Financial topics

[greghaught]

I believe ...
Someone has to explain to me ...
which I suspect ...
My best guess ...

that's all any of us can do. as an investment bank, they're opaque. i dont think that even the bank examiners even know. btw i'm no GS fan. i think that they're a plague on this country with their lobbying dollars and campaign contributions. how does the ballot box compete with that?

i think that in addition to the paper, they have winning market making strategies (commendable) and winning (for now) prop trading strategies. we just cant know how leveraged they are. no one knows. what i just can't buy is that they have a magic wand that levitates markets appreciably, even though they'd like us to believe it.

EDITED TO ADD:

if they do have the magic wand, there are people who can prove it. maybe sergey can. but if he could, they wouldn't be roughing him up like this. it's just a meme.

anatomy of a meme

a meme is just a lively rumor. rumor's dont rely on truth for their vitality, merely the remote possibility of truth. what a meme requires is enough believers to suspend their disbelief to feed on the bait that the meme provides. a meme can be thought of as a fishing lure with baited hooks.

this particular meme, the computer program trading meme, states the possibility that computers have been programmed to manipulate markets. it provides a number of nearly primal baited hooks ...

1) the economic jealousy/class struggle hook. us against them and they have the money.

2) the automation/computer aversion hook. "those goddam computers. pretty soon, they'll be running the world"

3) the "mysterious sinister forces at work" hook.

4) a hook for do-gooders intent on defeating injustice wherever it's rumored to be.

5) last but by no means least is the bigotry hook. Goldman Sachs is currently the largest participant in computer program trading.

to GS's credit, they were aware enough to realize that they can capitalize on this. they'll milk every drop out of this.

[John]

> this particular meme, the computer program trading meme, states
> the possibility that computers have been programmed to manipulate
> markets. it provides a number of nearly primal baited hooks ...

> 1) the economic jealousy/class struggle hook. us against them and
> they have the money.

> 2) the automation/computer aversion hook. "those goddam computers.
> pretty soon, they'll be running the world"

> 3) the "mysterious sinister forces at work" hook.

> 4) a hook for do-gooders intent on defeating injustice wherever
> it's rumored to be.

> 5) last but by no means least is the bigotry hook. Goldman Sachs
> is currently the largest participant in computer program trading.

> to GS's credit, they were aware enough to realize that they can
> capitalize on this. they'll milk every drop out of this.

Attributing all these evil motives to people like me is a nice try,
but if you really believe what you're writing then you're burying
your head in the sand.

As I've been writing about for years on this web site, and by now has
been well documented by many people, the people at Goldman Sachs and
other investment banks have been guilty of massive fraud. They
created tens of trillions of dollars in defective mortgage-backed
securities that they sold to unwary investors. They colluded with
ratings agencies and monoline insurances agencies to give AAA ratings
to the "toxic assets". And in 2007 when all their assumptions were
coming apart, they stop defrauding investors, but actually ACCELERATED
the fraud, in order to make more money before the game was up.

Politicians and the media were all in bed with this. Barney Frank
was a major participant and enabler. Bob Rubin from the Clinton
administration, Hank Paulsen from the Bush administration, and Larry
Summers from the Obama administration have all made millions of
dollars in the last year or two from these fraudulent activities.
Why doesn't President Obama just bring Bernie Madoff into the
cabinet?

This is all thoroughly documented on this web site and by now in many
other places. And as I've explained many times, this massive fraud
is attributable to the lethal combination of greedy, nihilistic
Gen-Xers, along with greedy, stupid Boomers.

And it all happened before. There's a great article this weekend on
nakedcapitalism describing the Pecora hearings of the 1930s. That
would be massive fraud attributable to the lethal combination of
greedy, nihilistic people from the Lost generation, along with
greedy, stupid people from the Missionary generation.
http://www.nakedcapitalism.com/2009/07/guest-post-review-of-ferdinand-pecoras.html

So now we have allegations that Goldman Sachs is colluding with the
NYSE to make money by illegally "manipulating markets in unfair
ways."

Do I believe that's possible? You're damn right I do. Exactly the
same people are in charge who perpetrated the massive fraud in the
last few years. There's no change in the "mysterious sinister forces
at work" from the past few years.

