"A crucial change in the way financial derivatives are packaged and sold on Wall Street is enabling traders to bypass new regulations aimed at limiting reckless speculation, enhancing the prospect of another derivatives crisis, warn some market participants."
The Dodd-Frank financial reform law came into effect in 2010 in response to the financial crisis- it required safeguards for investors to cover losses on their derivatives trades. But what if investors found another, risky, way around that? That's what's happening now. Is it time to start the financial Armageddon clock? Cenk Uygur breaks it down.
Greg Smith, the ex-vice president of Goldman Sachs who resigned last spring after publishing a scathing op-ed about his former employers in the New York Times, has a new book out (“Why I Left Goldman Sachs”) and appeared on “60 Minutes” last night to talk to Anderson Cooper about it.
Smith said Goldman, like other firms, started several years ago to use client information to bet with its own money, sometimes against its own clients. Getting an unsophisticated client, he said, became the “golden prize” because the “quickest way to make money on Wall Street is to take the most sophisticated product and try to sell it to the least sophisticated client.”
Greg Smith: So what Wall Street will do is, they will approach one of these philanthropies, or endowments, or teachers' retirement pensions funds, in Alabama, or Virginia, or Oregon, and they'll say to them, "We have this great product that is gonna serve your needs." And it looks very alluring to these investors. But what they don't realize is that up front, they're immediately paying the bank two million dollars or three million dollars because of their lack of sophistication.
Anderson Cooper: So they don't say to the client: the price you're paying for us to execute this trade is a million dollars?"
Greg Smith: That's a huge part of the problem. Not at all.
Anderson Cooper: How can it be that the client doesn't understand what the bank is making?
Greg Smith: These are very complicated derivative securities which takes a Ph.D. in physics or in engineering to understand. And there are pension funds and mutual funds that represent people's 401(k)s and retirement savings that are trading the most complex instruments out there without fully understanding them.
Anderson Cooper: So, did the people you work with want unsophisticated clients?
Greg Smith: Getting an unsophisticated client was the golden prize. The quickest way to make money on Wall Street is to take the most sophisticated product and try to sell it to the least sophisticated client.
Goldman rejects Smith's accusations that the company puts its own interests ahead of its clients and conducted an internal investigation aiming to disprove the charges. Smith really abandoned Goldman because his superiors refused to promote him to managing director and more than double his salary to more than $1 million, the company says. Blankfein this month that he's "not really concerned about the book's revelations."
Smith said he "absolutely" would have left Goldman Sachs told CBNCs even if they had agreed to his promotion and salary increase. With his book completed, Smith doesn't yet know what his next move will be. "I was not doing this in order to get hired at another Wall Street bank."
New York Attorney General Eric Schneiderman filed a civil complaint against JPMorgan Chase for fraud in the selling of mortgage-backed securities. Schneiderman is the co-chairman of a presidential task force formed in January to investigate possible civil and criminal misconduct in the formation and sale of mortgage-backed securities. The allegation is over securities issued by the investment bank Bear Stearns in 2006 and 2007. JPMorgan acquired Bear Stearns in March 2008.
The federal mortgage task force that was formed in January by the Justice Department filed its first complaint against a big bank on Monday, citing a broad pattern of misconduct in the packaging and sale of mortgage securities during the housing boom.
The complaint contends that Bear Stearns and its lending unit EMC Mortgage defrauded investors who purchased mortgage securities packaged by the companies from 2005 through 2007. The firms made material misrepresentations about the quality of the loans in the securities, the lawsuit said, and ignored evidence of broad defects among the loans that they pooled and sold to investors.
Moreover, when Bear Stearns identified problematic loans that it had agreed to purchase from a lender, it was required to make the originator buy them back. But Bear Stearns demanded cash payments from the lenders and kept the money, rather than passing it on to investors, the suit contends.
Always, it's about the money. No criminal charges, again, because the feds wouldn't receive a cash settlement. Yet over 7,000 Occupy Wall Street protesters have been beaten, pepper-sprayed, arrested, and jailed...bankers? Zero. No justice here.
However, this was done in Schneiderman's capacity as the New York Attorney General, not the task force. A lack of confidence in the task force, perhaps?
