Financial News

[NorthSideSox72]

As my last comment, I'd like to note that the NYT article gives a strong impression that this is not the case, and also cites a number of sources on this. Here's some selections.

Note, that article answered the question I posed earlier but I missed it...yes, the GS/AIG contracts did have clauses allowing for outside arbitration, but GS refused it.

Read more carefully.

 

First, there was no third party arbitration on payments - those would be established in the contract. The quote specifically talks about 3rd party VALUATION. This is part and parcel of the industry-wide lack of knowledge and conservatism with regards to swaps I mentioned. The bond ratings issue is one of the fuzzy areas I mentioned - whose bond ratings would establish default or junking? If those ratings were tanking, I'd expect GS to do what they did, and AIG to be on the hook for any inability to cover.

 

Second, the fact that GS' valuation of the bonds was on the low side actually shows they were smarter than some other folks, who valued them higher than their risks dictated.

 

Third, their motivation was to make money. Not sure why some professor would have any question about that.

 

Fourth, the dispute between then was not the tip of the iceberg. It was AIG's ridiculous daisy chain swap winding, and to lesser degrees those of many other firms (including GS), that caused the situation.

 

Fifth, I see a general theme here from the writer - he is pointing us towards wanting to not like that GS believed the market was going down. Funny, since you yourself, and many others, saw that coming. If your job was to make money in the markets, isn't that exactly what you would do? How is that bad?

 

 

 

[kapkomet]

Note: It's funny how evil things are even when people are in those areas of expertise say it's not so. We gotta keep blasting those "corporations are evil" lines.

 

Carry on.

 

 

[Balta1701]

Note: It's funny how evil things are even when people are in those areas of expertise say it's not so. We gotta keep blasting those "corporations are evil" lines.

 

Carry on.

Notice how the only people of expertise who count to you as having expertise are the ones who agree with you.

[kapkomet]

Notice how the only people of expertise who count to you as having expertise are the ones who agree with you.

 

 

Say it ain't so! There's no telling you anything, because you already know more about it then people who work in the field every day.

[Rex Kickass]

Girls, you're both pretty.

[Balta1701]

Link

Creative accounting took priority when it came to totting up government debt. Since 1999, the Maastricht rules threaten to slap hefty fines on euro member countries that exceed the budget deficit limit of three percent of gross domestic product. Total government debt mustn't exceed 60 percent.

 

...

Greece's debt managers agreed a huge deal with the savvy bankers of US investment bank Goldman Sachs at the start of 2002. The deal involved so-called cross-currency swaps in which government debt issued in dollars and yen was swapped for euro debt for a certain period -- to be exchanged back into the original currencies at a later date.

 

...

But in the Greek case the US bankers devised a special kind of swap with fictional exchange rates. That enabled Greece to receive a far higher sum than the actual euro market value of 10 billion dollars or yen. In that way Goldman Sachs secretly arranged additional credit of up to $1 billion for the Greeks.

 

This credit disguised as a swap didn't show up in the Greek debt statistics. Eurostat's reporting rules don't comprehensively record transactions involving financial derivatives. "The Maastricht rules can be circumvented quite legally through swaps," says a German derivatives dealer.

 

In previous years, Italy used a similar trick to mask its true debt with the help of a different US bank. In 2002 the Greek deficit amounted to 1.2 percent of GDP. After Eurostat reviewed the data in September 2004, the ratio had to be revised up to 3.7 percent. According to today's records, it stands at 5.2 percent.

 

At some point Greece will have to pay up for its swap transactions, and that will impact its deficit. The bond maturities range between 10 and 15 years. Goldman Sachs charged a hefty commission for the deal and sold the swaps on to a Greek bank in 2005.

[Cknolls]

Expanding unemployment benefits, medicaid relief for states= JOBS BILL. LMAO1 I'm sure paygo will apply....Oh wait that doesn't start until the next Congress....bUT MAN WILL WE SAVE THE JOBS....wHAT A f***TARD HE AND cONGRESS ARE FOR SUGGESTING THIS NONSENSE AND PASSING IT...

[Balta1701]

Expanding unemployment benefits, medicaid relief for states= JOBS BILL. LMAO1 I'm sure paygo will apply....Oh wait that doesn't start until the next Congress....bUT MAN WILL WE SAVE THE JOBS....wHAT A f***TARD HE AND cONGRESS ARE FOR SUGGESTING THIS NONSENSE AND PASSING IT...

Worked great for Herbert Hoover.