If you're going to try to defend bankers (or if you're a banker
yourself), then you'd better start wearing a flak jacket.

Fair or not, what we're seeing is banks making huge amounts of money,
giving themselves million dollar bonuses, and then raising interest
rates on credit for ordinary people, even people with good credit
histories. The public view of bankers is going to get worse and
worse for years.

As I've written before, when I was growing up in the 1950s, my
parents and my teachers were bitterly critical of bankers. Bankers
were blamed for all the misery of the Great Depression. And exactly
the same thing is happening again.

John

[greghaught]

So now we have allegations that Goldman Sachs is colluding with the
NYSE to make money by illegally "manipulating markets in unfair
ways."

Do I believe that's possible? You're damn right I do.
John

if it's true, then there are plenty of people who can prove it. it would require non-partner operational participation. so there are people who have been passed over for partner who can definitively prove with direct evidence that GS alone or together with the NYSE manipulates markets. if it's true. there are partners or former partners with a grudge who have first hand knowledge and can definitively prove it. if it's true.

the ego indulgence from breaking this open would be irresistible to at least one of them. it's folly to think that this could be contained. it's just a meme.

[John]

> if it's true, then there are plenty of people who can prove it.
> it would require non-partner operational participation. so there
> are people who have been passed over for partner who can
> definitively prove with direct evidence that GS alone or together
> with the NYSE manipulates markets. if it's true. there are
> partners or former partners with a grudge who have first hand
> knowledge and can definitively prove it. if it's true.

> the ego indulgence from breaking this open would be irresistible
> to at least one of them. it's folly to think that this could be
> contained. it's just a meme.

No! No! No! A thousand times no!

The current financial crisis came about with massive collusion among
banks, financial institutions, regulators, politicians, and media.

I've written over and over how all these groups colluded with one
another -- banks transferred toxic assets to SIVs to get them off
their books; Moody's and S&P and Ambac took fat fees to give
fraudulent AAA ratings; CNBC and WSJ ignored (and are ignoring)
what's going on to keep their advertisers; politicians and regulators
ignored (and are ignoring) what's going on to hide their own
complicity.

There are huge amounts of money (and votes) at stake, and there's no
place for whistleblowers. Any whistleblower would be ignored,
marginalized and screwed.

I'll give a couple of examples.

Eric Dinallo is the NY state regulator who ACTIVELY AND OPENLY was
complicit in the fraud, starting early in 2008.

** Bond insurer 'bailout' appears near crisis point
** http://www.generationaldynamics.com/cgi ... 08#e080208

Also, take a look at this:

** Stories of massive generational fraud and corruption continue to pour out
** http://www.generationaldynamics.com/cgi ... 14#e090414

Read about Steve Eisman, who was a whistleblower, who was simply
ignored.

If there's any collusion going on between Goldman Sachs and the NY
Stock Exchange to manipulate the market, then I don't care how many
people know about it (or, more likely, only have some suspicion).
These Gen-Xers and Boomers will have convinced themselves that by
screwing everyone but themselves they're doing the world a favor.
Anyone who tries to stop them will be mowed down. They're just
"ordinary people," at a time when "ordinary people" are crooks.

John

[freddyv]

So now we have allegations that Goldman Sachs is colluding with the
NYSE to make money by illegally "manipulating markets in unfair
ways."

Do I believe that's possible? You're damn right I do.
John

if it's true, then there are plenty of people who can prove it. it would require non-partner operational participation. so there are people who have been passed over for partner who can definitively prove with direct evidence that GS alone or together with the NYSE manipulates markets. if it's true. there are partners or former partners with a grudge who have first hand knowledge and can definitively prove it. if it's true.

the ego indulgence from breaking this open would be irresistible to at least one of them. it's folly to think that this could be contained. it's just a meme.

What you're missing is the almost complete and total corruption of our nation, right down to the average Joe. The corruption that has taken place has for the most part taken place right out in the open by people like Barney Frank, Christopher Dodd, Hank Paulson and Timothy Geithner. The reason Americans have allowed Hank Paulson to shovel billions to GS while competitors of GS went under was that they had been paid off. They have their government stipends and a TV in every room and video games to keep them amused and distracted so they won't notice that a small group of people are taking over our government and stealing our wealth.

