our ability to get the things that we need to survive, to make life better for everyone. So money isn’t an evil thing. Money is actually a good thing that we humans created. (more…)