[jasonxctf]

Commerce National Bank 2010 Economic Forecast - Highlights

 

Commerce National Bank hosted its fifth annual Economic Forecast featuring Dr. Robert T. Parry, the previous President and Chief Executive Officer of the San Francisco Federal Reserve Bank. Here are the highlights from Dr. Parry's presentation.

 

· The U.S. economy technically ended the "great" recession in July or August of 2009.

 

· The GDP increased by an impressive rate of 5.7% in the 4th quarter of 2009.

 

· Dr. Parry is expecting the U.S. economy to continue to improve at the rate of 2-3% during 2010.

 

· Unemployment will remain stubbornly high through 2010.

 

· Business conditions will continue to improve, but at a much slower rate than we would like to see.

[Cknolls]

Worked great for Herbert Hoover.

 

 

I can wait for the Keynesian answer. More debt more debt. I like how this is not a stimulus bill too!

 

[jasonxctf]

http://www.forexmotion.com/index.php/en/ma...ruta=PSD_US.xml

 

Interesting graph on initial jobless claims.

[Balta1701]

The IMF has published an interesting paper analyzing the financial crisis we've seen. One noteworthy argument is...it was never really believed that hitting the zero bound in interest rates was a legitimate threat, but now we've reached the point where it's not only been hit, ideally we ought to be at -8% or so to dig ourselves out of the ditch we've dug. One way to prevent doing this in the future would be to start with a higher inflation target; if your inflation target is up at 4% instead of 2%, then you've potentially got more breathing room before you hit the zero bound and stimulative fiscal policy is required.

[Balta1701]

The NY Times picked up on the Goldman/Greece link I posted on earlier this week.

 

[Balta1701]

Simon Johnson thinks GS is in deep S***.

We now learn – from Der Spiegel last week and today’s NYT – that Goldman Sachs has not only helped or encouraged some European governments to hide a large part of their debts, but it also endeavored to do so for Greece as recently as last November. These actions are fundamentally destabilizing to the global financial system, as they undermine: the eurozone area; all attempts to bring greater transparency to government accounting; and the most basic principles that underlie well-functioning markets. When the data are all lies, the outcomes are all bad – see the subprime mortgage crisis for further detail.

 

...

Goldman will dismiss this as “business as usual” and, to be sure, a few phone calls around Washington will help ensure that Goldman’s primary supervisor – now the Fed – looks the other way.

 

But the affair is now out of Ben Bernanke’s hands, and quite far from people who are easily swayed by the White House. It goes immediately to the European Commission, which has jurisdiction over eurozone budget issues. Faced with enormous pressure from those eurozone countries now on the hook for saving Greece, the Commission will surely launch a special audit of Goldman and all its European clients.

 

...

The Federal Reserve must cooperate fully with this investigation. Ordinarily, the Fed might be tempted to sit on useful information, but they can now feel themselves in Senator Bob Corker’s crosshairs. Republican Senator Corker is willing to cooperate with Senator Dodd on financial sector reform, opening up the possibility of legislation that will pass the Senate, but he wants the Fed to lose its supervisory powers. If the Fed refuses to help – willingly and fully - the European Commission with bringing Goldman to account, that will just strengthen the hand of Senator Corker and his allies.

 

If the Federal Reserve were an effective supervisor, it would have the political will sufficient to determine that Goldman Sachs has not been acting in accordance with its banking license. But any meaningful action from this direction seems unlikely.

 

Instead, Goldman will probably be blacklisted from working with eurozone governments for the foreseeable future; as was the case with Salomon Brothers 20 years ago, Goldman may be on its way to be banned from some government securities markets altogether. If it is to be allowed back into this arena, it will have to address the inherent conflicts of interest between advising a government on how to put (deceptive levels of) lipstick on a pig and cajoling investors into buying livestock at inflated prices.

 

And the US government, at the highest levels, has to ask a fundamental question: For how long does it wish to be intimately associated with Goldman Sachs and this kind of destabilizing action? What is the priority here - a sustainable recovery and a viable financial system, or one particular set of investment bankers?

[NorthSideSox72]

Simon Johnson thinks GS is in deep S***.

Sketchy s*** indeed, but not for the reasons you might think. What I haven't seen dug into yet in articles on this topic, is the most important point - why did Greece not show these debt obligations on their books properly? Might be Greece's fault, might be Goldman's fault, might be both. The transactions and deals themselves are perfectly legal, albeit risky. The issue is that Greece seems to have "forgotten" to show the full story in their accounting. Finding out who cooked those books, when, and how, is the key to understanding who was at fault here.