We could see Timothy Geithner or Barack Obama signing a trillion dollar check to GS and as long as they assured us it was in the country's best interests I don't think anyone would care in the least. I truly belive that because it isbasically what we have seen over the past year.

I see this as simply the natural progression of a civilization that has become so wealthy and succesful that is is bound to implode of its own excesses. Our future is likely one of rotting from within and then being eaten alive by outside forces.

It may be that we can rise once again and become a great nation but it certainly seems that all the pieces are in place for our demise as a world power.

--Fred

[burt]

Hello,

Could you please give some examples (and psychological basis) (and schemas used) about collusions used by Gen-X and Boomers.

I'm not so sure that this crisis come from conscient collusions between people, it can come from laxism and the creation of a new God (the "Do-Nothing" God and "the market will save us").

The different governements in the world did NOTHING to control the situation, because they want to be elected, and KILL THE MESSENGER is the rule in democracy (nothing to do, on my knowledge, but perhaps am I wrong, with a generational problem) when you give bad news OR when to try to show the real problem.
(the dictators just followed, because the had interestS in doing so)

This gave all the power to the banks to produce (in the CDO and CDS game) COUNTERFEITS of, let's say, 10'000 Billins $ (could be as large as 1'000'000 Billions, but I hope it isn't). I use the world of "counterfeit", because this is the case (and I can prove it for some of the assets). Most of the bank mangers should be in jail, BUT they used the Bahamas and Interbanks transactions to "clean" their CDOs.
Very clever, Very simple to do, it worked WITHOUT collusion, just "laissez-faire". Crony Capitalism, perhaps, collusion, no.

By the way I know 1 guy within a bank who HAD TO write a false algorithm to explicite the risk of a group of assets (it was not a fund). Funny, no, this is NOT collusion, this is manipulation. It should be easy to find a lot of such examples. They are not really secret.

Regards

[freddyv]

There are huge amounts of money (and votes) at stake, and there's no
place for whistleblowers. Any whistleblower would be ignored,
marginalized and screwed.

I'll give a couple of examples...
John

Here's an example: How long did we have to yell and scream about the false P/E ratio published by almost every major financial news source?..and most are still using their made up valuations. Every weekend Bloomberg TV states that the P/E ratio of the S&P 500 is 14 or 15 no matter what it really is. They also use this same valuation all week long when their anchors refer to the "current market P/E".

NO ONE CARES! I know plenty of investors who don't have a clue what the real P/E ratios are or how they apply to historical valuations. The corruption is total and complete; the vast majority of people only care about what they can get right now.

And if nothing else convinces you that our financial culture is completely corrupt just look at the interview Jon Stewart did with Jim Cramer and then try to explain how this criminal wasn't put in jail, much less forced off the air. NO ONE CARES!

I know people who have gone bankrupt and months later are back on the same path of overspending and why shouldn't they? The powers that be certainly can't chide us for overspending; even those who are eventually going to pay for it (China) won't say anything because they realize how precarious the house of cards is and so they play for time in the hopes that they can prepare themsleves for the new world that will follow.

No one cares, as long as they can get some more cash before the ship goes under.

--Fred

[StilesBC]

burt,

"Free-market capitalism" or "laissez faire" could not have possibly caused these problems. The "crony capitalism" you refer to, by definition, requires government sponsorship of the fraud. A true free market would not have allowed it because nobody acting in their own best interest will expose themselves to fraud. Only a person who believes that, despite implicitly endorsing fraud, they will be protected by government, will their best interest then become aligned with the crony capitalists. Otherwise, they stand to lose all of their investment and would instead choose a safer, moral institution thus eliminating their illegitimate competition. Think of an analogy:

There are two ice cream stands at a park. Stand A sells ice cream for $2 honestly and gains the trust of its customers. Stand B sells ice cream for $1.50 but is known for "shortchanging" customers on both the quality and quantity of ice cream. In a free-market economy it is fairly obvious what will happen to Stand B. They will go out of business and another will replace them, or Stand A will take all of their business.

Now imagine that a 3rd stand sets up in the middle. They require, by force, that both stands pay 10 cents of each sale into an insurance fund. This way, if any customer becomes unhappy with the quality of their service, they can make a claim at this stand. Stand A now loses 10 cents of profit that it would otherwise have and Stand B reaps the rewards of a guarantee funded, in part, by Stand A. The lower cost of the product at Stand B eventually forces Stand A out of business and they continue to rape and pillage their customers.