Joe Ricketts, a billionaire whose family owns the Chicago Cubs, plans to shell out $12 million to support Republican candidates in the next week, with $10 million of that going to ads supporting presidential candidate Mitt Romney. The ads will run nationally, with more targeted spots appearing in the battleground states of Wisconsin, Ohio, Iowa, and Virginia. The move by the 71-year-old Ricketts puts him in the company of other election-year conservative backers like the Koch brothers and Sheldon Adelson, all of whom have been willing to pour millions into their pet causes. Ricketts has also started his own super PAC, the Ending Spending Action Fund.
Uh oh. Facebook’s share price dropped below $20 on Thursday—its lowest price yet—and the company has now lost half its value since its $38 debut on the market in May. Analysts said investors are worried about the social media company’s growth prospects as well as the high-level departures—and the looming deadline of August 16th, when 271 million shares will be available for trading. “The sentiment on this thing is so negative,” said Topeka Capital Markets analyst Victor Anthony. In other bad news for Facebook, the company admitted in company filings on Thursday that it believes there are 83 million illegitimate accounts out of the 955 million registered users.
Proposition 32 would stop unions from engaging in political activity while letting corporations do as much of it as their little hearts desire.
The so-called "Stop Special Interest Money Now Act" is not what it seems. It's really the Special Exemptions Act, intentionally written to create special exemptions for billionaire businessmen, wealthy CEOs, Wall Street investors, and more.
Don't let them gain even more power to write their own set of rules.
Who is pushing for these "Special Exemptions"?
Thomas Siebel, the billionaire founder of Siebel Systems, just dropped $500,000 on the pro-side. That’s pocket lint for Siebel, who is worth $1.8 billion, after he sold his company to Oracle for $5.9 billion in 2005.
Politically, Siebel may own the crown for Best Political Rally Intro Ever with his 2008 flourish for GOP VP candidate Sarah Palin. Or, as he referred to her: “The embodiment of pure, unadulterted good.” Really.
“Sarah Palin represents the best in each and every one of us,” he told the crowd, calling her ”an optimist, thoughtful, energetic, engaging … the embodiment of pure, unadulterated good.”
”Talk about change, my goodness, the world will never be the same,” said Siebel.
But he didn’t stop there.
"Sarah Palin has risen as if from some mythical kingdom of the north. She carries the flag of outrage for the rest of us: the employers who create jobs, the shareholders, the parents, the people who raise children … and the students, the future of America,” he said. ”Sarah Palin carries the flag of outrage for each of us … who cries out, ‘We’re mad as hell, and we’re not going to take it anymore.”
FRONTLINE’s four-hour epic on the global financial crisis — the first two hours of which aired Tuesday evening — goes inside the struggles to rescue and repair a shattered economy, exploring key decisions, missed opportunities and the unprecedented and uneasy partnership between government leaders and titans of finance.
“Money, Power and Wall Street is demanding — this isn’t Finance for Dummies,” Evans writes in the review. “But it’s a compact and thorough lesson.”
In the first hour, FRONTLINE takes you inside the rapid rise of credit default swaps, including the voices of those who created them. With the real estate market booming, bankers successfully tweaked the credit default swap to bundle up and sell home mortgage loans to eager investors. But despite the money flowing into banks’ coffers, credit default swaps also loaded the financial system with lethal risk. And when the housing bubble burst, the credit default swaps — originally designed to stabilize the system — brought the global economy to its knees. Regulators, who had often stood on the sideline and allowed Wall Street to police itself, saw the ugly consequences rapidly unfold before them.
In the second hour, FRONTLINE investigates the largest government bailout in U.S. history, a series of decisions that rewrote the rules of government and fueled a debate that would alter the country’s political landscape. It offers play-by-play accounts of several secret meetings that permanently altered the financial system.
“The program feels fresh and vivid — and takes no prisoners,” writes Evans. “FRONTLINE finds plenty of blame to go around (Goldman Sachs and CEO Lloyd Blankfein take a particular bruising), but is most devastating in its dissection of the chummy collusion between bankers and the government leaders who should have been watch-dogging them.”
You can read the interviews at the heart of Frontline's "Money, Power, and Wall Street" online here.
"Money, Power and Wall Street" continues next Tuesday, May 1st, with an inside look at how the Obama administration, including a divided economic team, has handled the crisis and how the financial world has returned to many of the practices that created the meltdown in the first place.