 

[Balta1701]

Sketchy s*** indeed, but not for the reasons you might think. What I haven't seen dug into yet in articles on this topic, is the most important point - why did Greece not show these debt obligations on their books properly? Might be Greece's fault, might be Goldman's fault, might be both. The transactions and deals themselves are perfectly legal, albeit risky. The issue is that Greece seems to have "forgotten" to show the full story in their accounting. Finding out who cooked those books, when, and how, is the key to understanding who was at fault here.

The suggestion from both official press reports I've read is that there was a quasi-loophole in the EU rules that allowed Greece to not show these loans on their books if GS structured them in a certain way. Basically, its everyone's fault, Greece wanted to get more into the financial wizardry game, Goldman was happy to enable them in exchange for a very lucrative contract to make sure they didn't break the official rules.

[NorthSideSox72]

The suggestion from both official press reports I've read is that there was a quasi-loophole in the EU rules that allowed Greece to not show these loans on their books if GS structured them in a certain way. Basically, its everyone's fault, Greece wanted to get more into the financial wizardry game, Goldman was happy to enable them in exchange for a very lucrative contract to make sure they didn't break the official rules.

The way to address this sort of thing, is to get away from negative control accounting at the EU level, and give them more affirmative power. In other words, don't just have the EU ask for certain books containing certain finances - which encourages this sort of B.S. to go on. You instead give EU the power to look at each country's FULL books, to look for problems. That would have allowed the EU to actually see what went on here, if they did a decent job of their audits (which is of course not 100% sure to be the case).

 

Think of it this way - the EU is like a holding company with multiple, independently-run business units. If you are an executive at the parent company, which would you rather have reviewed: a "selection" of the books that each unit chooses to send you, or the ability to review the full financial picture? Seems pretty obvious to me.

 

[Balta1701]

Think of it this way - the EU is like a holding company with multiple, independently-run business units. If you are an executive at the parent company, which would you rather have reviewed: a "selection" of the books that each unit chooses to send you, or the ability to review the full financial picture? Seems pretty obvious to me.

Depends on how profitable they appear to be (see: AIGFP).

[NorthSideSox72]

Depends on how profitable they appear to be (see: AIGFP).

For some companies, that's true - at their own peril. Other companies have more conservative approaches, where they assume nothing, and check everything. I prefer to be in the latter category myself.

 

[Balta1701]

I prefer to be in the latter category myself.

Then you'd never make it on Wall Street.

[southsider2k5]

The suggestion from both official press reports I've read is that there was a quasi-loophole in the EU rules that allowed Greece to not show these loans on their books if GS structured them in a certain way. Basically, its everyone's fault, Greece wanted to get more into the financial wizardry game, Goldman was happy to enable them in exchange for a very lucrative contract to make sure they didn't break the official rules.

 

So instead of being the EU's it is Goldman's fault for following laws. Great article.

[NorthSideSox72]

Then you'd never make it on Wall Street.

So many possible responses here.

 

I'll go with... mmmmmkay.

 

[southsider2k5]

So many possible responses here.

 

I'll go with... mmmmmkay.

 

Because obviously you have to be totally evil and greedy to make it in the financial sector. Its great to know that stereotypes can still fly with ease.

[NorthSideSox72]

Because obviously you have to be totally evil and greedy to make it in the financial sector. Its great to know that stereotypes can still fly with ease.

The greedy part I can sort of get, and wouldn't even protest much - though the same applies to most business fields. Evil? Please. Nevermind that most people at most of firms in the financial sector are by nature conservative and very, very careful about accounting. If they weren't, they'd all have a shelf life of about 5 to 10 years. I'm pretty sure most of these guys have been around longer than that.

 

[Balta1701]

The greedy part I can sort of get, and wouldn't even protest much - though the same applies to most business fields. Evil? Please. Nevermind that most people at most of firms in the financial sector are by nature conservative and very, very careful about accounting. If they weren't, they'd all have a shelf life of about 5 to 10 years. I'm pretty sure most of these guys have been around longer than that.

That assumes that things haven't changed in the last 10 years or so.

 

I think the simplest question in response is...if these folks are so careful about accounting, then how did they accidentally miss an $8 trillion housing bubble in the U.S. (and, as is now becoming apparent, have the same thing happen in country after country. Dubai, Greece, Spain, etc.)

 

My explanation is that they didn't miss it...but that we've set up a system that provides strong incentives for short-term gains but no downside for intermediate or long-term losses. Thus, we've incentivized having Wall Street creating bubbles and taking huge profits on the way up, while someone else takes the losses on the way down.