What is the root cause of situation whereby only poor quality is now possible: Stand A? Stand B? Or the "insurance fund"?

Government institutions like the FDIC, Federal Reserve (quasi-governmental), SEC, OTS and the implicit (now explicit) bailout guarantees by the Treasury Department have guaranteed the bad business practices of major financial institutions. The free-market has absolutely nothing to do with this process.

[aedens]

http://topics.nytimes.com/top/news/busi ... ne=nyt-org

Hedge=? :=)
Example:
Program 1 simulates t=20:-100,000*Max(S20 -x,0) -Lt
Net loan outstanding = Lt = Lt-1*e5%/52+(Nt-Nt-1)St
numPer = 20; length = 1/52.; initPrice = 49; sigma = 0.2;
r = 0.05; mu = 0.15; numoptions = 100; strike 50;
recieved ForCalls = 300 Clear[simulation]
simulation[nn_, length_] :=
simulation[nn, lenght] =
Module[{path, price, hedge, stockposition, priceOfStocks, numStockBought, paid For Stock, debt, numPer},numPer = 20/length; path :=
Module[{}, If[nn !=0 SeedRandom[nn], SeedRandom[]];
Table [Random[NormalDistribution[0, 1], {numPer]];
price=
Foldlist [#*Exp[(mu - sigma ~2/20)*length +
sigma*Sqrt[length]*#2 & , initPrice, path];
hedge =

[John]

Dear Fred,

> There are huge amounts of money (and votes) at stake, and there's
> no place for whistleblowers. Any whistleblower would be ignored,
> marginalized and screwed.

> I'll give a couple of examples...

> Here's an example: How long did we have to yell and scream about
> the false P/E ratio published by almost every major financial
> news source?..and most are still using their made up valuations.
> Every weekend Bloomberg TV states that the P/E ratio of the S&P
> 500 is 14 or 15 no matter what it really is. They also use this
> same valuation all week long when their anchors refer to the
> "current market P/E".

> NO ONE CARES! I know plenty of investors who don't have a clue
> what the real P/E ratios are or how they apply to historical
> valuations. The corruption is total and complete; the vast
> majority of people only care about what they can get right now.

As you're well aware, I totally share your anger and frustation at
the fraud that's going on.

But you make a good point. If you want to show how useless it is to
be a whistleblower, just look at something really simple -- like how
the media treats valuations (P/E ratios). They've been openly lying
about them for several years, and complaining about it is totally
useless.

But actually, I have another example. This morning, I saw the "TARP
Watchdog," Neil M. Barofsky, being interviewed on CNBC. He just put
out a report saying that if you add together all the bailout
programs, it comes to $23.7 trillion.

What I saw this morning was that the CNBC anchors were furious with
this guy. They were accusing him of sinister motives and lying. It
was amazing.

If someone came on who lied through his teeth and said everything was
peachy, they'd love him. Instead, we have an official of the Obama
administration who simply added together the published costs of all
these programs, and he's being treated as a criminal.

This proves two things:

• How REALLY, TRULY PATHETIC the people at CNBC and other financial
  media are.
• How whistleblowers are ignored, marginalized and screwed.

Here's the video:



http://www.cnbc.com/id/32025494/site/14081545

So you're right: NOBODY CARES about what's going on. And if it turns
out that the allegations are true that Goldman Sachs and the New York
Stock Exchange are colluding and illegally manipulating stocks for
their own gain, nobody will ever say anything.

I also have some personal insight on the problem. As you know, I
have a "take no prisoners" approach on my web site, and web site is
regularly read by tens of thousands of people, if I'm to judge from
the web site access logs, though I don't know who the people are.
But I do know that many of the URLs are from colleges and government.
And yet, I've never been able to get any politician to admit that I
exist, and only one academic person is willing to admit that I exist.

So I know from personal experience how people can be ignored and
marginalized unless they strictly follow the party line.

I probably shouldn't mention this, since I'm not supposed to talk
about it yet, but there's a chance that my web site is going to get
some nationwide publicity in the fall. It may be nothing, or it may
be my 15 minutes. We'll see.

John